UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 12)*
PHOENIX FOOTWEAR GROUP, INC. |
(Name of Issuer)
Common Stock |
(Title of Class of Securities)
71903M209 |
(CUSIP Number)
James R. Riedman, President Riedman Corporation c/o Phoenix Footwear Group, Inc. 5937 Darwin Court, Suite 109 Carlsbad, California 92008 (760) 602-9688 |
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
July 21, 2011 |
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. ¨
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.
* | The remainder of this cover page shall be filled out for a reporting persons initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. |
The information required on the remainder of this cover page shall not be deemed to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934 (Act) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
Persons who respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
1. | Name of Reporting Person:
Riedman Corporation |
I.R.S. Identification Nos. of above persons (entities only):
16-0807638 | ||||||
2. | Check the Appropriate Box if a Member of a Group (See Instructions): (a) ¨ (b) ¨
| |||||||
3. | SEC Use Only:
| |||||||
4. | Source of Funds (See Instructions):
N/A | |||||||
5. |
Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): ¨
| |||||||
6. | Citizenship or Place of Organization:
New York | |||||||
Number of Shares Beneficially Owned by Each Reporting Person With |
7. | Sole Voting Power:
432,710 (includes currently exercisable options to purchase 50,000 shares of Common Stock) | ||||||
8. | Shared Voting Power:
6,236,993 (1) | |||||||
9. | Sole Dispositive Power:
432,710 (See Item 7 above) | |||||||
10. | Shared Dispositive Power:
0 | |||||||
11. |
Aggregate Amount Beneficially Owned by Each Reporting Person:
6,669,703 (See Items 7 and 8 above and Fn 1 below) | |||||||
12. |
Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): ¨
| |||||||
13. |
Percent of Class Represented by Amount in Row (11):
58.3% (1)(2) | |||||||
14. |
Type of Reporting Person (See Instructions):
CO |
(1) | Pursuant to the Voting Agreement between the Issuer (defined below), the Reporting Persons (defined below) and the Greenwood Parties (defined below) (further described in Item 4), Riedman Corporation may be deemed to beneficially own (i) 4,456,061 shares (including up to 2,994,011 shares that may be obtained at any time upon the conversion of convertible notes) of common stock of the Issuer that may be deemed to be beneficially owned by the Greenwood Parties (defined below) according to information provided by the Greenwood Parties in their Schedule 13G filed on August 1, 2011, and (ii) 1,780,932 shares of common stock of the Issuer that may be deemed to be beneficially owned by James Riedman. Riedman Corporation expressly disclaims being a member of s Section 13(d)(3) group with any of the Greenwood Parties and expressly disclaims any beneficial ownership of the shares described in the immediately preceding sentence as being beneficially owned by the Greenwood Parties. See Item 5(b) below. |
(2) | Based upon 8,178,362 shares of common stock outstanding, as further described in Item 5(b) below. |
1. | Name of Reporting Person:
James R. Riedman |
I.R.S. Identification Nos. of above persons (entities only):
###-##-#### | ||||||
2. | Check the Appropriate Box if a Member of a Group (See Instructions): (a) ¨ (b) ¨
| |||||||
3. | SEC Use Only:
| |||||||
4. | Source of Funds (See Instructions):
PF | |||||||
5. | Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): ¨
| |||||||
6. | Citizenship or Place of Organization:
U.S. | |||||||
Number of Shares Beneficially Owned by Each Reporting Person With |
7. | Sole Voting Power:
1,039,164 (includes currently exercisable options to purchase 227,564 shares) | ||||||
8. | Shared Voting Power:
5,630,539 (3) | |||||||
9. | Sole Dispositive Power:
1,056,179 | |||||||
10. | Shared Dispositive Power:
1,157,463 | |||||||
11. |
Aggregate Amount Beneficially Owned by Each Reporting Person:
6,669,703 (3) | |||||||
12. |
Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): ¨
| |||||||
13. |
Percent of Class Represented by Amount in Row (11):
58.3% (3)(4) | |||||||
14. |
Type of Reporting Person (See Instructions):
IN |
(3) | Includes (i) 1,174,478 shares beneficially owned by James Riedman (including currently exercisable options to purchase 50,000 shares), and (ii) 4,456,061 shares (including up to 2,994,011 shares that may be obtained at any time upon the conversion of convertible notes) of common stock of the Issuer that may be deemed to be beneficially owned by the Greenwood Parties (defined below) according to information provided by the Greenwood Parties in their Schedule 13G filed on August 1, 2011, which James Riedman may be deemed to beneficially own pursuant to the Voting Agreement between the Issuer (defined below), the Reporting Persons (defined below) and the Greenwood Parties (further described in Item 4). James Riedman expressly disclaims being a member of s Section 13(d)(3) group with any of the Greenwood Parties and expressly disclaims any beneficial ownership of the shares described in the immediately preceding sentence as being beneficially owned by the Greenwood Parties. See Item 5(b) below. |
(4) | Based upon 8,178,362 shares of common stock outstanding, as further described in Item 5(b) below. |
5 | ||||
5 | ||||
7 | ||||
8 | ||||
8 | ||||
9 | ||||
EXHIBIT 99.1 |
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EXHIBIT 99.2 |
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EXHIBIT 99.3 |
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EXHIBIT 99.4 |
Item 1. | Security and Issuer. |
This Schedule 13D (Amendment No. 12) relates to shares of the common stock, par value $.01 per share (Common Stock) of Phoenix Footwear Group, Inc. (the Issuer) and amends and supplements Schedule 13D (Amendment No. 11) filed on December 8, 2010, by James R. Riedman and Riedman Corporation (together, the Reporting Persons). The Issuers principal executive office is located at 5937 Darwin Court, Suite 109, Carlsbad, California 92008.
Item 4. | Purpose of the Transaction. |
Item 4 is hereby amended to add the following description:
On July 21, 2011, the Issuer entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with Greenwood Capital Limited Partnership and Greenwood Investors Limited Partnership (collectively, the Investors). The Investors are affiliates of and managed by Greenwood Investments, Inc. (Greenwood), their sole general partner. Steven Tannenbaum is the President of Greenwood (the Investors, Greenwood and Mr. Tannenbaum are referred to collectively herein as the Greenwood Parties). The Greenwood Parties were existing beneficial owners of in excess of 5% of the issued and outstanding common stock of the Issuer prior to the transaction. The Securities Purchase Agreement provided for the sale of $1,000,000 of subordinated secured 1% convertible promissory notes (the Notes) by the Issuer to the Investors. This summary of the Securities Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Securities Purchase Agreement, which is attached as Exhibit 99.2, and incorporated by reference to this Item 4.
As required under the terms of the transaction, the board of directors approved the Amended and Restated By-Laws of the Issuer, effective as of July 19, 2011, to 1) eliminate the restriction on stockholders ability to act by written consent in lieu of a meeting with less than unanimous consent; 2) permit holders of at least 15% of the outstanding stock eligible to vote at a meeting to call a special meeting of stockholders; and 3) incorporate the reduction of the size of the board of directors from 7 to 4 directors made pursuant to the by-laws in a prior resolution of the board of directors. Previously, the Issuers stockholders were expressly prohibited from acting by written consent, and special meetings were permitted to be called only by the Chairman of the board of directors, or an officer in his absence, or the board of directors.
The Reporting Persons entered into a Voting Agreement on July 21, 2011, with the Issuer and the Greenwood Parties (the Voting Agreement), pursuant to the Securities Purchase Agreement. The Voting Agreement requires the Reporting Persons to vote all of their beneficially owned securities in favor of the election of one person designated by the Greenwood Parties to the Issuers board of directors. It also requires the Greenwood Parties to vote all of their beneficially owned securities in favor of the election of one person designated by the Reporting Persons to serve on the Issuers board of directors. Further, the Voting Agreement requires the Greenwood Parties and the Reporting Persons to vote in favor of proposals to 1) increase the number of authorized shares of the Issuers common stock from time to time to ensure that there will be sufficient shares of common stock available for conversion of all of the Notes at any time; 2) ensure that the size of the board of directors shall be set and remain at four directors until the Issuers annual meeting of stockholders held in 2011 or 2012, on which date the size of the board shall be reduced and set and remain at three (3) directors; 3) amend the Issuers certificate of incorporation so that the stockholders of the Issuers shall have the ability to act by written consent in lieu of a meeting to fullest extent permissible under Section 228 of the Delaware General Corporation Law (the Amendment); and 4) approve the Issuers 2011 Long-Term Incentive Plan. The Greenwood Parties terminate as parties and cease to have any rights under the Voting Agreement at such time as Mr. Tannenbaum and his affiliates beneficially own fewer than ten percent (10%) of the shares of the Issuers common stock outstanding. The Reporting Persons terminate as parties and cease to have any rights under the Voting Agreement at such time as Mr. Riedman and his affiliates beneficially own fewer than ten percent (10%) of the shares of the Issuers common stock outstanding. This summary of the Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the Voting Agreement, which is attached as Exhibit 99.3, and incorporated by reference to this Item 4.
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In addition to the sale of the Notes, and entry into the Voting Agreement the Securities Purchase Agreement also required that the parties enter into an Investors Agreement (the Investors Agreement), which provides among other things, registration rights, protective provisions, participation rights on new security issuances of the Issuer, and a standstill whereby the Reporting Persons and the Greenwood Parties agree not to acquire additional shares of the Issuer without director approval. Under the Investors Agreement the Issuer may not take certain actions without the approval of Greenwood, including but not limited to: increase or decrease its authorized capital stock, or authorize new classes or series of capital stock or securities convertible into common stock; amend its certificate of incorporation or by-laws; enter into a merger or sell all or substantially all of the properties or assets of the Issuer and its subsidiaries; dissolve; declare or pay any dividend; issue or obligate itself to issue any security, other than shares of common stock, except upon certain outstanding obligations; redeem any shares; increase or decrease the authorized size of the Board of Directors, except as expressly contemplated by the Voting Agreement; acquire all or any portion of any business or product line; enter into any material joint ventures, strategic alliances, or major partnerships; incur of any indebtedness outside the ordinary course of business other than under the Issuers existing loan agreement with the Issuers senior lenders, Gibraltar Business Capital, LLC, and Westran Industrial Loan Co. LLC; hire, terminate, or increase the compensation of James R. Riedman and any other person holding the position of chief executive of the Issuer; approve or authorize any transaction or series of related transactions outside the ordinary course of business involving $250,000 or more. This summary of the Investors Agreement does not purport to be complete and is qualified in its entirety by reference to the Investors Agreement, which is attached as Exhibit 99.4, and incorporated by reference to this Item 4.
As a result of entering into the Voting Agreement, the Reporting Persons and the Greenwood Parties may be deemed to be a group within the meaning of Section 13(d)(3) of the Act. The Reporting Persons expressly disclaim group status within the meaning of Section 13(d)(3), and the inclusion of shares of common stock referred to in this Schedule 13D attributable to the Greenwood Parties shall not be deemed to be an admission of group status for purposes of Section 13(d) of the Act or for any other purpose.
The Reporting Persons expressly disclaim beneficial ownership in the shares of common stock referred to in this Schedule 13D attributable to the Greenwood Parties, and the inclusion of such shares in this report shall not be deemed to be an admission of beneficial ownership of such reported shares for purposes of Section 13(d) of the Act or for any other purpose.
According to the Schedule 13G filed August 1, 2011 by the Greenwood Parties, the Greenwood Parties beneficially own 4,456,061 shares of common stock, including rights to acquire up to 2,994,011 shares of common stock upon the conversion of the Notes. The Reporting Persons have not purchased any shares of common stock pursuant to the Voting Agreement. See Items 5 and 6 hereof.
Other than as more fully described below, the Reporting Persons currently:
(a) Have no plans or proposals to acquire additional shares of the Issuers common stock or other securities of the Issuer;
(b) Have no plans for any extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries;
(c) Have no plans or proposals which relate to or would result in a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries;
(d) Have no present plans or proposals to change the number or term of directors or to fill any existing vacancies on the board other than pursuant to the terms of the Voting Agreement;
(e) Have no plans or proposals to make any other material change in the present capitalization or dividend policy of the Issuer other than as contemplated pursuant to the Securities Purchase Agreement;
(f) Have no plans or proposals to make any other material change in the Issuers business or corporate structure other than pursuant to the terms of the Voting Agreement;
(g) Other than the Issuers planned Amendment and, except as may be required under the Investors Agreement, have no plans or proposals to make any changes in the Issuers charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person;
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(h) Other than previously disclosed in Amendment No. 11, filed December 8, 2010, have no plans or proposals to cause a class of securities of the issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association;
(i) Other than previously disclosed in Amendment No. 11, filed December 8, 2010, have no plans or proposals that would result in a class of equity securities of the issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act; and
(j) Except as described above, have no plans or proposals to take any action similar to any of those enumerated above.
Item 5. | Interest in Securities of the Issuer. |
(a) As of April 2, 2011, the Issuer had 8,178,362 shares of Common Stock outstanding according to its Initial Disclosure Statement and Quarterly Report posted on the OTC Disclosure and News Service by the Issuer on May 23, 2011. Riedman Corporation beneficially owns 432,710 shares of Common Stock (which includes the currently exercisable Options to purchase 50,000 shares of Common Stock), representing 5.3% of the issued and outstanding shares of Common Stock.
James R. Riedman beneficially owns 2,213,642 shares of Common Stock (which includes currently exercisable options to purchase 227,564 shares of Common Stock), representing 26.2% of the issued and outstanding shares of Common Stock (and disclaims beneficial ownership of 1,174,478 of the shares owned directly or indirectly through CE Capital, LLC, by his children who reside with him, Riedman Corporation and under the Plan). The Phoenix Footwear Group, Inc. Retirement Savings Plan owns 210,623 shares of Common Stock for the benefit of participants in the Plan, being eligible employees of the Issuer (see (b) following), which includes 17,015 shares allocated to Mr. Riedman.
As a result of the Voting Agreement, the Reporting Persons may each be deemed to have beneficial ownership of shares of common stock held by the Greenwood Parties. Based upon information provided by the Greenwood Parties on their Schedule 13G filed August 1, 2011, the Greenwood Parties beneficially own 4,456,061 shares of common stock, including up to 2,994,011 shares that may be obtained at any time upon the conversion of the Notes, which constitutes approximately 39.9% of the common stock of the Issuer.
The Reporting Persons and the Greenwood Parties may be deemed to be a group within the meaning of Section 13(d) of the Act. The Reporting Persons have elected to make their own joint filing of a Schedule 13D with respect to the transactions described herein. As such, the information with respect to the Greenwood Parties in this Schedule 13D is limited to the information that the Reporting Persons know or have reason to know.
(b) Riedman Corporation has the sole power to vote and sole power to dispose of 432,710 shares of Common Stock, and James R. Riedman has the sole power to vote 1,039,164 shares and sole power to dispose of 1,056,179 shares of Common Stock. Riedman Corporation may be deemed to have shared voting power over an aggregate of 6,236,993 shares of Common Stock as a result of the matters disclosed in Item 4 with respect to the Voting Agreement, of which 4,456,061 shares are owned by the Greenwood Parties and 1,780,932 shares are owned by James Riedman. Riedman Corporation expressly disclaims beneficial ownership of such shares owned by the Greenwood Parties or James Riedman. James Riedman may be deemed to have shared voting power over an aggregate of 4,456,061 shares of Common Stock as a result of the matters disclosed in Item 4 above with respect to the Voting Agreement. James Riedman expressly disclaim beneficial ownership of such shares owned by the Greenwood Parties.
James R. Riedman, as a director of Riedman Corporation shares the power to vote and to dispose of the 432,710 shares beneficially owned by Riedman Corporation. As a member of the Retirement Committee of the Plan he shares the power to vote the 210,623 shares beneficially owned by the Plan, and has sole power to dispose of the 17,015 shares in the Plan which have been allocated to his account. Mr. Riedman disclaims beneficial ownership of all shares of Common Stock over which he shares power to vote and dispose of such shares.
(c) Other than as described in Item 4 above, the Reporting Persons have effected no transactions in the Issuers common stock.
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(d) None.
(e) Not Applicable.
Item 6. | Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. |
The Voting Agreement, the Investors Agreement and the related discussion included in Items 4 Purpose of the Transaction and 5 Interest in Securities of the Issuer above, are incorporated herein by reference.
Item 7. | Material to Be Filed as Exhibits. |
The exhibits filed as part of this Schedule 13D are as follows:
Exhibit No. |
Description | |
99.1 | Joint Filing Agreement | |
99.2 | Securities Purchase Agreement dated as of July 21, 2011, between Phoenix Footwear Group, Inc. and Greenwood Investments, Inc., and Greenwood Capital Limited. | |
99.3 | Voting Agreement dated as of July 21, 2011, between Phoenix Footwear Group, Inc., Steven Tannenbaum Greenwood Investments, Inc., Greenwood Capital Limited Partnership, Greenwood Investors Limited Partnership, James R. Riedman, and Riedman Corporation. | |
99.4 | Investors Agreement dated as of July 21, 2011, between Phoenix Footwear Group, Inc., Greenwood Capital Limited Partnership, Greenwood Investors Limited Partnership, James R. Riedman, and Riedman Corporation. |
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After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Dated: August 1, 2011
RIEDMAN CORPORATION | ||
By: | /s/ James R. Riedman | |
Name: | James R. Riedman | |
Title: | President | |
/s/ James R. Riedman | ||
James R. Riedman |
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Exhibit 99.1
Joint Filing Agreement
The undersigned agree to file jointly with the U.S. Securities and Exchange Commission the Schedule 13D, and all amendments thereto, required by Commission Rules with respect to their ownership of Phoenix Footwear Group, Inc. Common Stock, par value $.01 per share.
Dated: August 1, 2011
RIEDMAN CORPORATION | ||
By: | /s/ James R. Riedman | |
James R. Riedman, President | ||
/s/ James R. Riedman | ||
James R. Riedman |
Exhibit 99.2
Execution Copy
SECURITIES PURCHASE AGREEMENT
DATED AS OF JULY 21, 2011
AMONG
PHOENIX FOOTWEAR GROUP, INC.
GREENWOOD CAPITAL LP
AND
GREENWOOD INVESTORS LP
Execution Copy
TABLE OF CONTENTS
Page | ||||||||||
1. |
Definitions and Interpretation | 2 | ||||||||
1.1 | Definitions | 2 | ||||||||
1.2 | Interpretation | 2 | ||||||||
2. |
Issuance and Sale of Purchased Securities | 2 | ||||||||
2.1 | Issuance and Sale of Purchased Securities | 2 | ||||||||
2.2 | Investor Deliveries at the Closing | 3 | ||||||||
2.3 | Company Deliveries at the Closing | 3 | ||||||||
3. |
Representations and Warranties of the Company | 4 | ||||||||
3.1 | Organization | 4 | ||||||||
3.2 | Capitalization | 5 | ||||||||
3.3 | Authorization; Execution and Enforceability | 6 | ||||||||
3.4 | Validity of Purchased Securities | 6 | ||||||||
3.5 | No Conflicts; Consents and Approvals | 7 | ||||||||
3.6 | Financial Statements | 7 | ||||||||
3.7 | Absence of Certain Changes | 8 | ||||||||
3.8 | Litigation | 8 | ||||||||
3.9 | Intellectual Property Rights | 9 | ||||||||
3.10 | OTC Maintenance Requirements for Common Stock | 9 | ||||||||
3.11 | Tax Matters | 9 | ||||||||
3.12 | Title to Assets; Collateral | 9 | ||||||||
3.13 | Insurance | 10 | ||||||||
3.14 | Permits | 10 | ||||||||
3.15 | Indebtedness and Other Contracts | 11 | ||||||||
3.16 | Solvency | 12 | ||||||||
3.17 | Labor Matters | 12 | ||||||||
3.18 | Material Contracts | 12 | ||||||||
3.19 | Compliance | 13 | ||||||||
3.20 | Transactions with Affiliates | 13 | ||||||||
3.21 | Investment Company | 14 | ||||||||
3.22 | Corrupt Practices | 14 | ||||||||
3.23 | Application of Takeover Protections | 14 | ||||||||
3.24 | Securities Law Compliance | 14 | ||||||||
3.25 | No Brokers | 15 | ||||||||
3.26 | Compliance with ERISA | 15 | ||||||||
3.27 | Accounts Receivable; Customers; Vendors | 15 | ||||||||
3.28 | Inventory | 16 | ||||||||
3.29 | Real Property | 16 | ||||||||
3.30 | Environmental Matters | 17 | ||||||||
3.31 | Security Interests | 18 | ||||||||
3.32 | Quasi-Corporation Requirements | 18 | ||||||||
3.33 | Accuracy and Completeness of Disclosure | 18 |
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Execution Copy
4. | Representations and Warranties of the Investors | 18 | ||||||||
4.1 | Organization, Standing and Power | 18 | ||||||||
4.2 | Authorization; Execution and Enforceability | 18 | ||||||||
4.3 | No Conflict; Consents and Approvals | 19 | ||||||||
4.4 | Purchase Entirely for Own Account | 19 | ||||||||
4.5 | Investment Experience | 19 | ||||||||
4.6 | Disclosure of Information | 19 | ||||||||
4.7 | Restricted Securities | 20 | ||||||||
4.8 | Accredited Investor | 20 | ||||||||
4.9 | Legends | 20 | ||||||||
4.10 | Availability of Funds | 20 | ||||||||
4.11 | No Brokers | 20 | ||||||||
5. | Covenants | 20 | ||||||||
5.1 | Greenwood Designee to Board of Directors | 20 | ||||||||
5.2 | Defense of Certain Actions | 21 | ||||||||
5.3 | Contractual Consents and Governmental Approvals | 21 | ||||||||
5.4 | Use of Proceeds | 21 | ||||||||
5.5 | Noncircumvention; Antilayering | 21 | ||||||||
5.6 | Takeover Statutes | 21 | ||||||||
5.7 | Further Assurances | 21 | ||||||||
5.8 | Registrar | 22 | ||||||||
5.9 | Public Announcements | 22 | ||||||||
5.10 | Fees and Expenses | 22 | ||||||||
5.11 | Amendment to Charter | 22 | ||||||||
6. | Conditions | 23 | ||||||||
6.1 | Conditions to the Companys Obligations | 23 | ||||||||
6.2 | Conditions to the Investors Obligations | 23 | ||||||||
7. | General | 24 | ||||||||
7.1 | Termination | 24 | ||||||||
7.2 | Notice | 25 | ||||||||
7.3 | Complete Agreement; No Third-Party Beneficiaries | 26 | ||||||||
7.4 | Survival | 26 | ||||||||
7.5 | Governing Law | 26 | ||||||||
7.6 | No Assignment | 27 | ||||||||
7.7 | Counterparts | 27 | ||||||||
7.8 | Remedies; Waiver | 27 | ||||||||
7.9 | Severability | 27 | ||||||||
7.10 | Amendment; Waiver | 27 | ||||||||
7.11 | Confidentiality | 27 |
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Execution Copy
Schedule I | Schedule of Investors | |
Exhibit A | Schedule of Defined Terms | |
Exhibit B | Form of Secured 1% Convertible Note | |
Exhibit C | Company Disclosure Schedule | |
Exhibit D | Form of Investors Agreement | |
Exhibit E | Form of Voting Agreement | |
Exhibit F-1 | Form of Security Agreement | |
Exhibit F-2 | Form of IP Security Agreement | |
Exhibit G | Form of Pledge Agreement | |
Exhibit H | Form of Subordination Agreement | |
Exhibit I | Form of Legal Opinion | |
Exhibit J | Form of Amended and Restated Bylaws | |
Exhibit K | Form of Director Indemnification Agreement |
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Execution Copy
PHOENIX FOOTWEAR GROUP, INC.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this Agreement), dated as of July 21, 2011, between PHOENIX FOOTWEAR GROUP, INC. a Delaware corporation (the Company), and GREENWOOD CAPITAL LP and GREENWOOD INVESTORS LP (each an Investor and collectively the Investors).
WHEREAS, the Company and each Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the Securities Act), and Rule 506 of Regulation D (Regulation D) as promulgated by the United States Securities and Exchange Commission (the SEC) under the Securities Act.
WHEREAS, the Company has authorized the issuance of subordinated secured 1% convertible notes due July 30, 2014 in an aggregate amount of up to $1.0 million, in the form attached hereto as Exhibit B (the Notes) which, among other things, will be convertible into shares of the Companys common stock, par value $0.01 per share (the Common Stock) (as issued upon conversion of the Notes, the Underlying Shares), in accordance with the terms of the Notes.
WHEREAS, each Investor wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, Notes in the principal amount set forth opposite such Investors name on the Schedule of Investors (such amount with respect to each Investor, the Investment Amount).
WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Investors Agreement, substantially in the form attached hereto as Exhibit D (the Investors Agreement), pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Investors Agreement); a Voting Agreement, substantially in the form attached hereto as Exhibit E (the Voting Agreement) setting forth certain agreements with regards to the voting of the Companys capital stock; a Security Agreement and an Intellectual Property Security Agreement for filing with the United States Patent and Trademark Office, substantially in the forms attached hereto as Exhibit F-1 (the Security Agreement) and Exhibit F-2 (the IP Security Agreement; the Security Agreement and the IP Security Agreement may be separately and/or collectively referred to herein as the Security Agreement), respectively, pursuant to which the Company has agreed to grant a security interest in and lien on all of the Companys assets for the ratable benefit of the Investors to secure the Companys obligations under the Notes; a Pledge Agreement, substantially in the form attached hereto as Exhibit G (the Pledge Agreement), pursuant to which the Company will pledge the common stock of its wholly owned subsidiary Penobscot Shoe Company, a Maine corporation, as additional collateral to secure the Companys obligations under the Notes, and a Subordination Agreement, substantially in the form attached hereto as Exhibit H (the Subordination Agreement), pursuant to which the Investors agree to subordinate the cash payment obligations with respect to the Notes to certain senior debt obligations of the Company.
Execution Copy
WHEREAS, the Notes and the Underlying Shares are collectively referred to herein as the Purchased Securities.
NOW, THEREFORE, the Company and each Investor hereby agree as follows:
1. Definitions and Interpretation.
1.1 Definitions. The capitalized terms that are defined in Exhibit A are used herein with the meanings set forth therein.
1.2 Interpretation.
(a) Headings. The headings to the Articles, Sections and Subsections of this Agreement or any Exhibit to this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
(b) Usage. In this Agreement, unless the context requires otherwise: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the Exhibits to this Agreement are hereby incorporated into, and shall be deemed to be a part of, this Agreement; (iv) the terms hereunder, hereof, hereto and words of similar import shall be deemed references to this Agreement as a whole and not to any particular section or other provision hereof; (v) the words include, includes and including shall be deemed to be followed by the words without limitation; (vi) a reference to any Article, Section, Subsection or Exhibit shall be deemed to refer to the corresponding Article, Section, Subsection, or Exhibit of this Agreement and (vii) a reference to any Schedule shall be deemed to refer to the corresponding Schedule to the Company Disclosure Schedule, attached hereto as Exhibit C.
2. Issuance and Sale of Purchased Securities.
2.1 Issuance and Sale of Purchased Securities.
(a) Notes. Subject to the satisfaction (or waiver) of the conditions set forth in 6.1 below, the Company agrees to issue and sell to each Investor, and each Investor severally, but not jointly, agrees to purchase from the Company on the Closing Date, a Note representing such Investors Investment Amount.
(b) Closing. The closing (the Closing) of the purchase of the Notes by the Investors shall occur at the offices of Foley Hoag LLP, Seaport West, 155 Seaport Boulevard, Boston, Massachusetts 02210, or by the electronic exchange of signature pages. The date and time of the Closing (the Closing Date) shall be 10:00 a.m., eastern standard time, on the first Business Day on which the conditions to the Closing set forth in 6.1 and 6.2 below have been satisfied or waived (or such other date and time as is mutually agreed to by the Company and each Investor).
(c) Form of Payment. On the Closing Date, (A) each Investor shall pay its Investment Amount to the Company for the Note to be issued and sold to such Investor at the Closing, and (B) the Company shall deliver to each Investor a Note (in such Investors Investment Amount) duly executed on behalf of the Company and registered in the name of such Investor or its designee.
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2.2 Investor Deliveries at the Closing. At the Closing, each Investor shall deliver, or cause to be delivered by Greenwood Investments, Inc. (Greenwood), as collateral agent for the Investors, to the Company:
(a) an amount in same-day funds equal to such Investors Investment Amount by wire transfer to a bank account designated in writing by the Company prior to the Closing;
(b) a duly executed counterpart of the Investors Agreement attached hereto as Exhibit D;
(c) a duly executed counterpart of the Voting Agreement attached hereto as Exhibit E;
(d) a duly executed counterpart of the Security Agreement attached hereto as Exhibit F-1, and a duly executed counterpart of the IP Security Agreement attached hereto as Exhibit F-2;
(e) a duly executed counterpart of the Pledge Agreement attached hereto as Exhibit G; and
(f) a duly executed counterpart of the Subordination Agreement attached hereto as Exhibit H.
2.3 Company Deliveries at the Closing. At the Closing, the Company shall deliver to each Investor:
(a) a Note in the form of Exhibit B attached hereto, in an original principal amount equal to such Investors Investment Amount, registered in such Investors name;
(b) a duly executed counterpart of the Investors Agreement attached hereto as Exhibit D;
(c) a duly executed counterpart of the Voting Agreement attached hereto as Exhibit E, together with counterparts thereto duly executed by all other parties thereto other than the Investors;
(d) a duly executed counterpart of the Security Agreement attached hereto as Exhibit F-1, and a duly executed counterpart of the IP Security Agreement attached hereto as Exhibit F-2;
(e) a duly executed counterpart of the Pledge Agreement attached hereto as Exhibit G;
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(f) a duly executed counterpart of the Subordination Agreement attached hereto as Exhibit H;
(g) a legal opinion, dated the Closing Date, of Woods Oviatt Gilman LLP, substantially to the effect set forth in Exhibit I;
(h) a duly executed counterpart of the Director Indemnification Agreement between the Company and the initial Greenwood Designee (defined below) in the form attached hereto as Exhibit K;
(i) a Compliance Certificate executed by an officer of the Company confirming that each of the conditions set forth in Section 6.2 have been fulfilled;
(j) a certificate of the Secretary or Assistant Secretary of the Company, dated the Closing Date, as to (i) the Certificate of Incorporation of the Company; (ii) the Bylaws of the Company; (iii) the resolutions of the Board of Directors of the Company authorizing the execution and delivery of the Agreement, the Transactions Documents and (iv) the sale of the Purchased Securities;
(k) a certificate of good standing for the Company issued by the Secretary of State of the State of Delaware as of a date that is not more than one (1) Business Days prior to the Closing Date; and
(l) a certificate of good standing for the Company issued by the Secretary of State of the State of California as of a date that is not more than one (1) Business Days prior to the Closing Date.
3. Representations and Warranties of the Company. The Company hereby represents and warrants to each Investor, except in each case as specifically (i) set forth in a Schedule to the Company Disclosure Schedule, a copy of which is attached hereto as Exhibit C, furnished to the Investors specifically identifying the relevant Section hereof, and (ii) with the exception of the representations and warranties in Sections 3.1, 3.2, 3.3, 3.4 and 3.5, as qualified by disclosures in the Companys SEC Reports filed with the SEC since December 31, 2010. These representations and warranties, and the exceptions referenced therein, are current as of the date of this Agreement except to the extent that a representation or warranty specifies that it is made as of an earlier date. Where certain of the representations and warranties below are specifically qualified by disclosures in the Companys SEC Reports, such qualification excludes any disclosure therein that constitutes a risk factor or a forward-looking statement under the heading Forward-Looking Statements in any such SEC Report.
3.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. True and correct copies of the certificate of incorporation and by-laws of the Company, as amended through the date hereof, have been provided to the Investors. The Company has all requisite corporate power and authority to carry on the businesses in which it is engaged (and as described in the SEC Reports) and to own or lease its properties. The Company and each of its Subsidiaries are duly qualified to conduct business as a foreign corporation and are in good standing under the laws of the State of California and other each jurisdiction in which the nature of the businesses of the Company
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and its Subsidiaries or the ownership or leasing of their properties requires such qualification, other than where the failure to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Company Material Adverse Effect. The Company has no Subsidiaries except as set forth on Schedule 3.1 of the Company Disclosure Schedule.
3.2 Capitalization. As of the date hereof:
(a) The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock and 500,000 shares of Preferred Stock. No shares of Preferred Stock are currently outstanding and no series of Preferred Stock has been designated or reserved for issuance. Of the shares of Common Stock currently authorized: (i) 8,178,362 shares are currently outstanding, (ii) 100,000 shares are reserved for issuance upon the exercise of Common Stock purchase warrants, (iv) 418,360 shares are reserved for issuance upon the exercise of Employee Stock Options, (v) no shares are reserved for the issuance of Common Stock upon the settlement of RSU Awards that are currently outstanding, (vi) 60,000 additional RSU Awards are committed to directors of the Company, (vii) 1,928,844 additional shares are, reserved for issuance pursuant to the Employee Stock Incentive Plans in respect of future awards under such plans, and (viii) no other shares are reserved for issuance for any purpose. The Company is not a party to a Rights Plan, or poison pill agreement.
(b) Except as set forth in Schedule 3.2(b), there are no outstanding Convertible Securities. Except as disclosed on Schedule 3.2(b), the issuance of the Purchased Securities as contemplated herein will not cause the number of shares of Common Stock issuable pursuant to any outstanding Convertible Securities to increase as a result of any antidilution provisions relating thereto.
(c) Except as disclosed in Schedule 3.2(c), there are no (i) outstanding options, warrants or other rights exercisable for the purchase of any shares of Capital Stock or Convertible Securities (Stock Purchase Rights), (ii) stock appreciation rights, performance stock awards or other employee incentive awards the value of which is determined by reference to the value of the Common Stock or (iii) other agreements or commitments obligating the Company or any of its Subsidiaries to issue, sell, repurchase, redeem or otherwise acquire any shares of Capital Stock, Convertible Securities, Stock Purchase Rights or any securities of any Subsidiary. Except as set forth in Schedule 3.2(c), the issuance of the Purchased Securities as contemplated herein will not cause the number of shares of Common Stock issuable pursuant to any outstanding Stock Purchase Rights to increase as a result of any antidilution provisions relating thereto.
(d) There are no authorized or outstanding bonds, debentures, notes or other obligations of the Company the holders of which have the right to vote with the holders of Common Stock on any matter. The Company does not have in effect any dividend reinvestment plans or employee stock purchase plans.
(e) All outstanding shares of Capital Stock (including any outstanding Restricted Stock) have been duly authorized and validly issued and are fully-paid and nonassessable and have been offered and issued without violation of any preemptive rights of any Person or any applicable securities laws. All outstanding Stock Purchase Rights have been
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issued without violation of any applicable securities laws, and all shares of Common Stock issued upon exercise thereof will have been, upon such issuance, duly authorized and validly issued without violation of any preemptive rights of any Person and will be fully-paid and nonassessable.
(f) Except as disclosed on Schedule 3.2(f), there are no voting trusts, proxies or other agreements to which the Company or, to the Knowledge of the Company any of its officers or directors, is a party or by which it is bound with respect to the voting of any shares of Capital Stock affecting the voting of any shares of Capital Stock.
(g) Except as disclosed on Schedule 3.2(g), there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act.
(h) Except as disclosed on Schedule 3.2(h), there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries.
3.3 Authorization; Execution and Enforceability. The Company has all requisite corporate power and authority to execute, deliver and perform this Agreement and the each of the other Transaction Agreements and to consummate the Transactions. The execution, delivery and performance of this Agreement and each of the other Transaction Agreements and the consummation of the Transactions, including without limitation, the authorization and issuance of the Purchased Securities and each of the covenants agreed to in the Transaction Documents, has been duly authorized by the Board and no further corporate action on the part of the Company is required in connection therewith, except where stockholder approval is specifically contemplated herein for such action.
(a) This Agreement has been duly executed and delivered by the Company and constitutes, and, upon execution and delivery thereof as contemplated herein, each of the other Transaction Agreements will have been duly executed and delivered by the Company and will constitute, a legal, valid and binding obligation of the Company enforceable against it in accordance with its terms.
3.4 Validity of Purchased Securities. Upon issuance to the Investors as contemplated herein, the Notes issuable to the Investors hereunder will have been duly authorized and validly issued without violation of the preemptive rights of any Person and will be free and clear of any Liens (other than restrictions on transfer imposed by this Agreement, the other Transaction Documents and applicable securities laws), taxes or charges. Upon issuance following conversion of the Notes, the Underlying Shares will be duly authorized and validly issued without violation of the preemptive rights of any Person and will be fully-paid and nonassessable, free and clear of any Liens (other than restrictions on transfer imposed by this Agreement, the other Transaction Documents and applicable securities laws), taxes or charges.
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3.5 No Conflicts; Consents and Approvals.
(a) Except as set forth in Schedule 3.5(a), neither the execution, delivery or performance of this Agreement or any of the other Transaction Agreements by the Company nor the consummation of any of the Transactions will (a) conflict with or violate any provision of the certificate of incorporation or by-laws of the Company or any Organizational Document of any of the Subsidiaries; (b) result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of, create in any party any right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any material Contractual Obligation or any Requirement of Law material to the operation of the Company or any of the Subsidiaries or any of their respective properties and assets; (c) except as contemplated by the terms of the Agreement, result in the imposition of any Lien upon any material properties or assets of the Company or any of the Subsidiaries, which Lien would materially detract from the value or materially interfere with the use of such properties or assets, (d) result in the Company or any Subsidiary being required to redeem, repurchase or otherwise acquire any outstanding equity or debt interests, securities or obligations in the Company or any of the Subsidiaries or any options or other rights exercisable for any of same, or (e) cause the accelerated vesting of any Employee Stock Options, Restricted Stock Awards or RSU Awards.
(b) Except application(s) to each applicable Trading Market for the listing of the Securities for trading thereon in the time and manner required thereby, and the filing of Form D with the SEC and such filings as are required to be made under applicable state securities laws and filing of any amendments to charter documents with the Delaware Secretary of State (collectively, the Company Approvals), neither the Company nor any of the Subsidiaries is required to obtain any consent, authorization or approval of, or make any filing, notification or registration with, any Governmental Authority or any self regulatory organization in order for the Company to execute, deliver and perform this Agreement and each of the other Transaction Agreements and to consummate the Transactions.
(c) Except as set forth in Schedule 3.5(c), no Contractual Consents are required to be obtained under any Contractual Obligation applicable to the Company or any Subsidiary or, to the Knowledge of the Company, any officer, director or employee thereof in connection with the execution, delivery or performance of this Agreement or the other Transaction Agreements or the consummation of any of the Transactions (Company Contractual Consents).
3.6 Financial Statements.
(a) As of their respective dates, the SEC Reports or any amendments thereof, complied in all material respects with the requirements of the Exchange Act applicable to the SEC Reports, and none of the SEC Reports or to the extent such reports were amended, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(b) As of their respective dates, except as set forth therein or in the notes thereto, the financial statements contained in the SEC Reports and the related notes (the Financial Statements) complied as to form in all material respects with all applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.
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The Financial Statements: (i) were prepared in accordance with accounting principles generally accepted in the United States (GAAP), consistently applied during the periods involved (except (1) as may be otherwise indicated in the notes thereto or (2) in the case of unaudited interim statements, to the extent that they may not include footnotes, may be condensed or summary statements or may conform to the SECs rules and instructions for Reports on Form 10-Q), (ii) fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments) and (iii) are in all material respects in accordance with the books of account and records of the Company and its consolidated Subsidiaries (except as may be otherwise noted therein).
3.7 Absence of Certain Changes. Except as set forth in Schedule 3.7, since December 31, 2010, (a) there has not been any Company Material Adverse Effect or any changes, events or developments that would reasonably be expected, individually or in the aggregate, to have a Company Material Adverse Effect, and (b) the Company and the Subsidiaries have conducted their respective businesses only in the ordinary course and in conformity with past practice. Except as disclosed in Schedule 3.7, since December 31, 2010, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold or otherwise disposed of any material asset outside of the ordinary course of business or (iii) made or committed to make capital expenditures, individually or in the aggregate, in excess of $50,000. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing will not, be Insolvent.
3.8 Litigation. Schedule 3.8 lists all pending litigation to which the Company or any of the Subsidiaries is a party (either as a plaintiff or defendant). Except as disclosed on Schedule 3.8 there is no Action or Proceeding to which the Company or any of the Subsidiaries is a party (either as a plaintiff or defendant) pending or, to the Knowledge of the Company, threatened before any Governmental Authority, FINRA or self-regulatory organization (i) that challenges the validity or propriety of any of the Transactions or (ii) if determined adversely to the Company or any Subsidiary would reasonably be expected, individually or in the aggregate, to have a Company Material Adverse Effect. Neither the Company nor any of the Subsidiaries, nor, to the Knowledge of the Company, any of their respective officers, directors or employees, is the subject of any Action or Proceeding involving a claim of material violation or material liability under federal, state or foreign securities or insurance laws or the rules, by-laws, or constitution of FINRA or any self-regulatory organization, or a claim of material breach of fiduciary duty relating to the Company or any of the Subsidiaries or is permanently or temporarily enjoined by any order, judgment or decree of any Governmental Authority, FINRA or self-regulatory organization from engaging in or continuing to conduct any of the businesses of the Company or any Subsidiary. There is not pending or, to the Knowledge of the Company, contemplated, any investigation by any Governmental Authority, FINRA or self-regulatory organization involving the Company or any of the Subsidiaries or any officer, director or employee thereof.
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3.9 Intellectual Property Rights. The Company and the Subsidiaries own or possess, or will be able to obtain on reasonable terms, licenses or sufficient rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights necessary to enable them to conduct their businesses as currently conducted (Intellectual Property). To the Knowledge of the Company neither the Company nor any of the Subsidiaries has infringed the intellectual property rights of third parties, and no third party, is infringing the Intellectual Property. There is no material claim or proceeding pending and, to the Knowledge of the Company, there is no threatened that challenges the right of the Company or any of the Subsidiaries with respect to any of the Intellectual Property.
3.10 OTC Maintenance Requirements for Common Stock. The Common Stock currently trades over-the-counter and is quoted by the Pink Sheets LLC, and the Company has no reason to believe that it will not in the foreseeable future continue to be in compliance with the maintenance requirements for continued trading of the Common Stock over-the-counter and the continued quotation of the Common Stock by the Pink Sheets LLC. Trading in the Common Stock has not been suspended by the SEC. The transactions contemplated by this Agreement and the Transaction Documents will not require shareholder approval under any Trading Market rules.
3.11 Tax Matters. The Company and the Subsidiaries have made or filed all federal, state and foreign income and all other Tax Returns required by any jurisdiction to which they are subject (unless and only to the extent that the Company or any of the Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported Taxes) and have paid all Taxes that are material in amount, shown or determined to be due on such Tax Returns, except those being contested in good faith and have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. To the Knowledge of the Company there are no unpaid Taxes in any material amount claimed to be due by any Taxing Authority, and to the Knowledge of the Company there is no basis for any such claim (unless and only to the extent that the Company or any of the Subsidiaries has set aside on its books providing reasonably adequate for the payment of such amount). Neither the Company nor any Subsidiary has executed a waiver with respect to the statute of limitations relating to the assessment or collection of any Tax. Except as disclosed in Schedule 3.11, none of the Companys, or any of the Subsidiaries, Tax Returns is presently being audited by any Taxing Authority.
3.12 Title to Assets; Collateral.
(a) The Company and the Subsidiaries have good and marketable title in and to all property owned by them and that is material to their businesses, free and clear of all Liens, except for Permitted Liens and Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by them. Any property and facilities held under lease by the Company and the Subsidiaries are held under valid, subsisting and enforceable leases concerning which the Company and the Subsidiaries are in material compliance.
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(b) As of the Closing Date, (A) the Company will own the Collateral free and clear of all liens except Permitted Liens and except the Lien in favor of the Investors under the Security Agreement, and no financing statements in respect of the Collateral except with respect to Permitted Liens will be on file in favor of any Person other than the Investors; (B) when executed and delivered, the Security Agreement will create a valid lien on, and enforceable security interests in favor of and for the ratable benefit of the Investors, in the Collateral, which security interests will secure the repayment of the Notes and the other Obligations purported to be secured thereby; (C) the representations and warranties of the Company in the Security Agreement will be true and correct (if such representations and warranties are not qualified with respect to materiality, in which case such representations will be true and correct in all respects) in all material respects; (D) upon the filing and recording of financing statements in the appropriate jurisdictions, the Lien securing the Notes will have been duly perfected as to the Collateral as to which perfection may be accomplished through the filing of financing statements pursuant to the Uniform Commercial Code (the UCC) or other applicable law in such jurisdictions; and (E) the liens of the Security Agreement shall be prior to any other lien on any of the Collateral, other than liens expressly permitted to be prior pursuant to the Security Agreement.
(c) Subject only to Permitted Liens, when confirmations of the grant of the security interest in Intellectual Property pursuant to the IP Security Agreement are filed in the United States Patent and Trademark Office (the USPTO), the IP Security Agreement shall create a fully perfected lien on, and security interest in, all right, title and interest of the Company thereunder in the Intellectual Property (as defined in the IP Security Agreement), in each case prior and superior in right to any other person (it being understood that subsequent recordings in the USPTO may be necessary to perfect a lien in registered trademarks, trademark applications and patents and patent applications acquired by the Company after the date hereof).
3.13 Insurance. The Company and the Subsidiaries maintain in full force and effect insurance coverage that is customary for comparably situated companies for the business being conducted and properties owned or leased by the Company and the Subsidiaries, and the Company reasonably believes such insurance coverage provides reasonable, prudent and customary coverage against all liabilities, claims and risks against which it is customary for comparably situated companies to insure. To the Knowledge of the Company, neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Company Material Adverse Effect.
3.14 Permits.
(a) The Company and its Subsidiaries hold all Company Permits that are required for the conduct of the businesses of the Company and the Subsidiaries as currently being conducted, each as amended through the date hereof. To the Knowledge of the Company, the respective officers, directors and employees of each of the Company and its Subsidiaries hold all material Company Permits that are required for the conduct of the businesses of the Company and the Subsidiaries as currently being conducted, each as amended through the date hereof, other than such Miscellaneous Permits the absence of which would not reasonably be expected, individually or in the aggregate to have a Company Material Adverse Effect.
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(b) The Regulatory Permits and all Miscellaneous Permits material to the business of the Company are in full force and effect and have not been pledged or otherwise encumbered, assigned, suspended, modified, conditioned, or restricted in any material respect, canceled or revoked, and the Company and each of the Subsidiaries, and, to the Knowledge of the Company, each of their respective officers, directors and employees thereof, have operated, and are operating, in compliance with all terms thereof or any renewals thereof applicable to them, and are in good standing in respect of all such Company Permits. To the Knowledge of the Company, no event has occurred, nor has any notice been received, with respect to any of the Company Permits which allows or results in, or after notice or lapse of time or both would result in, revocation, suspension, or termination, modification, or the imposition of any condition or restriction, thereof or would result in any other material impairment of the rights of the holder of any such Company Permit.
(c) Except as disclosed on Schedule 3.14(c) to the Knowledge of the Company, no Governmental Authority, FINRA or self-regulatory organization has initiated any proceeding, investigation, or examination into the business or operations of the Company or any Subsidiary, or any officer, director or employee thereof, or has instituted any proceeding seeking to revoke, cancel or limit any Company Permit, and neither the Company or any Subsidiary, nor any officer, director or employee thereof has received any notice of any unresolved material violation or exception by any Governmental Authority, FINRA or self-regulatory organization with respect to any report or statement relating to any examination of the Company or any Subsidiary. Without limiting the generality of the foregoing, neither the Company nor any Subsidiary nor, to the Knowledge of the Company, any of their respective officers, directors, or employees or persons performing similar duties has been enjoined, indicted, convicted or made the subject of a disciplinary proceeding, censure, consent decree, cease and desist or administrative order on account of any violation of the Exchange Act, the Commodity Exchange Act, the Investment Company Act of 1940, the Investment Advisers Act of 1940, state securities law or applicable foreign law or regulation.
(d) Except as disclosed on Schedule 3.14(d) neither the Company or any Subsidiary, nor, to the Knowledge of the Company, any officer, director or employee thereof is a party or subject to any agreement, consent, decree or order or other understanding or arrangement with, or any directive of any Government Authority, FINRA or self-regulatory organization which imposes any material restrictions on or otherwise adversely affects in any material way the conduct of any of the business of the Company and its Subsidiaries.
3.15 Indebtedness and Other Contracts. Except as set forth on Schedule 3.15 neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (other than Indebtedness incurred in the ordinary course of business since December 31, 2010 which does not exceed $50,000 individually or $100,000 in the aggregate), or (ii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness.
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3.16 Solvency. Based on the financial condition of the Company as of the Closing (and assuming that the Closing shall have occurred and giving effect to the receipt by the Company of the proceeds from the sale of the Purchased Securities hereunder), (i) the Companys fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Companys existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Companys assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and including the anticipated proceeds of the sale of the Purchased Securities; and (iii) the current cash flow of the Company, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company has no current intention to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).
3.17 Labor Matters. There are no collective bargaining agreements to which the Company or any of the Subsidiaries is a party. The Company and each Subsidiary are in compliance in all material respects with all Requirements of Law respecting employment and employment practices, terms and conditions of employment and wages and hours. No Key Employee has notified the Company or any Subsidiary that such employee intends to leave the Company or any such Subsidiary or otherwise terminate such Key Employees employment with the Company or any such Subsidiary and to the Knowledge of the Company no Key Employee intends to leave the Company or any such Subsidiary or otherwise terminate such Key Employees employment with the Company or any such Subsidiary.
3.18 Material Contracts. Except for (i) this Agreement and the Transaction Agreements, (ii) those agreements set forth in Schedule 3.18, (iii) those agreements disclosed in the SEC Reports (collectively, the Material Contracts) or (iv) which individually or in the aggregate are not material to the Companys or any of its Subsidiaries businesses, as of the date of this Agreement, neither the Company nor any of its Subsidiaries are a party to or bound by:
(a) any trust indenture, mortgage, promissory note, loan agreement or other contract for the borrowing of money, any currency exchange, commodities or other hedging arrangement (other than any such arrangement entered into for bona fide hedging purposes) or any leasing transaction of the type required to be capitalized in accordance with Statement of Financial Accounting Standards No. 13 of the Financing Accounting Standards Board;
(b) any contract for capital expenditures in excess of $50,000 in the aggregate;
(c) any contract limiting the freedom of the Company to engage in any line of business, to acquire any material product or asset from any other Person outside the ordinary course of business, to sell any material product or asset outside the ordinary course of business to, perform any material service outside the ordinary course of business, or to compete with any other Person;
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(d) any contract pursuant to which the Company is a lessor of real property or of any machinery, equipment, motor vehicles, office furniture, fixtures or other personal tangible property involving in the case of any such personal property contract more than $50,000 over the life of the contract;
(e) any material contract with any Person with whom the Company does not deal at arms length;
(f) any contract which provides for the indemnification of any officer, director, employee or agent;
(g) any guarantee of indebtedness of any other Person;
(h) any contract with or commitment to any labor union;
(i) any contract or commitment for or relating to the employment of any officer, employee or consultant of the Company or any other type of contract or understanding with any officer, employee or consultant of the Company that is not immediately terminable (or terminable within thirty (30) days or less in the case of consultants) by the Company without cost or other liability; and
(j) any joint venture or partnership contract or other agreement which has involved, or is reasonably expected to involve, a sharing of profits, expenses or losses with any other party.
3.19 Compliance. Except as described in Schedule 3.19, the Company and the Subsidiaries are not: (i) in violation of any of their respective Organizational Documents, (ii) in default under or in violation of (and, to the Knowledge of the Company, no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or the Subsidiaries under), nor has the Company or the Subsidiaries received notice of a claim that it is in default under or that it is in violation of, any Company Contract to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (iii) in violation of any order of any court, arbitrator or Governmental Authority, or (iv) in violation of any applicable Requirement of Law. The Company and each of its Subsidiaries and the conduct and operation of their respective businesses is and has been in compliance with each Requirement of Law in all material respects, that (a) affects or relates to this Agreement or any of the other Transaction Agreements or any of the Transactions or (b) is applicable to the Company or its Subsidiaries or their respective businesses.
3.20 Transactions with Affiliates. Except as disclosed in Schedule 3.20, or in the SEC Reports, (a) no transactions, or series of related transactions, are currently proposed to which the Company or any of the Subsidiaries would be a party that would be required to be disclosed under Item 404 of Regulation S-K promulgated under the Securities Act, and (b) none of the officers or directors of the Company and, to the Knowledge of the Company, none of the employees of the Company, is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or
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from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements and restricted under any Company plan.
3.21 Investment Company. The Company is not, and after giving effect to the Transactions will not be, an investment company as such term is defined in the Investment Company Act of 1940, as amended.
3.22 Corrupt Practices. Neither the Company nor any Subsidiary, nor to the Knowledge of the Company any director, officer, employee, agent or other Person acting on behalf of the Company or any Subsidiary has, in the course of his or its actions for, or on behalf of the Company or any of the Subsidiaries (i) used any corporate funds for any unlawful contribution gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employees from corporate funds; (iii) violated or is in violation of in any material respect any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
3.23 Application of Takeover Protections. No fair price, moratorium, control share acquisition or other similar anti-takeover statute, including without limitation Section 203 of the Delaware General Corporation Law (each, a Takeover Statute) is applicable to the Transactions, except for such statutes or regulations as to which all necessary action has been taken by the Company and the Board to permit the consummation of the sale of the Purchased Securities and the other Transactions.
3.24 Securities Law Compliance. Assuming the accuracy of the Investors representations and warranties contained in Article IV, the offer, sale and issuance of the Purchased Securities hereunder is in compliance with Section 4(2) of the Securities Act and is exempt from the registration and prospectus delivery requirements of the Securities Act and all applicable state securities laws. Neither the Company nor any agent of the Company has offered the Purchased Securities by any form of general solicitation or general advertising, including any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Except as stated in this Agreement, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Purchased Securities. The Company agrees not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Purchased Securities in a manner that would require the registration under the Securities Act of the offer or sale to the Investors of the Purchased Securities.
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3.25 No Brokers. No broker, investment banker or other Person is entitled to any brokers, finders or other similar fee or commission in connection with the execution and delivery of this Agreement or any of the other Transaction Agreements or the consummation of any of the Transactions based upon arrangements made by or on behalf of the Company, and the Company shall indemnify and hold the Investors harmless against any claim for any such fee or commission based on any such arrangements.
3.26 Compliance with ERISA.
(a) Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any required contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.
(b) The benefit plans not covered under clause (i) above (including profit sharing, deferred compensation, stock option, employee stock purchase, bonus, retirement, health or insurance plans, collectively the Company Benefit Plans) relating to the employees of the Company are duly registered where required by, and are in good standing in all material respects under, all applicable laws. All required employer and employee contributions and premiums under the Company Benefit Plans to the date hereof have been made, the respective fund or funds established under the Company Benefit Plans are funded in accordance with applicable laws, and no past service funding liabilities exist thereunder.
(c) No Company Benefit Plans have any unfunded liabilities, either on a going concern or winding up basis and determined in accordance with all applicable laws and actuarial practices and using actuarial assumptions and methods that are reasonable in the circumstances. No event has occurred and no condition exists with respect to any Company Benefit Plans that has resulted or could reasonably be expected to result in any pension plan having its registration revoked or wound up (in whole or in part) or refused for the purposes of any applicable laws or being placed under the administration of any relevant pension benefits regulatory authority or being required to pay any taxes or penalties (in any material amounts) under any applicable laws.
3.27 Accounts Receivable; Customers; Vendors. The accounts receivable and all other receivables shown on the Financial Statements, and all receivables acquired or generated by the Company or any of its Subsidiaries, are bona fide receivables and represent amounts due with respect to actual arms length transactions entered into in the ordinary course of business and are collectible at their recorded amounts (subject to discounts or allowances allowed by the Company in the ordinary course of business) and are legal, valid and binding obligations of the account obligors. Such reserves have been reflected on the books of the Company in accordance with GAAP and are adequate. With the exception of Permitted Liens, no account has been assigned or pledged to any other Person and no defense or right of setoff in respect of any such account has been asserted by the account obligor.
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3.28 Inventory. The inventories on the Financial Statements are stated at the lower of cost (first-in, first-out method) or market in accordance with GAAP applied on a consistent basis. Subject to reserves for obsolescence as reflected therein, the Inventory is usable or saleable in the ordinary course and is owned by the Company and its Subsidiaries free and clear of any Liens. The Inventory has been reflected on the books of the Company and its Subsidiaries and the Financial Statements in accordance with GAAP and is adequate for the business of the Company and any of its Subsidiaries.
3.29 Real Property.
(a) Set forth on Schedule 3.29 is a complete and accurate list of all of the real property owned by the Company, its Subsidiaries or any of its Affiliates and related to their business (the Owned Real Property) and a complete and accurate list of all of the real property interests leased or subleased by any of the Company, its Subsidiaries or any of its Affiliates and related to their business (the Leased Real Property and, together with the Owned Real Property, the Real Property).
(b) The Real Property, together with any easements appurtenant thereto, includes all of the real property used or held for use in connection with or otherwise required to carry on the business in the manner it has been conducted prior to the date of this Agreement and as proposed to be conducted following the Closing.
(c) Set forth on Schedule 3.29 is a complete and accurate list of all leases or subleases relating to the Leased Real Property and any documents or instruments affecting the rights or obligations of any of the parties thereto (the Leases). Each of the Leases (including any option to purchase contained therein) is legal, valid, binding and enforceable and in full force and effect and is enforceable against the landlord which is party thereto in accordance with its terms, and there exists no material breach, default or event of default (or any event that with notice or lapse of time or both would become a material breach, default or event of default) on the part of any of the Company, its Subsidiaries or any of its Affiliates under any Leases. None of the Company, its Subsidiaries or any of its Affiliates has assigned or sublet its interest under any Lease.
(d) Each facility included in the Real Property (including, all buildings, structures, and improvements) (i) is in good operating condition and repair and is structurally sound and free of material defects, with no material alterations or repairs required thereto under applicable law or insurance company requirements, and (ii) suitable in all respects for its current use, operation and occupancy.
(e) The ownership, occupancy, use and operation of the Real Property has complied and complies with all Laws in all material respects, and does not violate in any material respect any instrument of record or agreement affecting such property.
(f) There are no pending or, to the Knowledge of the Company, threatened appropriation, condemnation, eminent domain or like proceedings relating to the Real Property.
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(g) None of the Real Property has suffered any material damage by fire or other casualty which has not heretofore been repaired and restored in all material respects.
3.30 Environmental Matters. To the Knowledge of the Company:
(a) The Company and its Subsidiaries and their respective properties and assets have at all times been in material compliance with all applicable environmental laws and there are no circumstances which could reasonably be expected to prevent or interfere with compliance in the future. No person including any governmental authority, citizen group, employee or otherwise, has alleged that the Company or any of its Subsidiaries or any of their respective properties or assets are in violation of or subject to liability under any environmental laws.
(b) No notice or claim by any Person alleging potential responsibility, obligations or liability (including potential liability for investigatory costs, cleanup costs, governmental costs, or harm, injuries or damages to any Person, property, natural resources, any fines or penalties) arising out of, based upon, resulting from, or relating to (i) the emission, discharge, disposal, release or threatened release of any hazardous substance or (ii) any alleged requirements or alleged violation relating to, any applicable environmental law has been given or is threatened (A) against any of the Company, its Subsidiaries or any of its Affiliates or (B) against any Person whose liability for such environmental notice or claim may have been retained or assumed by or could reasonably be imputed or attributed by law or otherwise to the Company or any of its Subsidiaries or Affiliates.
(c) Except as set forth on Schedule 3.30, there are no past or present actions, activities, circumstances, conditions, events or incidents arising out of, based upon, resulting from or relating to the operation, ownership or use of any property currently or formerly owned, operated or used by the Company or any of its Subsidiaries (or any current or former Affiliate) or related to their business, including the presence of or the contamination of any property or structure by any hazardous substance from any source or the release, emission, discharge or disposal of any hazardous substance into the environment, that (i) could reasonably be expected to result in the incurrence of costs under environmental laws or (ii) could reasonably be expected to form the basis of any environmental notice or claim against or with respect to any of the Company, its Subsidiaries or any of its Affiliates or against any Person or entity whose liability for any such notice or claim may have been retained or assumed by or could be imputed or attributed by law or otherwise to any of the Company, its Subsidiaries or any of its Affiliates.
(d) There are and have been no underground storage tanks, asbestos or polychlorinated biphenyls (PCBs) located on any property currently or formerly owned, leased or used by the Company or any of its Subsidiaries or related to their business.
(e) There are no locations currently or formerly owned, leased or used by the Company or any of its Subsidiaries or related to the business at which any hazardous substance may have been placed or disposed of or any other site where any hazardous substance generated, transported or disposed of by the Company or any of its Subsidiaries (or any current or former Affiliate) or related to the business (or by any previous owner or operator) may have been released into the environment or could be expected to require remedial or response action.
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(f) Neither the Company nor any of its Subsidiaries is subject to any order, decree, injunction or other arrangement with any governmental entity or any indemnity or other agreement with any third party relating to obligations or liability under any environmental law.
3.31 Security Interests. The Company confirms that the Security Agreement creates in favor of each of the Investors a valid security interest in the Collateral (as defined in the Security Agreement), securing the payment and satisfaction of the obligations (as defined in the Security Agreement), and, upon making all applicable filings, a perfected security interest in the Collateral, subject only to the security interest held by Gibraltar Business Credit, as agent for certain lenders under a Loan and Security Agreement dated November 3, 2010 among it, the lenders and the Company and its Subsidiaries.
3.32 Quasi-Corporation Requirements. The Company does not meet the requirements set forth in Section 2115(a) of the California Corporations Code (the California Code) and is not subject to the provisions of the California Code identified in Section 2115(b) thereof.
3.33 Accuracy and Completeness of Disclosure. Neither this Agreement nor any other document, certificate or instrument delivered to the Investors by or on behalf of the Company or any of its Subsidiaries in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in this Agreement and in such other documents, certificates or instruments not misleading in light of the circumstances under which such statements were made.
4. Representations and Warranties of the Investors. Each Investor hereby individually and not jointly represents and warrants to the Company as follows:
4.1 Organization, Standing and Power. The Investor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. The Investor has the necessary power and authority to execute, deliver and perform this Agreement and each of the other Transaction Agreements to which it is a party.
4.2 Authorization; Execution and Enforceability. The execution, delivery and performance by the Investors of this Agreement and each of the other Transaction Agreements to which it is a party have been duly and validly authorized by all necessary Business Entity action on its part. This Agreement has been duly executed and delivered by the Investor and each other Transaction Agreement to which it is a party, when executed and delivered as contemplated herein, will have been duly executed and delivered by it, and this Agreement constitutes, and each such other Transaction Agreement upon execution and delivery thereof by the Investor will constitute, the legal, valid and binding obligations of the Investor, enforceable against it in accordance with their respective terms.
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4.3 No Conflict; Consents and Approvals.
(a) Neither the execution, delivery or performance by the Investor of this Agreement or any other Transaction Agreement to which the Investor is a party nor the consummation of any of the Transactions will (i) conflict with or violate any provision of any Organizational Document of the Investor or (ii) conflict with or violate, or require any notice, consent or waiver under, any Requirement of Law applicable to the Investor or any of its properties or assets other than a conflict, violation, notice, consent or waiver that is not material.
(b) The Investor is not required to obtain any consent, authorization or approval of, or make any filing or registration with, any Governmental Authority or any self regulatory organization in order for the Investor to execute, deliver and perform this Agreement and the other Transaction Agreements to which it is a party and to consummate the Transactions (Investor Approvals) other than applicable filings with the SEC.
4.4 Purchase Entirely for Own Account. The Purchased Securities to be acquired by the Investor hereunder will be acquired for its own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act. The Investors does not have any agreement or understanding, whether or not legally binding, direct or indirect, with any other Person to sell or otherwise distribute the Purchased Securities to be issued to it hereunder.
4.5 Investment Experience. The Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Purchased Securities to be purchased by it and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby. The Investor understands that the purchase of the Purchased Securities involves substantial risk.
4.6 Disclosure of Information. The Investors has, in connection with its decision to purchase the Purchased Securities to be issued to it, has had access to the SEC Reports and the representations and warranties of the Company contained herein. The Investor is not purchasing the Purchased Securities as a result of any advertisement, article, notice or other communication regarding the Purchased Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. The Investor and its advisors, if any, have been given the opportunity to obtain information and to examine this Agreement and certain other information regarding the Company and to ask questions of, and to receive answers from the Company or Persons acting on the Companys behalf concerning the Purchased Securities, the Company, and terms and conditions of this investment, and to obtain any additional information to verify the accuracy of any information previously furnished. Each Investor understands that such discussions, as well as any written information provided by the Company, were intended to describe the aspects of the Companys business and prospects which the Company believes to be material, but were not necessarily a thorough or exhaustive description, and except as expressly set forth in this Agreement, the Company makes no representation or warranty with respect to the completeness of such information and makes no representation or warranty of any kind with respect to any information provided by any entity other than the Company. Some of such information may include projections as to the future performance of the Company, which projections may not be realized, may be based on assumptions which may not be correct and may be subject to numerous factors beyond the Companys control. The right of the Investor to rely fully upon the representations and warranties of the Company contained in this Agreement
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shall not limited by this Section 4.6 or any right of the Investor to investigate the affairs of the Company or any knowledge of facts determined or determinable by the Investor pursuant to such investigation or right of investigation.
4.7 Restricted Securities. The Investor understands that the Purchased Securities will be characterized as restricted securities under the United States federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. The Investor understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Purchased Securities or the fairness or suitability of the investment in the Purchased Securities.
4.8 Accredited Investor. The Investor is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, under the Securities Act. The Investors principal place of business is located in the jurisdiction set forth on Exhibit B
4.9 Legends. To the extent applicable, each certificate or other document evidencing any of the Purchased Securities shall be endorsed with the legends required by the Investors Agreement, and the Investor covenants that, except to the extent such restrictions are waived by the Company, the Investor shall not transfer the shares represented by any such certificate without complying with restrictions on transfers in the Investors Agreement.
4.10 Availability of Funds. The Investor has sufficient funds on hand or currently drawable under applicable credit facilities or financing commitments to pay the Investment Amount.
4.11 No Brokers. No broker, investment banker or other Person is entitled to any brokers, finders or other similar fee or commission in connection with the execution and delivery of this Agreement or any of the other Transaction Agreements or the consummation of any of the Transactions based upon arrangements made by or on behalf of the Investors, and the Investor shall indemnify and hold the Company harmless against any claim for any such fee or commission based on any such arrangements.
4.12 No Other Representations or Information. In evaluating the suitability of an investment in the Notes, the Investor has not relied upon any representation or information (oral or written) other than as stated in this Agreement. No oral or written representations have been made, or oral or written information furnished, to the Investor or its representatives, if any, in connection with the offering of the Notes.
5. Covenants. The Company and its Subsidiaries and the Investors, as the case may be, agree to the following covenants, unless waived by the Company or the Investors, as applicable, in writing in accordance with Section 7.10.
5.1 Greenwood Designee to Board of Directors. At the Investors request, the Board previously elected Stephanie Pianka to the Board as a designee of Greenwood. Consistent with, and so long as required by the terms of the Voting Agreement the Company will continued to cause one person designated by Greenwood (such designee referred to herein as the Greenwood Designee) to be appointed to the Board.
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5.2 Defense of Certain Actions. The Company and the Investors shall each refrain from taking any action which would render any representation or warranty contained in Section 3 or 4 inaccurate in any material respect as of the Closing Date. Each party shall promptly notify the other of (i) any event or matter that would reasonably be expected to cause any of its representations or warranties to be untrue in any material respect as of the Closing Date or (ii) any action, suit or proceeding that shall be instituted or threatened against such party to restrain, prohibit or otherwise challenge the legality of any of the Transactions.
5.3 Contractual Consents and Governmental Approvals. The Company shall act diligently and reasonably in attempting to obtain before the Closing Date, and the Investors shall reasonably cooperate with the Company in such efforts, any Company Contractual Consents in form and substance reasonably satisfactory to the Investors, provided that neither the Company nor the Investors shall have any obligation to offer or pay any consideration, fees or agreed to changes in terms of Indebtedness in order to obtain any such Company Contractual Consents; and provided, further, that the Company shall not make any agreement or understanding affecting the Company or any of the Subsidiaries, or any of their respective businesses, as a condition for obtaining any such Company Contractual Consents except with the prior written consent of the Investors.
5.4 Use of Proceeds. The net proceeds received by the Company from the issuance of the Purchased Securities shall be used for working capital and general corporate purposes.
5.5 Noncircumvention; Antilayering. The Company shall not, and shall not permit its Subsidiaries, by amendment of its Organizational Documents or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, the Transaction Agreements, the Purchased Securities and will at all times in good faith carry out all of the provisions of this Agreement and the Transaction Agreements, and take all reasonable actions as may be required to protect the rights of the Investors as a holder of the Purchased Securities.
5.6 Takeover Statutes. If any Takeover Statute shall become applicable to the Transactions and the Transaction Agreements, the Company and the members of the Board shall grant such approvals and take such actions as are necessary so that the Transactions and the other transactions contemplated by the Transaction Agreements may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby, subject in each such case, to the extent consistent with the fiduciary duties of the Board under applicable law after consultation with outside counsel.
5.7 Further Assurances. The Company and its Subsidiaries shall execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary or appropriate to carry out the intent and purposes of this Agreement and the Transaction Agreements and to consummate the Transactions.
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5.8 Registrar. The Company shall register the Notes upon records maintained by the Company for that purpose (the Note Register ) in the name of each record Investor thereof from time to time. The Company may deem and treat the registered Investor of this Note as the absolute owner hereof for the purpose of any conversion hereof or any payment of interest hereon, and for all other purposes, absent actual notice to the contrary from such record Investor.
5.9 Public Announcements. The Investors and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the execution and delivery of this Agreement or the other Transaction Agreements or any of the Transactions, and shall not issue any such press release or make any such public statement prior to reaching mutual agreement on the language of such press release or such public statement, except as may otherwise be required by applicable Requirement of Law or stock exchange rule, or rule of any Trading Market where the Companys Securities are quoted in order to maintain current reporting status.
5.10 Fees and Expenses.
(a) Except as otherwise specified in this Section 5.10 or agreed in writing by the parties, all costs and expenses incurred in connection with this Agreement, the Transaction Agreements and the Transactions shall be paid by the party incurring such cost or expense.
(b) At the Closing, the Company shall promptly reimburse the Investors upon presentation of appropriate invoices and documentation therefor for all Reimbursable Expenses incurred, by or on behalf of the Investors or any of Affiliates. Any such Reimbursable Expenses incurred on or prior to the Closing Date may be deducted by the Investors from the Investment Amount due at Closing to satisfy the Companys reimbursement obligation hereunder. For purposes of this Agreement, Reimbursable Expenses shall mean all reasonable out-of-pocket fees and expenses incurred by or on behalf of the Investors (or respective Affiliates) at any time prior to any termination of this Agreement (whether before or after the date hereof or before or after the Closing Date) in connection with their due diligence investigation of the Company, the preparation of this Agreement and the other Transaction Agreements and consummation of the Transactions and related preparations therefor, including all reasonable fees and expenses of counsel, accountants, experts and consultants to the Investors and its respective Affiliates up to a maximum amount of $75,000.
5.11 Amendment to Charter. Within one-hundred eighty (180) days after the Closing Date, the Company shall take such actions as are necessary (including calling a stockholder meeting) to amend the Companys Certificate of Incorporation to provide the Companys stockholders with the ability to act by written consent in lieu of a meeting to fullest extent permissible under Section 228 of the Delaware General Corporation Law.
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6. Conditions.
6.1 Conditions to the Companys Obligations. The obligation of the Company to consummate the Transactions shall be subject to the fulfillment (or waiver by the Company) at or prior to the Closing of each of the following conditions:
(a) No Order. No court or other Governmental Authority having jurisdiction over the Company or any of the Subsidiaries or the Investors shall have instituted, enacted, issued, promulgated, enforced or entered any Requirement of Law (whether temporary, preliminary or permanent) that is then in effect and that (i) has the effect of making illegal or otherwise prohibiting or invalidating consummation of any of the Transactions or any provision of this Agreement or any of the other Transaction Agreements or (ii) seeks to restrain, prohibit or invalidate the consummation of any of the Transactions or to invalidate any provision of this Agreement or any of the other Transaction Agreements.
(b) Performance of Obligations. The Investors shall have performed in all material respects each of their respective covenants and agreements contained in this Agreement required to be performed at or prior to the Closing.
(c) Representations and Warranties. Each of the representations and warranties of the Investors contained in this Agreement that is qualified as to materiality shall be true and correct on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date, which shall be true and correct as of such certain date) and each of the representations and warranties of the Investors that is not so qualified shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date, which shall be true and correct in all material respects as of such certain date).
(d) Contractual Consents. Each Company Contractual Consent, if any, shall have been obtained and shall be in full force and effect
6.2 Conditions to the Investors Obligations. The obligation of each Investor to consummate the Transactions shall be subject to the fulfillment (or waiver by such Investor) at or prior to the Closing of each of the following conditions:
(a) No Order. No court or other Governmental Authority having jurisdiction over the Company or any of the Subsidiaries or the Investors shall have instituted, enacted, issued, promulgated, enforced or entered any Requirement of Law (whether temporary, preliminary or permanent) that is then in effect and that (i) has the effect of making illegal or otherwise prohibiting or invalidating consummation of any of the Transactions or any provision of this Agreement or any of the other Transaction Agreements or results or would result in a Company Material Adverse Effect or (ii) seeks to restrain, prohibit or invalidate the consummation of any of the Transactions or to invalidate any provision of this Agreement or any of the other Transaction Agreements.
(b) Approvals. Each Company Approval, if any, shall have been obtained or made and shall be in full force and effect to the extent that the failure to obtain or make such Company Approval or Investor Approval (i) has the effect of making illegal or otherwise prohibiting or invalidating consummation of any of the Transactions or any provision of this Agreement or any of the other Transaction Agreements or (ii) would reasonably be expected, individually or together with other Company Approvals or Investor Approvals that have not been obtained or made, to have a Company Material Adverse Effect.
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(c) Contractual Consents. Each Company Contractual Consent, if any, shall have been obtained and shall be in full force and effect.
(d) Performance of Obligations. The Company shall have performed in all material respects each of its covenants and agreements contained in this Agreement and required to be performed at or prior to the Closing.
(e) Representations and Warranties. Each of the representations and warranties of the Company contained in this Agreement that is qualified as to materiality shall be true and correct on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date, which shall be true and correct as of such certain date) and each of the representations and warranties of the Company that is not so qualified shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date, which shall be true and correct in all material respects as of such certain date).
(f) Material Adverse Effect. Since the date of this Agreement, with respect to the Company and its Subsidiaries, there shall not have been a Company Material Adverse Effect.
(g) Greenwood Designee. Conditioned and effective as of the Closing, the initial Greenwood Designee to the Board will continue to be a member to the Board and the Company and such Greenwood Designee shall have entered into an Indemnification Agreement in the form of Exhibit K.
(h) Amended and Restated Bylaws. The Company shall have adopted Amended and Restated Bylaws in the form of Exhibit J.
(i) Employment Agreement. The Company shall have amended its present Amended and Restated Employment Agreement with James Riedman, the Companys Chief Executive Officer to provide that such agreement shall terminate no later than December 31, 2012.
7. General.
7.1 Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by mutual written consent of the Investors and the Company;
(b) by any of the Investors if there has been (i) a material breach of any of the representations or warranties of the Company set forth in this Agreement that would give rise to the failure of the condition set forth in Section 6.2(e) or (ii) a material breach of any of the covenants or agreements of the Company set forth in this Agreement or the Transaction Documents, which breach has not been cured within ten (10) Business Days following receipt by the Company of notice of such breach from the Investors; provided that the Investor is not then in material breach of any representation or warranty under this Agreement.
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(c) by the Company if there has been (i) a material breach of any of the representations or warranties by the Investors set forth in this Agreement that would give rise to the failure of the condition set forth in Section 6.1(d) or (ii) a material breach of any of the covenants or agreements of the Investors set forth in this Agreement or the Transaction Documents, which breach has not been cured within ten (10) Business Days following receipt by the Investors of notice of such breach from the Company; provided that the Company is not then in material breach of any representation or warranty under this Agreement.
(d) by any of the Investors or the Company if any permanent order, decree, ruling or other action of a court or other competent authority restraining, enjoining or otherwise preventing the consummation of any of the Transactions shall have become final and non-appealable; or
(e) by any of the Investors or the Company if the Closing shall not have occurred on or before July 31, 2011, unless the failure for the Closing to occur is the result of a material breach of this Agreement by the party seeking to terminate this Agreement.
In the event of termination of this Agreement by any of the Investors or the Company, as provided in this Section 7.1, this Agreement shall forthwith become void and there shall be no liability hereunder on the part of the Investors or the Company, or their respective officers, directors, managers, members or partners, except for Sections 5.9, 5.10 and 7.1 and except that no such termination shall relieve any party of liability for any breach of any other provision of this Agreement occurring prior to such termination.
7.2 Notice. Whenever any notice is required to be given hereunder, such notice shall be deemed given only when such notice is in writing and is delivered by messenger or courier or, if sent by fax, when received. All notices, requests and other communications hereunder shall be delivered by courier or messenger or shall be sent by facsimile to the following addresses:
(i) If to the Investors, at the following address:
Greenwood Investments, Inc.
222 Berkley Street, 17th Floor
Boston, Massachusetts 02116
Attention: Steven Tannenbaum
Fax: (617) 236-4244
E-mail: tannenbaum@greenwoodcap.com
with a copy by fax or messenger or courier to:
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Execution Copy
Foley Hoag LLP
Seaport West
155 Seaport Boulevard
Boston, Massachusetts 02210
Attention: John D. Hancock, Esq.
Fax: (617) 832-7000
E-mail: jhancock@foleyhoag.com
(ii) If to the Company, at the following address:
Phoenix Footwear Group, Inc.
5937 Darwin Court, Suite 109
Carlsbad, California 92008
Attention: James R. Riedman
Facsimile: (760) 602-9684
E-mail: james.riedman@phxg.com
with a copy by fax or messenger or courier to:
Woods Oviatt Gilman LLP
Two State Street
Suite 700
Rochester, New York 14534
Attention: Gordon E. Forth, Esq.
Fax: (585) 987-2801
E-mail: gforth@woodsoviatt.com
or, in the case of any of the foregoing, to such other respective addresses as may be designated by notice given in accordance with this Section 7.2.
7.3 Complete Agreement; No Third-Party Beneficiaries. This Agreement and the other Transaction Agreements constitute the entire agreement among the parties pertaining to the subject matter hereof and supersede all prior agreements and understandings of the parties in connection therewith.
7.4 Survival. The respective representations, warranties, covenants and agreements of the Company and the Investors set forth in this Agreement or any other Transaction Agreement or in any exhibit, schedule, certificate or instrument attached or delivered pursuant hereto or thereto (except covenants and agreements which are expressly required to be performed and are performed in full on or prior to the Closing Date) shall survive the Closing and the consummation of the Transactions, provided that the Companys representations and warranties shall survive until the Notes have been fully converted but in no event less than eighteen (18) months from the Closing Date.
7.5 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of The State of Delaware. Each party agrees that all proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective
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Execution Copy
affiliates, employees or agents) may be commenced in the state and federal courts sitting in Wilmington, Delaware (the Delaware Courts). Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of the Delaware Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any Delaware Court, or that such proceeding has been commenced in an improper or inconvenient forum. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any proceeding arising out of or relating to this Agreement or the transactions contemplated hereby
7.6 No Assignment. Neither this Agreement nor any rights or obligations under it are assignable by any party without the prior written consent of the other parties.
7.7 Counterparts. This Agreement may be executed in one or more counterparts and by different parties in separate counterparts. All such counterparts shall constitute one and the same agreement and shall become effective when one or more counterparts have been signed by each party and delivered to the other parties.
7.8 Remedies; Waiver. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right. Notwithstanding any other provision of this Agreement, it is understood and agreed that remedies at law would be inadequate in the case of any breach of the covenants contained in this Agreement. The Company and the Investors shall be entitled to equitable relief, including the remedy of specific performance, with respect to any breach or attempted breach of such covenants by the other party.
7.9 Severability. Any invalidity, illegality or unenforceability of any provision of this Agreement in any jurisdiction shall not invalidate or render illegal or unenforceable the remaining provisions hereof in such jurisdiction and shall not invalidate or render illegal or unenforceable such provisions in any other jurisdiction. The Company and the Investors shall endeavor in good faith negotiations to replace any invalid, illegal or unenforceable provision with a valid, legal and enforceable provision, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provision.
7.10 Amendment; Waiver. This Agreement may be amended only by agreement in writing of each of the parties. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.
7.11 Confidentiality. The Investors agree to comply with the terms of the Investors Confidentiality Agreement. [the next page is the signature page]
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IN WITNESS WHEREOF, the Company and the Investors have caused this Agreement to be executed by their respective offers thereunto duly authorized all as of the date first written above.
PHOENIX FOOTWEAR GROUP, INC. | ||
By: | /s/ James R. Riedman, CEO | |
James R. Riedman, CEO | ||
GREENWOOD CAPITAL LIMITED PARTNERSHIP | ||
By: | Greenwood Investments, Inc., | |
General Partner | ||
By: | /s/ Steven Tannenbaum, President | |
Steven Tannenbaum, President | ||
GREENWOOD INVESTORS LIMITED PARTNERSHIP | ||
By: | Greenwood Investments, Inc., | |
General Partner | ||
By: | /s/ Steven Tannenbaum, President | |
Steven Tannenbaum, President |
Execution Copy
Exhibit A
Schedule of Defined Terms
to
Securities Purchase Agreement
Action or Proceeding means any suit, action, proceeding (including any compliance, enforcement or disciplinary proceeding), arbitration, formal or informal inquiry, inspection, investigation or formal order of investigation of complaint.
Affiliate has the meaning set forth in Rule 12b-2 under the Exchange Act as in effect as on the date hereof.
Anti-Terrorism Laws means any law of the United States or any state thereof or political subdivision of the foregoing relating to terrorism or money laundering, including the Executive Order and the Patriot Act.
Board means the board of directors of the Company.
Business Day means any day except Saturday, Sunday and any day that is a federal legal holiday or a day on which banking institutions in The Commonwealth of Massachusetts are authorized or required by law or other governmental action to close.
Business Entity means any corporation, partnership, limited liability company, joint venture, association, partnership, business trust or other business entity.
Capital Stock means (A) in the case of a corporation, stock, (B) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of stock, (C) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests, and (D) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Company Contract means any indenture, mortgage, deed of trust, lease, contract, agreement, instrument or other undertaking or legally binding arrangement (whether written or oral) to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties or assets is bound.
Company Material Adverse Effect means a material adverse effect on (i) the ability of the Company to consummate any of the Transactions or to perform any of its obligations under this Agreement or any of the other Transaction Agreements or (ii) the businesses, assets (including licenses, franchises and other intangible assets), liabilities, financial condition or operating income of the Company and its Subsidiaries, taken as a whole, provided, however that
in no event shall any of the following, alone or in combination, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been, a Company Material Adverse Effect: (a) a change in the market price or trading volume of Common Stock (but not any effect, event, development or change underlying such change to the extent that such effect, event, development or change would otherwise constitute a Company Material Adverse Effect); (b) changes in conditions in the U.S. or global economy or capital or financial markets generally, including changes in interest or exchange rates, except to the extent disproportionately affecting the Company; (c) changes in general legal, tax, regulatory, political or business conditions; (d) changes that are the result of factors generally affecting the industry in which the Company and the Subsidiaries operate, except to the extent disproportionately affecting the Company; (e) changes in applicable law or GAAP; (f) acts of war, armed hostilities, sabotage or terrorism, or any escalation or worsening of any such acts of war, armed hostilities, sabotage or terrorism threatened or underway as of the date of this Agreement; or (g) earthquakes, hurricanes, floods, or other natural disasters.
Company Permits means all Regulatory Permits and all Miscellaneous Permits.
Contingent Obligation means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto, other than obligations resulting from the endorsement of negotiable instruments for collection in the ordinary course of business.
Contractual Consent applicable to a specified Person in respect of a specified matter means any consent required to be obtained by such Person from any other Person party to any Contractual Obligation to which such first Person is a party or by which it is bound in order for such matter to occur or exist without resulting in the occurrence of a default or event of default or termination, the creation of any lien, the triggering of any decrease in the rights of such first Person, any increase in the obligations of such first Person or any other consequence adverse to the interests of such first Person, under any provision of such Contractual Obligation.
Contractual Obligation means, as to any Person, any obligation arising out of any indenture, mortgage, deed of trust, contract, agreement, insurance policy, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound (including, without limitation, any debt security issued by such Person).
Convertible Securities means securities or obligations that are convertible into or exchangeable for shares of Capital Stock.
Employee Stock Incentive Plans means the Companys: (i) 2001 Long-Term Incentive Plan, as amended, and (ii) any amendments, replacements or new plans, in each case, approved by the Board or any duly authorized committee thereof, including, without limitation, any employee stock purchase plans;
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Employee Stock Options means any stock options granted pursuant to any Employee Stock Incentive Plan.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.
ERISA Group means the Company and each of its Subsidiaries, as applicable, and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company, or any of their respective Subsidiaries, are treated as a single employer under the Code.
Exchange Act means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
FINRA means the Financial Industry Regulatory Authority.
Governmental Authority means any government or political subdivision or department thereof, any governmental or regulatory body, commission, board, bureau, agency or instrumentality, or any court or arbitrator or alternative dispute resolution body, in each case whether federal, state, local, foreign or supranational.
Indebtedness of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, capital leases in accordance with GAAP) (other than trade payables and accrued liabilities incurred in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vii) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (viii) above.
Insolvent means, with respect to any Person (i) the present fair saleable value of such Persons assets is less than the amount required to pay such Persons total Indebtedness, (ii) such Person is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured or (iii) such Person intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature.
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Key Employees means James Riedman, Gregory Slack and Robb Carter.
Knowledge of the Company means the knowledge of the executive officers of the Company after reasonable investigation or inquiry.
Liens means any security interests, liens, claims, pledges, mortgages, options, rights of first refusal, agreements, limitations on voting rights, charges, easements, servitudes, encumbrances and other restrictions of any nature whatsoever.
The Investors Confidentiality Agreement means the confidentiality letter agreement dated as of [insert] between the Investors and the Company.
Miscellaneous Permits means all licenses, permits, certificates, franchises, ordinances, registrations, qualifications, and other rights, privileges, applications or authorizations filed with, granted or issued by any Governmental Authority other than Regulatory Permits.
Organizational Document means, with respect to the Company or any Subsidiary, any certificate or articles of incorporation, memorandum of association, by-laws, partnership agreement, limited liability agreement, operating agreement, trust agreement or other agreement, instrument or document governing the affairs of the Company or such Subsidiary.
Permitted Indebtedness means (i) Indebtedness in existence on the date hereof, and listed on Schedule 3.15 or permitted to be excluded from Schedule 3.15 pursuant to Schedule 3.15, (ii) Contingent Obligations in existence on the date hereof and listed on Schedule 3.15 or permitted to be excluded from Schedule 3.15 pursuant to Schedule 3.15, and (iii) purchase money Indebtedness incurred in connection with the acquisition, repair, improvement or construction of any property, equipment or other asset of the Company or any of its Subsidiaries.
Permitted Liens means (i) any Liens existing on the date hereof and specifically disclosed in Schedule 3.15; (ii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which the Company maintains adequate reserves; (iii) Liens to secure payment of workers compensation, employment insurance, old age pensions, social security or other like obligations incurred in the ordinary course of business; (iv) Liens incurred in connection with the extension, renewal or refinancing of indebtedness secured by Liens of the type described in clauses (i) through (iii) above, provided that any extension, renewal or replacement Lien shall be limited to the property (together with any accessions thereto and proceeds thereof) encumbered by any such Lien and the amount of such Permitted Lien does not exceed the amount of the lien extended, renewed or refinanced; (v) carriers, warehousemens, mechanics, materialmens, repairmens or other like liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in good faith for which adequate reserves have been established; (vi) pledges and deposits made in the ordinary course of business in compliance with workmens compensation, unemployment insurance and other social security laws or regulations; and (vii) easements, rights-of-way, restrictions and other similar encumbrances on the use of real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Company and the Subsidiaries.
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Plan means at any time an employee pension plan benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under the Code and either (i) is maintained, or contributed to, by any member of the ERISA group for employees of any member of the ERISA group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA group.
Person means any individual, Business Entity, unincorporated association or Governmental Authority.
Regulatory Permits means all licenses, permits, certificates, franchises, ordinances, registrations, qualifications, and other rights, privileges, applications or authorizations filed with, granted or issued by the Securities Exchange Commission, any state securities or blue sky regulatory authority in which the Company maintains offices, FINRA or any self-regulatory organization.
Requirement of Law means any judgment, order (whether temporary, preliminary or permanent), writ, injunction, decree, statute, rule, regulation, notice, law or ordinance and shall also include any rules, regulations and interpretations of any applicable self regulatory organizations including, without limitation, FINRA.
Restricted Stock means any shares of Common Stock issued (i) in the form of a Restricted Stock Award or (ii) upon the exercise of RSUs.
Restricted Stock Award means any award granted under an Employee Stock Incentive Plan consisting of a direct issuance of restricted stock.
RSU means a unit representing a right to purchase Restricted Stock that is subject to an RSU Award.
RSU Award means an award granted under an Employee Stock Incentive Plan in the form of RSUs.
SEC means the Securities and Exchange Commission.
SEC Reports means all reports, schedules, forms, statements and other documents required to be filed by the Company since December 31, 2008 through and including May , 2011, with the SEC pursuant to the reporting requirements of the Exchange Act, including all exhibits included or incorporated by reference therein and financial statements and schedules thereto and documents included or incorporated by reference therein.
Securities Act means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.
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Subsidiary means any Business Entity of which the Company (either alone or through or together with one or more other Subsidiaries) (x) owns, directly or indirectly, more than 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such Business Entity, (y) is a general partner, managing member, trustee or other Person performing similar functions or (z) has control (as defined in Rule 405 under the Securities Act).
Tax Return means any return, report or similar statement (including the attached schedules) required to be filed with respect to any Tax, including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.
Tax means any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, any tax imposed under Subtitle A of the Code and any net income, alternative or add-on minimum tax, gross income, gross receipts, sale, bulk sales, use, real property, personal property, ad valorem, value added, transfer, franchise, profits, license, withholding tax on amounts paid, withholding, payroll, employment, excise severance, stamp, capital stock, occupation, property, environmental or windfall profits tax, premium, custom, duty or other tax or assessment), together with any interest, penalty, addition to tax or additional amount thereto, imposed by any Governmental Authority.
Taxing Authority means any Governmental Authority (domestic or foreign) responsible for the imposition of any Tax.
Trading Market means whichever of the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq Capital Market or such other United States registered national securities exchange on which the Common Stock is listed for trading on the date in question, or if the Common Stock is not listed for trading on a registered national securities exchange, the OTC Bulletin Board or Pink Sheets, provided that at least two dealers registered with the Financial Industry Regulatory Authority (FINRA) provide quotes of the Common Stock through such quotation service.
Transactions means the sale and issuance of the Purchased Securities to the Investors, the execution and delivery of the Transaction Agreements and the consummation by the Company of the transactions contemplated therein.
Transaction Agreements means this Agreement, the Notes, the Company Disclosure Schedule, the Investors Agreement, the Voting Agreement, the Security Agreement, the IP Security Agreement, the Pledge Agreement and the Subordination Agreement.
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Exhibit 99.3
Execution Copy
PHOENIX FOOTWEAR GROUP, INC.
VOTING AGREEMENT
DATED AS OF JULY 21, 2011
Execution Copy
TABLE OF CONTENTS
Page | ||||||||||
1. | Voting Provisions Regarding Board of Directors | 1 | ||||||||
1.1 | Size of the Board | 1 | ||||||||
1.2 | Board Composition | 1 | ||||||||
1.3 | Failure to Designate a Board Member | 2 | ||||||||
1.4 | Removal of Board Members | 2 | ||||||||
1.5 | No Liability for Election of Recommended Director | 3 | ||||||||
2. | Observer Right | 3 | ||||||||
3. | Additional Covenants | 3 | ||||||||
3.1 | Vote to Increase Authorized Common Stock | 3 | ||||||||
3.2 | Vote to Amend the Companys Charter and Bylaws | 3 | ||||||||
3.3 | Vote to Approve the Companys 2011 Long-Term Incentive Plan | 4 | ||||||||
4. | Remedies | 4 | ||||||||
4.1 | Covenants of the Company | 4 | ||||||||
4.2 | Irrevocable Proxy and Power of Attorney | 4 | ||||||||
4.3 | Specific Enforcement | 5 | ||||||||
5. | Term | 5 | ||||||||
6. | Miscellaneous | 5 | ||||||||
6.1 | No Agreement as Director or Officer | 5 | ||||||||
6.2 | Transfers | 5 | ||||||||
6.3 | Governing Law | 6 | ||||||||
6.4 | Counterparts | 6 | ||||||||
6.5 | Titles and Subtitles | 6 | ||||||||
6.6 | Notices | 6 | ||||||||
6.7 | Consent Required to Amend, Terminate or Waive | 7 | ||||||||
6.8 | Delays or Omissions | 7 | ||||||||
6.9 | Severability | 7 | ||||||||
6.10 | Entire Agreement | 8 | ||||||||
6.11 | Legend on Share Certificates | 8 | ||||||||
6.12 | Stock Splits, Stock Dividends, etc. | 8 | ||||||||
6.13 | Manner of Voting | 8 | ||||||||
6.14 | Further Assurances | 8 | ||||||||
6.15 | Aggregation of Stock | 9 |
Schedule A | - | Companys and Stockholders Addresses | ||||||
Exhibit A | - | Adoption Agreement |
i
Execution Copy
VOTING AGREEMENT
THIS VOTING AGREEMENT (this Agreement), dated as of July 21, 2011, among PHOENIX FOOTWEAR GROUP, INC. a Delaware corporation (the Company), Steven Tannenbaum (Mr. Tannenbaum), individually, Greenwood Investments, Inc. (Greenwood), Greenwood Capital LP, and Greenwood Investors LP (the Investors, and together with Mr. Tannenbaum, Greenwood and the Investors, the Greenwood Stockholders), and James R. Riedman (Mr. Riedman), individually , and Riedman Corporation, (the Riedman Stockholders and together with the Greenwood Stockholders, the Stockholders).
WHEREAS, concurrently with the execution of this Agreement, the Company and the Investors are entering into a Securities Purchase Agreement (the Securities Purchase Agreement) providing for the sale and issuance of secured 1% convertible notes due July 30, 2014 in an aggregate amount of up to $1.0 million (the Notes), which, among other things, will be convertible into shares of the Companys Common Stock, in accordance with the terms of the Notes, and in connection with that agreement the parties desire to provide the Stockholders with certain contractual rights with regard to the election of members of the board of directors of the Company (the Board). Capitalized terms used herein but not defined shall have the meaning given to such terms in the Securities Purchase Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Voting Provisions Regarding Board of Directors.
1.1 Size of the Board. Each Stockholder agrees to vote, or cause to be voted, all Shares (as defined below) held by such Stockholder, or over which such Stockholder has voting power or control, from time to time and at all times, in whatever manner as shall be necessary to ensure that the size of the Board shall be set and remain at four (4) directors until the Companys Annual Meeting of stockholders held in 2011 or 2012, on which date the size of the Board shall be reduced and set and remain at three (3) directors. For purposes of this Agreement, the term Shares shall mean and include any securities the holders of which are entitled to vote for members of the Board, including without limitation, all shares of Common Stock, any preferred stock of the Company and any other securities convertible or exchangeable for shares of Common Stock or voting capital stock of the Company, by whatever name called, whether now held or subsequently acquired, however acquired, whether through purchase, gift, stock splits, stock dividends, reclassifications, recapitalizations, similar events or otherwise.
1.2 Board Composition.
(a) Each Riedman Stockholder agrees to vote, or cause to be voted, all Shares held by such Stockholder, or over which such Riedman Stockholder has voting power or control, from time to time and at all times, in whatever manner as shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, one person (the Greenwood Designee) designated by the Greenwood Stockholders shall be elected to the Board, which individual shall initially be Stephanie Pianka. The Greenwood Designee shall be appointed to any and all Committees of the Board designated by the Greenwood Stockholders.
Execution Copy
(b) Each Greenwood Stockholder agrees to vote, or cause to be voted, all Shares held by them, or over which such Stockholder has voting power or control, from time to time and at all times, in whatever manner as shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, one person (the Riedman Designee) designated by the Riedman Stockholders shall be elected to the Board, which individual shall initially be James Riedman. The Riedman Designee shall be appointed to any and all Committees of the Board designated by the Riedman Stockholders, provided, however, that so long as Mr. Riedman serves as an officer of the Corporation the Riedman Designee shall not be entitled to be elected to the Compensation Committee.
1.3 Failure to Designate a Board Member. In the absence of any designation from a Stockholder to designate a director as specified above, the director previously designated by it and then serving shall be reelected if still eligible to serve as provided herein.
1.4 Removal of Board Members. Each Stockholder also agrees to vote, or cause to be voted, all Shares held by such Stockholder, or over which such Stockholder has voting power or control, from time to time and at all times, in whatever manner as shall be necessary to ensure that:
(a) no director elected pursuant to Section 1.2 of this Agreement may be removed from office other than for cause unless (i) such removal is directed or approved by the affirmative vote of the Stockholders for whom that director is a designee or (ii) such Stockholder is no longer so entitled to designate or approve such director;
(b) any vacancies created by the resignation, removal or death of a director elected pursuant to Section 1.2 shall be filled pursuant to the provisions of this Section 1;
(c) upon the request of a Stockholder to remove a director designated by it pursuant to Section 1.2 (or to appoint a new director pursuant to Section 1.2), such incumbent director shall be removed; and
(d) if on any date the size of the Board exceeds the size specified in Section 1.1 for such date, any director or directors selected by Greenwood for removal (other than the Riedman Designee) shall be removed so that the number of directors in office (including the any designee elected pursuant hereto) shall equal the number of directors specified in Section 1.1.
All Stockholders agree to execute any written consents required to perform the obligations of this Agreement, and the Company agrees, at the request of any party entitled to designate a director, to call an annual or special meeting of stockholders for the purpose of electing or removing directors.
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Execution Copy
1.5 No Liability for Election of Recommended Director. No Stockholder, nor any Affiliate of any Stockholder, shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Stockholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement.
2. Observer Right. In the event and at anytime a Stockholder no longer has the ability to designate a member of the Board of Directors or the designee for a Stockholder resigns or is unavailable or unable to attend meetings of the Board of Directors, at the request of the designating Stockholder, the Company shall invite a representative of such Stockholder selected by that Stockholder( each an Observer) to attend all meetings of its Board of Directors (and all committees thereof) in a nonvoting observer capacity and, in this respect, shall give the Observer copies of all notices, minutes, consents and other material that it provides to its directors at the same time provided to the directors; provided, however, that the Company reserves the right to exclude the Observer from access to any material or meeting or portion thereof but only to the extent that (a) the Company believes upon advice of counsel that such exclusion is reasonably necessary to preserve the attorney-client privilege or (b) such material or meeting or portion thereof relates directly to transactions or the relationship between the Company, on the one hand, and Stockholder or any of its Affiliates, on the other hand.
3. Additional Covenants.
3.1 Vote to Increase Authorized Common Stock. Each Stockholder agrees to vote or cause to be voted all Shares held by such Stockholder, or over which such Stockholder has voting power or control, from time to time and at all times, in whatever manner as shall be necessary to increase the number of authorized shares of Common Stock from time to time to ensure that there will be sufficient shares of Common Stock available for conversion of all of the Notes at any time.
3.2 Vote to Amend the Companys Charter and Bylaws. Each Stockholder agrees to vote or cause to be voted all Shares held by such Stockholder, or over which such Stockholder has voting power or control, from time to time and at all times, in whatever manner as shall be necessary to amend the Companys Certificate of Incorporation (the Charter) and Bylaws so that the stockholders of the Company shall have the ability to act by written consent in lieu of a meeting to fullest extent permissible under Section 228 of the Delaware General Corporation Law (DGCL), including without limitation:
(a) deleting from the Charter Section 9(e) of Article SIXTH, which states:
No action required or permitted to be taken at a meeting of stockholders shall be taken by written consent;
(b) deleting from the Bylaws, Section 1.10 which states:
Section 1.10 Consent of Stockholders in Lieu of Meeting. Actions by stockholders may only be taken at a meeting convened at which a quorum is present. No action required or permitted to be taken at a meeting of the stockholders shall be taken by written consent.
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3.3 Vote to Approve the Companys 2011 Long-Term Incentive Plan. Each Stockholder agrees to vote or cause to be voted all Shares held by such Stockholder, or over which such Stockholder has voting power or control, from time to time and at all times, in whatever manner as shall be necessary to adopt the Companys 2011 Long-Term Incentive Plan, substantially in the form of the Companys Amended and Restated 2001 Long-Term Incentive Plan (but with an expiration date that is 10 years from its original expiration date) with any applicable legal updates in the areas of tax and employee benefits as may be made upon consultation with the Companys counsel.
4. Remedies.
4.1 Covenants of the Company. The Company agrees to use its commercially reasonable efforts, within the requirements of applicable law, to ensure that the rights granted under this Agreement are effective and that the parties enjoy the benefits of this Agreement. Such actions include, without limitation, the use of the Companys commercially reasonable efforts to cause the nomination and election of the directors as provided in this Agreement and to solicit proxies therefor in accordance with applicable law.
4.2 Irrevocable Proxy and Power of Attorney. Each Stockholder hereby constitutes and appoints as the proxy of such Stockholder and hereby grants a power of attorney to the President of the Company, with full power of substitution, with respect to election of persons as members of the Board in accordance with Section 1 hereto and votes to increase authorized shares pursuant to Section 3.1, hereof, and hereby authorizes each of them to represent and to vote, if and only if the Stockholder (i) fails to vote or (ii) attempts to vote (whether by proxy, in person or by written consent), in a manner which is inconsistent with the terms of this Agreement, all of such Stockholders Shares in favor of the election or removal of persons as members of the Board determined pursuant to and in accordance with the terms and provisions of Section 1, or the increase of authorized shares in accordance with the terms and provisions of Section 3.1, or the amendment of the Companys Charter or Bylaws in accordance with the terms and provisions of Section 3.2, respectively. Each of the proxy and power of attorney granted pursuant to the immediately preceding sentence is given in consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated by the Securities Purchase Agreement and this Agreement and, as such, each is coupled with an interest and shall be irrevocable unless and until this Agreement terminates or expires pursuant to Section 5 hereof. Each Stockholder hereby revokes any and all previous proxies or powers of attorney with respect to the Shares held by such Stockholder or over which such Stockholder has voting power or control and shall not hereafter, unless and until this Agreement terminates or expires pursuant to Section 5 hereof, purport to grant any other proxy or power of attorney with respect to any of the Shares, deposit any of the Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the Shares, in each case, with respect to any of the matters set forth herein.
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4.3 Specific Enforcement. Each party acknowledges and agrees that a Stockholder will be irreparably damaged in the event any of the provisions of this Agreement are not performed by the other parties in accordance with their specific terms or are otherwise breached by the other parties. Accordingly, it is agreed that each of the Company and the non-breaching Stockholders shall be entitled to an injunction to prevent breaches of this Agreement, and to specific enforcement of this Agreement and its terms and provisions in any action instituted in any court of the United States or any state having subject matter jurisdiction.
5. Term.
(a) This Agreement shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the termination of this Agreement in accordance with Section 6.7 below. The Greenwood Stockholders will terminate as parties hereto and cease to have any rights hereunder at such time as Mr. Tannenbaum and his Affiliates beneficially own (after giving effect to and including shares of Common Stock issued or issuable upon conversion of the Notes or conversion or exchange of other securities of the Company held by the Greenwood Stockholders) fewer than ten percent (10%) of the shares of Common Stock outstanding. The Riedman Stockholders will terminate as party hereto and cease to have any rights hereunder at such time as Mr. Riedman and his Affiliates beneficially own fewer than ten percent (10%) of the shares of Common Stock outstanding.
(b) For purposes of this Agreement, an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity (collectively, a Person) shall be deemed an Affiliate of another Person who, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation, any general partner, managing member, officer or director of such Person or any venture capital or other investment fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
6. Miscellaneous.
6.1 No Agreement as Director or Officer. In no way shall the terms of this agreement be interpreted in a way to cause a violation of Section 160(c) of the Delaware General Corporate Law or to prohibit, limit or restrict Mr. Riedman from exercising his fiduciary duties as an officer or director to the Company.
6.2 Transfers. Each transferee or assignee of Shares subject to this Agreement shall continue to be subject to the terms hereof and, as a condition precedent to any such transfer(s) (and the Companys recognizing such transfer(s)), each such transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Exhibit A. Upon the execution and delivery of an Adoption Agreement by any transferee, such transferee shall be deemed to be a party hereto as if such transferee were the transferor and such transferees signature appeared on the signature pages of this Agreement and shall be deemed to be a Stockholder. A Stockholder shall not make, and the Company shall not permit, the transfer of Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until such transferee (or group) shall have complied with the terms of this Section 6.2. Each certificate representing the Shares subject to this Agreement if issued on or
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after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 6.11. Successors; No Assignment. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the successors of the parties. Neither party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto Any assignment contrary to the provisions of this Section 6.2 shall be null and void. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
6.3 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware. Each party agrees that all proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, employees or agents) may be commenced in the state and federal courts sitting in Wilmington, Delaware (the Delaware Courts). Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of the Delaware Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any Delaware Court, or that such proceeding has been commenced in an improper or inconvenient forum. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If any party shall commence a proceeding to enforce any provisions of this Agreement, then the prevailing party or parties in such proceeding shall be reimbursed by the non-prevailing party or parties for its or their attorneys fees and other costs and expenses incurred in connection with the investigation, preparation and prosecution of such proceeding.
6.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
6.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
6.6 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipients next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All
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communications shall be sent to the respective parties at their address as set forth on Schedule A hereto, or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 6.6. If notice is given to the Company or a Riedman Stockholder, a copy shall also be sent to Woods Oviatt Gilman, LLP, Suite 700, Two State Street, Rochester, New York 14534, Attn: Gordon E. Forth, Esq., Facsimile: (585)-987-2901, E-mail: gforth@woodsoviatt.com, and if notice is given to a Greenwood Stockholder, a copy shall also be given to Foley Hoag LLP, Seaport West, 155 Seaport Boulevard, Boston, Massachusetts 02210, Attn: John D. Hancock, Esq., Facsimile: (617) 832-7000, E-mail: jhancock@foleyhoag.com.
6.7 Consent Required to Amend, Terminate or Waive. This Agreement may be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by (a) the Company; (b) Stockholders holding a majority of the Shares then held by the Riedman Stockholders; and (c) Stockholders holding a majority of the Shares then held by the Greenwood Stockholders. Notwithstanding the foregoing this Agreement may not be amended or terminated and the observance of any term of this Agreement may not be waived with respect to any Stockholder without the written consent of such Stockholder unless such amendment, termination or waiver applies to all Stockholders, in their capacities as Stockholders, as the case may be, in the same fashion
The Company shall give prompt written notice of any amendment, termination or waiver hereunder to any party that did not consent in writing thereto. Any amendment, termination or waiver effected in accordance with this Section 6.7 shall be binding on each party and all of such partys successors and permitted assigns, whether or not any such party, successor or assignee entered into or approved such amendment, termination or waiver. For purposes of this Section 6.7, the requirement of a written instrument may be satisfied in the form of an action by written consent of the Stockholders circulated by the Company and executed by the Stockholder parties specified, whether or not such action by written consent makes explicit reference to the terms of this Agreement.
6.8 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default previously or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party 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 any party, shall be cumulative and not alternative.
6.9 Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
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6.10 Entire Agreement. This Agreement (including the Exhibits hereto) and the other Transaction Agreements (as defined in the Securities Purchase Agreement) constitute the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.
6.11 Legend on Share Certificates. Each certificate representing any Shares issued after the date hereof shall be endorsed by the Company with a legend reading substantially as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT, AS MAY BE AMENDED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT VOTING AGREEMENT, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER AND OWNERSHIP SET FORTH THEREIN, TO THE EXTENT REQUIRED THEREBY.
The Company, by its execution of this Agreement, agrees that it will cause the certificates evidencing the Shares issued after the date hereof to bear the legend required by this Section 6.11, and it shall supply, free of charge, a copy of this Agreement to any holder of a certificate evidencing Shares upon written request from such holder to the Company at its principal office. The parties to this Agreement hereby agree that the failure to cause the certificates evidencing the Shares to bear the legend required by this Section 6.11 and/or the failure of the Company to supply, free of charge, a copy of this Agreement as provided hereunder shall not affect the validity or enforcement of this Agreement.
6.12 Stock Splits, Stock Dividends, etc. In the event of any issuance of Shares of the Companys voting securities hereafter to any of the Stockholders (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), such Shares shall become subject to this Agreement and shall be endorsed with the legend set forth in Subsection 6.11.
6.13 Manner of Voting. The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law. For the avoidance of doubt, voting of the Shares pursuant to the Agreement need not make explicit reference to the terms of this Agreement.
6.14 Further Assurances. At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.
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6.15 Aggregation of Stock. All Shares held or acquired by a Stockholder and/or its Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement, and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Voting Agreement as of the date first written above.
PHOENIX FOOTWEAR GROUP, INC. | ||
By: | /s/ James R. Reidman, CEO |
James R. Riedman, CEO |
[Stockholder Signatures Appear on Separate Page]
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RIEDMAN STOCKHOLDERS | RIEDMAN CORPORATION | |||
By: | /s/ James R. Riedman, President | |||
James R. Riedman, President | ||||
/s/ James R. Riedman | ||||
James R. Riedman | ||||
GREENWOOD STOCKHOLDERS | GREENWOOD CAPITAL LIMITED PARTNERSHIP | |||
By: Greenwood Investments, Inc., | ||||
General Partner | ||||
By: | /s/ Steven Tannenbaum, President | |||
Steven Tannenbaum, President | ||||
GREENWOOD INVESTORS LIMITED PARTNERSHIP | ||||
By: Greenwood Investments, Inc., | ||||
General Partner | ||||
By: | /s/ Steven Tannenbaum, President | |||
Steven Tannenbaum, President | ||||
GREENWOOD INVESTMENTS, INC. | ||||
By: | /s/ Steven Tannenbaum, President | |||
Steven Tannenbaum, President | ||||
/s/ Steven Tannenbaum, President | ||||
Steven Tannenbaum, President |
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Schedule A
Stockholders
Company: | Phoenix Footwear Group, Inc. 5937 Darwin Court, Suite 109 Carlsbad, California 92008 Attention: James R. Riedman Facsimile: (760) 602-9684 E-mail: james.riedman@phxg.com | |||
Greenwood Stockholders: | Greenwood Investments, Inc. | |||
222 Berkley Street, 17th Floor | ||||
Boston, Massachusetts 02116 | ||||
Attention: Steven Tannenbaum | ||||
Fax: (617) 236-4244 | ||||
E-mail: tannenbaum@greenwoodcap.com | ||||
Riedman Stockholders: | James R. Riedman and Riedman Corporation | |||
c/o Phoenix Footwear Group, Inc. | ||||
5937 Darwin Court, Suite 109 Carlsbad, California 92008 Attention: James R. Riedman | ||||
Facsimile: (760) 602-9684 | ||||
E-mail: james.riedman@phxg.com |
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EXHIBIT A
ADOPTION AGREEMENT
This Adoption Agreement (Adoption Agreement) is executed on , 20 , by the undersigned (the Holder) pursuant to the terms of that certain Voting Agreement dated as of April , 2011 (the Agreement), by and among the Company and certain of its Stockholders, as such Agreement may be amended or amended and restated from time to time. Capitalized terms used but not defined in this Adoption Agreement shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Adoption Agreement, the Holder agrees as follows.
1.1 Acknowledgement. Holder acknowledges that Holder is acquiring certain shares of the capital stock of the Company (the Shares) as a transferee of Shares from a party in such partys capacity as a Stockholder bound by the Agreement, and after such transfer, Holder shall be considered a Stockholder for all purposes of the Agreement.
1.2 Agreement. Holder hereby (a) agrees that the Shares, and any other shares of capital stock or securities required by the Agreement to be bound thereby, shall be bound by and subject to the terms of the Agreement and (b) adopts the Agreement with the same force and effect as if Holder were originally a party thereto.
1.3 Notice. Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holders signature hereto.
HOLDER: | ACCEPTED AND AGREED: | |||
By: | PHOENIX FOOTWEAR GROUP, INC. | |||
Name and Title of Signatory | ||||
Address: | By: | |||
Title: | ||||
Facsimile Number: | ||||
E-mail: |
Exhibit 99.4
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PHOENIX FOOTWEAR GROUP, INC.
INVESTOR AGREEMENT
DATED AS OF JULY 21, 2011
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TABLE OF CONTENTS
Page | ||||||||
1. | Definitions |
1 | ||||||
2. | Registration Rights |
3 | ||||||
2.1 | Demand Registration | 3 | ||||||
2.2 | Company Registration | 4 | ||||||
2.3 | Underwriting Requirements | 5 | ||||||
2.4 | Obligations of the Company | 6 | ||||||
2.5 | Furnish Information | 7 | ||||||
2.6 | Expenses of Registration | 7 | ||||||
2.7 | Indemnification | 8 | ||||||
2.8 | Reports Under Exchange Act | 10 | ||||||
2.9 | Limitations on Subsequent Registration Rights | 10 | ||||||
2.10 | Termination of Registration Rights | 11 | ||||||
2.11 | Restrictions on Transfer | 11 | ||||||
3. | Information |
12 | ||||||
3.1 | Delivery of Financial Statements | 12 | ||||||
3.2 | Inspection | 14 | ||||||
3.3 | Termination of Information | 14 | ||||||
3.4 | Confidentiality | 14 | ||||||
4. | Additional Covenants |
15 | ||||||
4.1 | Matters Requiring Investor Approval | 15 | ||||||
4.2 | Matters Requiring Board Approval | 17 | ||||||
4.3 | Board Matters | 17 | ||||||
4.4 | Successor Indemnification | 18 | ||||||
4.5 | Standstill | 18 | ||||||
4.6 | Participation Rights | 19 | ||||||
5. | Miscellaneous |
20 | ||||||
5.1 | Successors and Assigns | 20 | ||||||
5.2 | Governing Law | 20 | ||||||
5.3 | Counterparts | 21 | ||||||
5.4 | Titles and Subtitles | 21 | ||||||
5.5 | Notices | 21 | ||||||
5.6 | Amendments and Waivers | 21 | ||||||
5.7 | Severability | 22 | ||||||
5.8 | Aggregation of Stock | 22 | ||||||
5.9 | Entire Agreement | 22 | ||||||
5.10 | Delays or Omissions | 22 | ||||||
5.11 | Acknowledgment | 22 | ||||||
Schedule A - Schedule of Investors |
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INVESTOR AGREEMENT
THIS INVESTOR AGREEMENT (this Agreement), dated as of July 21, 2011, between PHOENIX FOOTWEAR GROUP, INC. a Delaware corporation (the Company), and GREENWOOD CAPITAL LP and GREENWOOD INVESTORS LP (collectively the Investors) and, for the purposes of Section 4.5 (Standstill), James R. Riedman and Riedman Corporation.
WHEREAS, concurrently with the execution of this Agreement, the Company and the Investors are entering into a Securities Purchase Agreement (the Securities Purchase Agreement) providing for the sale and issuance of secured 1% convertible notes due July 30, 2014 in an aggregate amount of up to $1.0 million (the Notes), which, among other things, will be convertible into shares of the Companys Common Stock, in accordance with the terms of the Notes; and
WHEREAS, it is a condition precedent to the closing of the sale of the Notes, that the parties enter into this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. For purposes of this Agreement:
Affiliate has the meaning set forth in Rule 12b-2 under the Exchange Act as in effect as on the date hereof.
Common Stock means shares of the Companys common stock, par value $0.01 per share.
Damages means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Excluded Registration means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; or (iii) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
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Form S-1 means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
Form S-3 means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.
GAAP means generally accepted accounting principles in the United States.
Greenwood means Greenwood Investments, Inc., Greenwood Capital Limited Partnership and Greenwood Investors Limited Partnership, together with their respective Affiliates.
Holder means the Investors and any Person who acquires and holds Registrable Securities from the Investors and is a permitted assignee of rights under this Agreement and a party to this Agreement.
Initiating Holders means, collectively, Holders who properly initiate a registration request under this Agreement.
IPO means the Companys first public offering of its Common Stock under the Securities Act, after the date hereof, with gross proceeds to the Company of at least $25 million.
Person means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.
Registrable Securities means (i) the Common Stock issuable or issued upon conversion of the Notes; (ii) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors after the date hereof; (iii) any Common Stock held on the date hereof or otherwise acquire by Greenwood, or its Affiliates, and (iv) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Section 5.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Section 2.10 of this Agreement.
Registrable Securities then outstanding means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that, when exercised or converted would result in the issuance of Registrable Securities.
SEC means the Securities and Exchange Commission.
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SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act, or any successor rule.
SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act, or any successor rule.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Selling Expenses means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements paid by the Company as provided in Section 2.6.
Trading Market means whichever of the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq Capital Market or such other United States registered national securities exchange on which the Common Stock is listed for trading on the date in question, or if the Common Stock is not listed for trading on a registered national securities exchange, the OTC Bulletin Board or Pink Sheets, provided that at least two dealers registered with the Financial Industry Regulatory Authority (FINRA) provide quotes of the Common Stock through such quotation service.
Voting Agreement that certain Voting Agreement, dated on or about the date of this Agreement, among Greenwood, the Company and the stockholders of the Company named therein.
2. Registration Rights. The Company covenants and agrees as follows:
2.1 Demand Registration.
(a) Form S-1 Demand. If at any time after the earlier of (i) three (3) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of a majority of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to the Registrable Securities then outstanding, then the Company shall (i) within ten (10) days after the date such request is given, give notice thereof (the Demand Notice) to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within fourteen (14) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.
(b) Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least twenty percent (20%) of the Registrable Securities then outstanding that the Company file a Form S-3
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registration statement with respect to Registrable Securities of such Holders, then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within thirty (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within fourteen (14) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.
(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 2.1 a certificate signed by the Companys chief executive officer stating that in the good faith judgment of the Companys Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing (and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly) for a period of not more than sixty (60) days after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than twice in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such forty-five (45) day period other than Excluded Registrations.
(d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(a), (i) during the period that is sixty (60) days before the Companys good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, provided, that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected two registrations pursuant to Section 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.1(b). A registration shall not be counted as effected for purposes of this Section 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration and elect not to pay the registration expenses therefor, in which case such withdrawn registration statement shall be counted as effected for purposes of this Section 2.1(d).
2.2 Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall,
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subject to the provisions of Section 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section 2.6.
2.3 Underwriting Requirements.
(a) If, pursuant to Section 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Initiating Holders, subject only to the reasonable approval of the Company. In such event, the right of any Holder to include such Holders Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 2.3, if the managing underwriter(s) advise(s) the Initiating Holders and the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities beneficially held by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities beneficially held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.
(b) In connection with any offering involving an underwriting of shares of the Companys capital stock pursuant to Section 2.2, the Company shall not be required to include any of the Holders Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the managing underwriter(s) in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the managing underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities beneficially held by each selling Holder or in such other proportions as
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shall mutually be agreed to by all such selling Holders Notwithstanding the foregoing, in no event shall the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering.
(c) For purposes of Section 2.1, a registration shall not be counted as effected if, as a result of an exercise of the underwriters cutback provisions in Section 2.3(a), fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.
2.4 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and keep such registration statement effective for a period of up to two years from the original effective date (which shall be reduced to one year from the original effective date, upon not less than ten (10) calendar days written notice to the Investors, if at any time on and after the effective date the Investors are not affiliates under Rule 144, and together with any person aggregated for purposes of Schedule 13G, hold fewer than 10% of the Companys outstanding Common Stock), or, if earlier, until the distribution contemplated in the registration statement has been completed;
(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
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(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h) promptly make available for inspection by the selling Holders, any underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Companys officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and
(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.
In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Companys directors may implement a trading program under Rule 10b5-1 of the Exchange Act.
2.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holders Registrable Securities.
2.6 Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $40,000, of one counsel for the selling Holders (Selling Holder Counsel), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the
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withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Section 2.1(a); provided further that if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Section 2.1(a). All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
2.7 Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable to any such Holder for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder expressly for use in connection with such registration.
(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which such Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.7(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Sections 2.7(b) and 2.7(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
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(c) Promptly after receipt by an indemnified party under this Section 2.7 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action.
(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 2.7 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 2.7 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 2.7, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holders liability pursuant to this Section 2.7(d), when combined with the amounts paid or payable by such Holder pursuant to Section 2.7(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.
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(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.7 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2.7, and otherwise shall survive the termination of this Agreement.
2.8 Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:
(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144;
(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements);
(c) furnish to any Holder, so long as the Holder beneficially holds any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form); and
(d) furnish to any Holder and any prospective purchaser, so long as the Holder beneficially holds any Registrable Securities, forthwith upon request, the information and undertakings required to enable the Holder or any prospective purchaser to avail itself of SEC Rule 144A (or any successor rule or other rule permitting sales to institutional buyers without registration), including those specified by Rule 144A(d)(4)(i).
2.9 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder
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or prospective holder of any securities of the Company that would provide to such holder the right to include securities in any registration on other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Section 5.1.
2.10 Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 2.1 or Section 2.2 shall terminate upon the earlier to occur of: (i) such time as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holders shares without limitation during a three-month period without registration; and (ii) the fifth anniversary of the IPO.
2.11 Restrictions on Transfer.
(a) The Notes and the Registrable Securities shall not be sold, pledged, or otherwise transferred by the Investors, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Investor will cause any proposed purchaser, pledgee, or transferee of the Notes and the Registrable Securities held by such Investor to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.
(b) Each certificate or instrument representing (i) the Notes (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of this Section 2.11) be stamped or otherwise imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN INVESTORS RIGHT AGREEMENT BETWEEN THE COMPANY AND THE HOLDER HEREOF, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
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The Investors consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 2.11.
Upon registration for resale of any Registrable Securities pursuant to this Agreement or upon Rule 144 under the 1933 Act becoming available, the Company shall promptly cause certificates evidencing such Registrable Securities previously issued to be replaced with certificates which do not bear such restrictive legends, and all such Registrable Securities subsequently issued shall not bear such restrictive legends and the Investor will certify to the Company that it will thereafter sell the Common Stock evidenced by such unlegended certificates only pursuant to the Prospectus (as defined in the Investor Agreement) as permitted under this Agreement or pursuant to Rule 144.
(c) The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the holder thereof shall give notice to the Company of such Holders intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such holders expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a no action letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the holder to the Company. Each certificate or instrument evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 2.11(b), except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.
3. Information.
3.1 Delivery of Financial Statements. The Company shall deliver to each Investor:
(a) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, all such financial statements audited and certified by independent public accountants of regionally recognized standing selected by the Company;
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(b) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(c) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Investors to calculate their respective percentage equity ownership in the Company, and certified by the chief financial officer or chief executive officer of the Company as being true, complete, and correct;
(d) as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet as of the end of such month, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(e) as soon as practicable, but in any event at least thirty (30) days before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the Budget), approved by the Board of Directors; and
(f) such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Investor may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Section 3.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form reasonably acceptable to the Company) or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date sixty (60) days before the Companys good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules
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applicable to such registration statement and related offering; provided that the Companys covenants under this Section 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.
3.2 Inspection. The Company shall permit each Investor, at such Investors sole expense, to visit and inspect the Companys properties; examine its books of account and records; and discuss the Companys affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form reasonably acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
3.3 Termination of Information. The covenants set forth in Section 3.1 and Section 3.2 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, or (ii) such time as the Investors and their Affiliates (after giving effect to and including shares of Common Stock issued or issuable upon conversion of the Notes or conversion or exchange of other securities of the Company held by such Investor) fewer than ten percent (10%) of the shares of Common Stock outstanding.
3.4 Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Companys intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.4 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Companys confidential information, or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Section 3.4; (iii) to any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law.
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4. Additional Covenants.
4.1 Matters Requiring Investor Approval. The Company shall not, either directly or by amendment of its certificate of incorporation or bylaws, merger, consolidation, or otherwise, without first obtaining the written approval of Greenwood:
(a) increase or decrease the authorized number of shares of Common Stock or other classes or series of capital stock of the Company or any Subsidiary, or authorize or create (by reclassification or otherwise) any new class or series of stock or any security that is or by its terms may become exercisable and/or convertible into such a class or series of capital stock of the Company or any Subsidiary;
(b) effect a recapitalization, reclassification, stock combination, stock dividend, stock split or stock subdivision;
(c) amend, alter, adopt, waive or repeal any provision of the Certificate of Incorporation or Bylaws of the Company or any Subsidiary or other organization documents of the Company or any Subsidiary, other than as contemplated by the Securities Purchase Agreement and the transactions contemplated thereunder;
(d) directly or indirectly, consolidate or merge with or into, or convert into, another Person (whether or not the Company is the surviving or resulting entity), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole in one or more related transactions;
(e) permit, directly or indirectly, the lease of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole in one or more related transactions;
(f) permit any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company or any Subsidiary;
(g) sell, lease, assign, transfer or otherwise dispose of any material assets of the Company or any Subsidiary;
(h) declare or pay any distribution or dividend;
(i) issue or obligate itself to issue any security, other than shares of Common Stock upon (i) conversion of the Notes, (ii) exercise of any director or employee options outstanding on the date hereof, (iii) exercise of employee or director restricted stock units outstanding on the date hereof, or (iv) equity awards granted to officers, directors, employees or consultants , approved by the Board of Directors;
(j) redeem, retire, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of capital stock of the Company or any Subsidiary;
(k) increase or decrease the authorized size of the Board of Directors, except as expressly contemplated by the Voting Agreement;
(l) transfer any portion of its assets to any of its foreign Subsidiaries;
(m) create, or hold capital stock in, any Subsidiary that is not wholly owned (either directly or through one or more other Subsidiaries) by the Company, or sell, assign, pledge, transfer or otherwise dispose of any capital stock of any direct or indirect Subsidiary;
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(n) acquire all or any portion of any business or product line (whether by stock or asset purchase, merger, consolidation or otherwise);
(o) make, or permit any Subsidiary to make, any loan or advance to any Subsidiary or other Person unless it is wholly owned by the Company;
(p) permit any Subsidiary to enter into any agreement, contract or arrangement restricting the ability of any subsidiary to pay or make dividends or distributions in cash or kind to the Company, to make loans, advances or other payments of whatever nature to the Company, or to make transfers or distributions of all or any part of its assets to the Company;
(q) enter into or be a party to any transaction with any director, officer, or employee of the Company or any associate (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such Person, except for transactions made in the ordinary course of business and pursuant to reasonable requirements of the Companys business and upon fair and reasonable terms that are approved in advance by a majority of the Board of Directors, including the Investor Designee;
(r) change the principal business of the Company, enter new lines of business, or exit the current line of business;
(s) enter into any transaction that entails the exclusive licensing or transfer of any material intellectual property rights for any field of use or territory material to the Companys business as conducted, or sell, assign, license, pledge, or encumber material technology or intellectual property, other than licenses granted in the ordinary course of business;
(t) enter into, agree to enter into or otherwise consummate any material joint ventures, strategic alliances, or major partnerships;
(u) approve or authorize (i) the incurrence of any indebtedness outside the ordinary course of business other than under the Companys existing Loan and Security Agreement dated as of November 3, 2010, as amended, among the Company and its Subsidiaries and Gibraltar Business Capital, LLC, as agent for the lender parties thereto, including any future amendment or refinancing thereof, provided the principal amount thereof is not increased or (ii) the guarantee of any obligation of any other Person, if the aggregate amount of the principal of such indebtedness or the principal amount of the indebtedness so guaranteed shall exceed $250,000;
(v) hire, terminate, or increase the compensation of James R. Riedman and any other person holding the position of chief executive of the Company, including approving any option grants or other equity awards to officers or any bonus or incentive plan for officers;
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(w) except for the extension of the Companys Amended and Restated 2001 Long-Term Incentive Plan (the Plan), approve any new stock option or other equity plan for the benefit of directors, employees or consultants of the Company or its Subsidiaries, or any amendment or change thereto; or increase the number of shares of Common Stock reserved for issuance pursuant to the Plan, as amended; or make any changes or amendment to the Plan (other than to extend the term thereof);
(x) approve or authorize any transaction or series of related transactions outside the ordinary course of business involving $250,000 or more; and
(y) approve, authorize or otherwise permit any Subsidiary to take any action which, if taken by the Company, would require the written approval of the Investors pursuant to this Section 4.1.
4.2 Matters Requiring Board Approval. The Company shall not, without first obtaining the approval of its Board of Directors:
(a) approve or authorize any material modification to any existing loans or other extensions of credit by the Company;
(b) approve or authorize any material modification to or material deviation from the Budget;
(c) increase the compensation of any director;
(d) except for trade payables, inventory or equipment leases arising in the ordinary course of business, enter into any off-balance sheet financing arrangements or use any of the Companys assets as collateral, whether to secure debt obligations, obligations to senior securities or otherwise;
(e) change or terminate the independent registered public accountants engaged to audit the Companys financial statements;
(f) approve the settlement by the Company of any material litigation or other proceedings relating to the Company;
(g) approve or authorize the payment of any capital expenditures in excess of $100,000 during any 12-month period other than a specific identifiable line item previously approved in the Budget (covering the year in which such action is sought to be taken by the Company); and
(h) approve, authorize or otherwise permit any Subsidiary to take any action which, if taken by the Company, would require the written approval of the Board of Directors pursuant to this Section 4.2.
4.3 Board Matters. Unless otherwise determined by the vote of a majority of the directors then in office, the Board of Directors shall meet regularly in accordance with an agreed-upon schedule which shall target quarterly meetings. The Company shall reimburse the
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Greenwood Designee (as defined in the Voting Agreement) for all reasonable out-of-pocket travel expenses incurred (consistent with the Companys travel policy) in connection with attending meetings of the Board of Directors. The Greenwood Designee will receive compensation in accordance with the terms of the Companys compensation policy for directors, but in any event, shall receive options or restricted stock units of at least 20,000 shares of Common Stock per annum (subject to appropriate adjustment for all stock splits, dividends, combinations, recapitalizations and the like).
4.4 Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into, or converts into any other Person and is not the continuing or surviving corporation or entity of such consolidation, or merger or conversion, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Companys Bylaws, its Certificate of Incorporation, or elsewhere, as the case may be.
4.5 Standstill. The Investors and James R. Riedman and Riedman Corporation each, on behalf of themselves, hereby agree that they will not, nor will they permit any Affiliate to, directly or indirectly, (unless in any such case specifically approved in advance to do so by the Board of Directors, and (i) in the case of James R. Riedman and Riedman Corporation, unless approved by Greenwood, or (ii) in the case of the Investors or any of their Affiliates, by a director not appointed by or affiliated in any way with the Investors) acquire, offer to acquire, or agree to acquire any Common Stock or other securities of the Company in an open-market transaction (Company Securities). Without limiting the generality of the foregoing, the following shall not be considered open-market transactions and nothing contained herein shall prohibit any member of the Investor Group or James R. Riedman or Riedman Corporation from acquiring any such Company Securities (i) upon conversion of the Notes, (ii) as a result of a stock split, stock dividend or similar recapitalization by the Company, (iii) pursuant to the exercise of any warrant, option or other right to acquire such securities that it receives directly from the Company (including equity awards granted as compensation and approved by the Board of Directors), or (iv) in the case of the Investor Group, pursuant to the preemptive rights provided in Section 4.6.
In addition, nothing in this Section 4.5 shall preclude any Investor or its Affiliates or James R. Riedman or Riedman Corporation (a) from exercising the voting and other rights granted to the Investors pursuant to this Agreement or any of the Transaction Documents or (b) in the case of any proposed merger, sale of assets or similar transaction that has been approved or recommended by the Board of Directors, or in the case of a tender or exchange offer made without encouragement by or the participation of the Investors or any of their Affiliates (if the Board of Directors shall send to stockholders a statement that the Board of Directors that (i) recommends approval of such tender or exchange offer, or (ii) is neutral with respect to such tender or exchange offer) from making an offer to the Board of Directors, in respect of such transaction, upon terms more favorable to the Company or its stockholders than those of the other transaction, as proposed.
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4.6 Participation Rights.
(a) Definitions. As used in this Section 4.6, New Securities shall have the following meaning: (i) any capital stock of the Company whether or not currently authorized, (ii) all rights, options, or warrants to purchase capital stock, and (iii) all securities of any type whatsoever that are, or may become, convertible into capital stock; provided, however, that the term New Securities shall not include (1) shares of Common Stock issued or issuable to officers, directors or employees of, or consultants to, the Company pursuant to action by the Board of Directors pursuant to any stock purchase or option plan or other employee or director stock incentive or compensation program approved by a majority of the members of the Board of Directors; (2) securities issued as a result of any stock split, stock dividend, or reclassification of shares; (3) securities issued in connection with capital leases, bank financing or other similar transactions with a non-equity financing purpose approved by a majority of the members of the Board of Directors; (4) securities issued in connection with licensing or strategic alliance transactions approved by a majority of the members of the Board of Directors; (5) securities issued pursuant to the acquisition of another corporation or other entity by the Company by merger, purchase of substantially all of the assets, or other reorganization whereby the Company acquires not less than 51% of the voting power of such corporation or other entity in a transaction approved by a majority of the members of the Board of Directors; and, (6) any capital stock issued or issuable upon the exercise, conversion or exchange of any rights, options or warrants outstanding on the date hereof to purchase capital stock of the Company.
(b) Participation Right. Each Investor shall be entitled to a right to purchase, on a pro rata basis, all or any part of any New Securities that the Company may, from time to time, propose to sell and issue, subject to the terms and conditions set forth below. Such Investors pro rata share shall equal a fraction of the New Securities being issued, the numerator of which is the number of shares of Common Stock held by such Investor plus (a) conversion of then outstanding Notes or other convertible securities held by such Investor and (b) exercise of then outstanding options, rights, or warrants then held by such Investor, and the denominator of which is the total number of shares of Common Stock then outstanding plus the number of shares of Common Stock issuable upon (x) conversion of then outstanding Notes or other convertible securities and (y) exercise of then outstanding options, rights, or warrants.
(c) Exercise of Right. In the event the Company intends to issue New Securities, it shall give each Investor written notice of such intention, describing the type of New Securities to be issued, the price thereof, and the general terms upon which the Company proposes to effect such issuance (the Sale Notice). Each Investor shall have twenty (20) days from the date of any Sale Notice to agree to purchase all or part of its pro rata share of such New Securities for the price and upon the general terms and conditions specified in the Sale Notice by giving written notice to the Company stating the quantity of New Securities to be so purchased (Exercise Notice); provided, however, that in the event that the transaction described in a Sale Notice involves in whole or in part the payment of non-cash consideration, or the payment of consideration over time, the Investors shall have the right to elect, upon exercise of their rights set forth in this Section 4.6, to pay to the Company in full consideration for the New Securities the present cash value of the consideration described in the Sale Notice as determined by the Board of Directors of the Company in good faith.
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(d) Failure to Exercise Right. In the event the Investors fail to exercise the foregoing participation right with respect to any New Securities within the periods specified, the Company may within one hundred and twenty (120) days after the delivery of the Sale Notice sell any or all of such New Securities not agreed to be purchased by the Investors, at a price and upon general terms no more favorable to the purchasers thereof than specified in the Sale Notice. In the event the Company has not sold such New Securities within such 120-day period, the Company shall not thereafter issue or sell any New Securities without first offering such New Securities to the Investors in the manner provided in Section 4.6.
(e) Termination of Covenants. The covenants set forth in this Section 4, shall terminate and be of no further force or effect on the date that Greenwood and its Affiliates beneficially own (after giving effect to and including shares of Common Stock issued or issuable upon conversion of the Notes or conversion or exchange of other securities of the Company held by Greenwood) fewer than ten percent (10%) of the shares of Common Stock outstanding.
5. Miscellaneous.
5.1 Successors and Assigns. Notwithstanding anything to the contrary herein, neither the Company nor any Investor shall assign this Agreement without the prior written consent of the other; provided however, that the registration rights provided in Section 2 under this Agreement may be assigned (but only with all related obligations) by an Investor only to a transferee of Registrable Securities that after such transfer holds (with its Affiliates) at least 1,000,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, recapitalizations and the like); and provided further, however, that prior to the transfer, (x) the Company is, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
5.2 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware. Each party agrees that all proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, employees or agents) may be commenced in the state and federal courts sitting in Wilmington, Delaware (the Delaware Courts). Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of the Delaware Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any Delaware Court, or that such proceeding has been commenced in an improper or inconvenient forum. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each
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party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If any party shall commence a proceeding to enforce any provisions of this Agreement, then the prevailing party or parties in such proceeding shall be reimbursed by the non-prevailing party or parties for its or their attorneys fees and other costs and expenses incurred in connection with the investigation, preparation and prosecution of such proceeding.
5.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
5.4 Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
5.5 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipients normal business hours, and if not sent during normal business hours, then on the recipients next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Section 5.5. If notice is given to the Company, a copy shall also be sent to Woods Oviatt Gilman, LLP, Two State Street, Suite 700, Rochester, New York 14534, Attn: Gordon E. Forth, Esq., Facsimile: (585) 987-2901, E-mail: gforth@woodsoviatt.com, and if notice is given to Greenwood, Greenwood Capital Limited Partnership and Greenwood Investors Limited Partnership, a copy shall also be given to Foley Hoag LLP, Seaport West, 155 Seaport Boulevard, Boston, Massachusetts 02210, Attn: John D. Hancock, Esq., Facsimile: (617) 832-7000, E-mail: jhancock@foleyhoag.com.
5.6 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of (i) the Company, (ii) the Investors and (iii) only with respect to matters in Section 2 of this Agreement, the holders of a majority of the Registrable Securities then outstanding; provided that any provision hereof may be waived by any waiving party on such partys own behalf, without the consent of any other party. Any amendment, termination, or waiver effected in accordance with this Section 5.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
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5.7 Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
5.8 Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
5.9 Entire Agreement. This Agreement (including the Exhibits hereto) and the other Transaction Agreements (as defined in the Securities Purchase Agreement) constitute the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.
5.10 Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
5.11 Acknowledgment. The Company acknowledges that the Investors are in the business of investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict the Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.
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IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first written above.
PHOENIX FOOTWEAR GROUP, INC. | ||||||
By: | /s/ James R. Riedman, CEO | |||||
James R. Riedman, CEO | ||||||
GREENWOOD CAPITAL LIMITED PARTNERSHIP | ||||||
By: | Greenwood Investments, Inc., | |||||
General Partner | ||||||
By: | /s/ Steven Tannenbaum, President | |||||
Steven Tannenbaum, President | ||||||
GREENWOOD INVESTORS LIMITED PARTNERSHIP | ||||||
By: | Greenwood Investments, Inc., | |||||
General Partner | ||||||
By: | /s/ Steven Tannenbaum, President | |||||
Steven Tannenbaum, President | ||||||
For purposes of Section 4.5: | RIEDMAN CORPORATION | |||||
By: | /s/ James R. Riedman, President | |||||
James R. Riedman, President | ||||||
/s/ James R. Riedman | ||||||
James R. Riedman |