STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of April 18, 2000 (this
"Agreement"), by and among Intellect Capital Group, LLC, a Delaware limited
liability company (the "Purchaser"), and PhotoLoft.Com, Inc., a Nevada
corporation (the "Company").
WITNESSETH:
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WHEREAS, the Company desires to issue and sell, and the Purchaser desires
to purchase, 900 shares of Series B Preferred Stock (the "Purchased Stock"),
with such Purchased Stock having the various rights set forth in that certain
Certificate of Designations, Preferences and Rights of Series B Preferred Stock
in the form attached hereto as Exhibit A (the "Certificate of Designations")
convertible into shares of Common Stock of the Company (the "Common Stock") upon
the terms and subject to the conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth
in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
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1.1 Definitions. The capitalized terms used in this Agreement
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(including the foregoing preamble and recitals) and not otherwise defined herein
shall have the meaning specified in Appendix 1 attached hereto and made a part
hereof.
ARTICLE II
PURCHASE OF INTERESTS; CLOSING
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2.1 Purchase of Purchased Stock. Subject to the terms and conditions
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set forth in this Agreement and the Designation, the Purchaser agrees to
purchase from the Company on the Closing Date, and the Company agrees to sell,
assign, transfer and deliver to the Purchaser on the Closing Date, free and
clear of all Encumbrances (other than those arising out of actions of the
Purchaser), the Purchased Stock.
2.2 Terms of Purchased Stock. The Parties agree that the Certificate of
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Designations shall set forth the terms of and conditions of the Purchased
Shares, including but not limited to the conversion of the Purchased Stock,
which shall be convertible into 50% of the Company's then-outstanding securities
following the conversion, on a fully-diluted basis (i.e., taking into account
all issued and outstanding Common Stock, the conversion of all other securities
convertible into shares of Common Stock, the exercise of all warrants and
options exercisable for shares of Common Stock and any commitments of the
Company to issue or sell any Common Stock or securities convertible into shares
of Common Stock and the exercise of such committed securities) in accordance
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with Section 2(b) of the Certificate of Designations and the immediate and
automatic conversion of such Purchased Shares in the event of the sale of all or
substantially all of the assets of the Company or a merger in which the Company
is not the surviving entity or in which shares of Common Stock of the Company
are to be cancelled in exchange for value, or upon the election of the
Purchaser.
2.3 Purchase Price. In consideration for the sale by the Company of the
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Purchased Shares, the Purchaser shall deliver at the Closing to the Company Nine
Thousand Dollars ($9,000) (the "Purchase Price").
2.4 Closing. The purchase and sale to the Purchaser referred to in Section
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2.1 (the "Closing") shall take place no later than 10:00 A.M. at the offices of
Manatt, Phelps & Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles CA
90064, on May 10, 2000, or at such place as the parties may mutually agree (the
"Closing Date"). At the Closing, the Company shall assign and transfer to the
Purchaser good and valid title, and all other rights and interests, in and to
the Purchased Shares.
2.5 Payment Method. The Purchase Price payable to the Company at Closing
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shall be paid by wire transfer of immediately available funds or cash pursuant
to instructions delivered by the Company to the Purchaser on or before the
Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to the Purchaser as follows:
3.1 Organization and Good Standing. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Nevada and has the requisite power to own and operate its properties and carry
on its business as it does currently. The Company has delivered or made
available to the Purchaser a true and correct copy of its Certificate of
Incorporation and its Bylaws (collectively, the "Company Formation Documents").
3.2 Capitalization. As of March 31, 2000, the Company has 50,000,000
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shares of Common Stock authorized, of which 12,914,375 shares were issued and
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outstanding and 50,000,000 shares of preferred stock, $.001 par value (the
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"Preferred Stock") authorized, of which 106 shares had been designated as Series
A Convertible Preferred Stock, of which 106 shares were issued and outstanding.
A true and compete list of all of the numbers of any and all commitments to
issue Common Stock or securities convertible into Common Stock is set forth on
Schedule 3.2(a). All of the issued and outstanding shares of Common Stock of
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the Company are validly issued, fully paid and nonassessable, and free of
preemptive rights. All of the issued and outstanding shares of all of the
series of Preferred Stock are validly issued, fully paid and nonassessable, and
free of preemptive rights. The Purchased Stock shall be convertible into such
number of shares of Common Stock reflecting 50% of all of the Company's
then-outstanding, on a fully-diluted basis (i.e., taking into account all issued
and outstanding Common Stock, the conversion of all other securities convertible
into shares of Common Stock, the exercise of all warrants and options
exercisable for shares of Common Stock and any commitments of the Company to
issue or sell any Common Stock or securities convertible into shares of Common
Stock and the exercise of such committed securities) as set forth in Section
2(b) of the Certificate of Designations and is free and clear of all Liens and
adverse claims except as provided in Schedule 3.2. There are not now, and on
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the Closing Date there will not be, any shares of Common Stock (or interests or
securities substantially equivalent to Common Stock) issued or outstanding or
any subscriptions, options, warrants, calls,
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rights, convertible securities or other agreements or commitments of any
character obligating the Company to issue, transfer or sell any of its Common
Stock or securities (except as set forth on Schedule 3.2(a)). The Company has
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sufficient number of shares of Common Stock authorized in order to reserve a
number of shares to permit the conversion of the Purchased Shares.
3.3 Authority and Authorization of Agreement. The Company has all necessary
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power and authority to execute and deliver this Agreement and the other Closing
Documents to which it is a party, to consummate the transactions contemplated by
this Agreement, to perform all the terms and conditions of this Agreement and
the Closing Documents to be performed by it and to issue additional series of
preferred stock that do not have rights in excess of existing series of
preferred stock without shareholder approval. The execution, delivery and
performance by the Company of this Agreement and the other documents,
certificates, and instruments to be executed and delivered by the Company
hereunder, and the consummation of the transactions contemplated hereby, have
been duly and validly authorized and approved by all necessary corporate action
on the part of the Company and no other proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate such transactions.
This Agreement, and the other documents, certificates, and instruments delivered
by the Company hereunder to which it is a party, have been duly executed and
delivered by the Company and, assuming the due execution of this Agreement by
the Purchaser, constitute the legal, valid, and binding obligations of the
Company, enforceable against it in accordance with their terms, except as may be
limited by general principles of equity or principles of creditors' rights
generally.
3.4 Consents and Approvals; No Violations. Except as set forth on Schedule
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3.4(a), the execution and delivery by the Company of this Agreement and the
other Closing Documents to which it is a party do not, and the consummation by
the Company of the transactions contemplated hereby and compliance by the
Company with the provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligations or the loss of a benefit under or result in the creation of any
Lien upon or right of first refusal with respect to any of the properties or
assets of the Company under, (i) any provision of the Company Formation
Documents or (ii) any material loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, obligation, instrument, permit, concession,
franchise of license applicable to the Company, other than, in the case of (ii),
any such violations, defaults, rights, losses or Liens that, individually or in
the aggregate, would, so far as the Company may reasonably foresee, not prevent
or result in a delay of the consummation of the transactions contemplated by
this Agreement. No filing or registration with, or authorization, consent or
approval of, any Governmental Authority is required by or with respect to the
Company in connection with the execution and delivery of this Agreement by the
Company or is necessary for the consummation of the transaction contemplated by
this Agreement, except such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
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made would not, individually or in the aggregate, so far as the Company may
reasonably foresee, prevent or result in a delay of the consummation of the
transactions contemplated hereby.
3.5 Brokers. No agent, broker, person or firm acting on behalf of the
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Company, is, or will be, entitled to any commission or broker's or finder's fees
from the Company, or from any Person controlling, controlled by or under common
control with the Company, in connection with the purchase of the Purchased
Stock.
3.6 Litigation. Except as set forth on Schedule 3.6 hereto, there is no
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Action pending or, to the knowledge of the Company, threatened against or
affecting the Company, any Shareholders or their respective Affiliates that
would affect materially the ability of the Company to carry out the transactions
contemplated by this Agreement.
3.7 Financial Statements; No Material Changes.
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(a) The Audited Financial Statements of the Company, dated December
31, 1999, are hereinafter referred to as the "Financial
Statements" and December 31, 1999 is hereinafter referred to as
the "Financial Statement Date". The Financial Statements are set
forth on Schedule 3.7(a). The Financial Statements fairly present
in all material respects the financial position of the Company at
the date thereof.
(b) Since the Financial Statement Date, there has been no material
adverse change in the business, operations, assets, liabilities,
condition (financial or otherwise) or results of operations of
the Company taken as a whole (a "Material Adverse Change").
(c) The Company has no commitments to issue Common Stock or any other
securities or debt instruments convertible into shares of Common
Stock, except for those noted on Schedule 3.2.
3.8 Books and Records. The minutes of the Company previously made or
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to be made available to the Purchaser and its representatives, contain
materially accurate records of all meetings of, and corporate actions taken by
(including action taken by written consent), the Board of Directors and the
Shareholders of the Company.
3.9 Compliance with Laws. The Company is in compliance with all
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applicable laws, regulations, orders, judgments and decrees except where the
failure to so comply does not and would not reasonably be likely to have a
Material Adverse Change.
3.10 Material Agreements. Schedule 3.10 sets forth an accurate and
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complete list of all Material Agreements. Company has provided or will provide
prior to the Closing Date Purchaser with complete and correct copies of all such
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Material Agreements. Except as set forth in Schedule 3.10: (i) the Material
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Agreements have not been modified, amended or assigned and are in full force and
effect; (ii) there are no defaults by Company or any other party to the Material
Agreements as of the Closing Date; (iii) Company has not received any notice of
any default, offset, counterclaim or defense under the Materials Agreements as
of the Closing Date; (iv) no condition or event has occurred which with the
passage of time or the giving of notice or both would constitute a default or
breach by Company of the terms of the Material Agreements as of the Closing
Date; and (v) there does not now, and at Closing there will not, exist any
security interest, lien, encumbrance or claim on any interest of Seller in the
Material Agreements as of the Closing Date.
3.11 Patents, Trademarks, etc. Except as set forth on Schedule 3.11, the
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Company has title and ownership of all patents, patent applications, licenses,
trademarks, service marks, trade names, inventions, processes, formulae, trade
secrets, franchises, copyrights and other proprietary rights relative to
intellectual property necessary for the operation of its business as now
conducted and as proposed to be conducted with no infringement of or conflict
with the rights of others. To the best of its knowledge, such ownership and
title are exclusive and not subject to termination without the Company's
consent. Except as set forth on Schedule 3.11, there are no outstanding
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options, licenses, or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights or processes of any other person or entity. Except as set
forth on Schedule 3.11 and to the best of the Company's knowledge, there is no
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third party that is infringing or violating any of the Company's patents,
licenses, trademarks, service marks, trade names, inventions, processes,
formulae, trade secrets, franchises, copyrights or other proprietary rights
relative to intellectual property. Except as set forth on Schedule 3.11, the
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Company has not received any communications from any third party alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights relative to intellectual property
of any other person or entity.
3.12 Domain Names. Set forth on Schedule 3.12 hereto is every Internet
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domain name in which the Company is the registrant (the "Domain Names"). There
are no claims of infringement or misappropriation, pending or, to the knowledge
of the Company, threatened, relative to the Domain Names, and, to the knowledge
of the Company, there is no basis for any such claims. The Company is the sole
and exclusive owner of all right, title and interest in and to the Domain Names.
3.13 Disclosure. To the Company's knowledge, there is no event, fact,
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condition or occurrence that makes any of the representations and warranties
contained in Article III or any certificate, schedule or exhibit prepared and
delivered by or on behalf of the Company pursuant to this Agreement untrue or,
if not disclosed, would make such representations and warranties misleading in
light of the circumstances under which they were furnished.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
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The Purchaser hereby represents and warrants to the Company as follows:
4.1 Existence and Good Standing; Power and Authority. The Purchaser is
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a limited liability company duly created and validly existing and in good
standing under the laws of the State of Delaware. The Purchaser has the
requisite company power and authority to enter into, execute and deliver this
Agreement and perform its obligations hereunder. This Agreement has been duly
authorized and approved by the Purchaser and no other action on the part of the
Purchaser is necessary to authorize the execution, delivery and performance of
this Agreement. This Agreement has been duly executed and delivered by the
Purchaser and, assuming the due execution of this Agreement by the Company is a
valid and binding obligation of the Purchaser enforceable against it in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, organization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
4.2 Investment Representations.
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(a) Purchaser is acquiring the Purchased Stock for its own account,
not as nominee or agent, for investment and not with a view to,
or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act of
1933, as from time to time amended, or any similar Federal
statute then in effect (the "1933 Act").
(b) Purchaser is an investor in securities of companies in the
development stage and acknowledges that it can bear the economic
risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Purchased Stock.
(c) Purchaser has not been offered the Purchased Stock by any form of
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 such media.
(d) Purchaser was not formed for the specific purpose of acquiring
the Purchased Stock offered hereunder.
(e) Purchaser's principal address is as set forth in Section 10.5
hereof, and it does not reside in any state of the United States
other than the state specified in its address in Section 10.5
hereof, if at all.
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4.3 Consents and Approvals. Other than the filings and/or notices set
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forth in Schedule 4.3, no notices, reports or other filings are required to be
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made by Purchaser with, nor are any consents, registrations, approvals, permits,
authorizations or waivers required to be obtained by Purchaser from, any Person
or Governmental Authority, in connection with the execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably likely to prevent, materially delay
or materially impair the ability of Purchaser to consummate the transactions
contemplated by this Agreement.
4.4 Restrictive Documents. The Purchaser is not subject to any
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mortgage, lien, lease, agreement, instrument, order, law, rule, regulation,
judgment or decree, or any other restriction of any kind or character which
would prevent consummation by it of the transactions contemplated by this
Agreement and consummation of the transactions contemplated hereby will not
result in a violation or breach of or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, any mortgage, lien, lease,
agreement or instrument to which the Purchaser is a party or by which it is
bound and which breach or default would prevent the consummation of the
transactions contemplated by this Agreement.
4.5 Brokers. No agent, broker, person or firm acting on behalf of the
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Purchaser, is, or will be, entitled to any commission or broker's or finder's
fees from the Purchaser, or from any Person controlling, controlled by or under
common control with the Purchaser, in connection with the purchase of the
Purchased Stock.
4.6 No Litigation. There is no judgment or decree outstanding or
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litigation or other investigation pending or proceeding pending or, to the
Purchaser's knowledge, threatened which would adversely affect the Purchaser's
power, authority or ability to enter into this Agreement and to carry out the
transactions contemplated herein.
4.7 No Insolvency. No insolvency proceedings of any nature, including,
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without limitation, bankruptcy, receivership, reorganization, composition or
arrangement with creditors, voluntary or involuntary, affecting the Purchaser
are pending or threatened, and the Purchaser has not made an assignment for the
benefit of creditors nor taken any action with a view to, or which would
constitute the basis for, the institution of any such insolvency proceedings.
ARTICLE V
PRE-CLOSING COVENANTS
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5.1 Exclusive Dealing. During the period from the date of this
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Agreement to the earlier of (i) the Closing Date or (ii) the termination of this
Agreement in accordance with its terms, none of the Company, its Affiliates or
representatives or any officer or director of the Company shall take any action
to, directly or indirectly, encourage, initiate, solicit or engage in
discussions or negotiations with, or provide any information, including the
existence of this Agreement and the status of the transactions contemplated
hereby, to any Person, other than the Purchaser and its Affiliates and
representatives (including their respective attorneys, accountants and financial
advisors), concerning any purchase of any Common Stock or any merger, asset sale
or similar transaction involving the Company unless the disclosure of such
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information is necessary in making any filings or obtaining any consents or
approvals required under this Agreement or for the consummation of the
transactions contemplated hereby. The Company shall immediately cease and cause
to be terminated any negotiations, discussions or activities, and shall promptly
notify Purchaser in the event any of them receives a written inquiry from any
Person indicating or suggesting an interest, concerning the purchase of any
capital stock of the Company or any merger, asset, sale or similar transaction
involving the Company.
5.2 Review of the Company. The Purchaser may, prior to the Closing Date,
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directly or through its representatives, review the properties, books and
records of the Company and its financial and legal condition to the extent they
deem necessary or advisable to familiarize itself with such properties and other
matters; provided that such review shall occur during regular business hours of
the Company and shall be conducted in a manner that will not unduly disrupt the
business and operations of the Company. The Company shall permit the Purchaser
and its representatives to have, after the date of execution of this Agreement,
reasonable access to the premises occupied by the Company and to all the books
and records of the Company and to cause the officers of the Company to furnish
the Purchaser with such financial and operating data and other information with
respect to the business and properties of the Company as the Purchaser shall
from time to time reasonably request. The Company shall deliver or cause to be
delivered to the Purchaser such additional instruments, documents, certificates
and opinions as the Purchaser may reasonably request for the purpose of: (a)
verifying the information set forth in this Agreement or on any Schedule
attached hereto and (b) consummating or evidencing the transactions contemplated
by this Agreement.
5.3 Reasonable Efforts. Each of the Company and the Purchaser shall
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cooperate and use their respective commercially reasonable efforts to take, or
cause to be taken, all appropriate actions, and to make, or cause to be made,
all filings necessary, proper or advisable under applicable laws and
regulations, and to deliver or cause to be delivered such additional
instruments, documents, certificates and opinions as requested, in each case to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, their respective commercially reasonable efforts
to obtain, prior to the Closing Date, all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Authorities
and Persons party to, or delivering consents, waivers or authorizations under,
the Material Agreements (it being understood and agreed that the Company has the
primary obligation to secure consents, waivers or authorizations under the
Material Agreements and the Purchaser has the obligation to use its commercially
reasonable efforts to assist the Company).
ARTICLE VI
POST-CLOSING COVENANTS
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6.1 Confidentiality. The parties hereto shall hold in confidence the
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information contained in this Agreement, and all information related to this
Agreement, which is not otherwise known to the public, shall be held by each
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party hereto as confidential and proprietary information and shall not be
disclosed without the prior written consent of the other parties. Accordingly,
the Company and the Purchaser shall not discuss with, or provide nonpublic
information to, and shall cause their Affiliates to not discuss with or provide
nonpublic information to, any third party (except for such party's attorneys and
consultants) concerning this transaction, except as required in governmental
filings or judicial, administrative or arbitration proceedings or pursuant to
public announcements made with the prior written approval of the Company and the
Purchaser; provided, however, that the Purchaser may provide non-public
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information to investors and employee candidates.
6.2 Cooperation. The parties hereto agree to cooperate as is necessary to
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effectuate the terms of this Agreement. The Company agrees to use its best
efforts to provide financial data and other information, including access to all
industry contacts, to Purchaser or potential investors. The Company agrees to
provide the Purchaser any information regarding the Company at Purchaser's
request. The Company agrees that it shall pay reasonable out-of-pocket expenses
of Purchaser associated with its efforts as an active investor in the Company,
provided that the Company shall not be obligated to pay the Purchaser's legal
fees in connection with the execution of this Agreement, and provided further,
that the Purchaser shall seek approval of the Company prior to any expenditure
exceeding $5,000. The Company hereby acknowledges that any amounts raised
through the efforts of the Purchaser will be subject to standard introduction
fees of seven percent.
6.3 Active Investor. The Purchaser will be an active shareholder in the
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Company, and as such will reasonably assist the Company with some or all of the
following for as long as the Purchaser owns the Purchased Shares:
(a) Identifying strategic alternatives for the Company, including
identifying and approaching appropriate funding sources,
arranging capital through intermediaries and/or investors,
initial capitalization of the Company, divestiture or acquisition
of businesses, the sale of the Company, including using its best
efforts to assist the Company in obtaining commitments for
financing in the amount of $10 million by June 30, 2000 and using
its best efforts to obtain commitments to obtain the necessary
financing during the first two years following the execution of
this Agreement (which the parties hereto anticipate to total $15
million, subject to change as may be required by market
conditions, the general business climate and the Company's
needs);
(b) Advisory services, including general business and financial
analysis, transaction feasibility analysis, and personnel
matters, including attracting management and directors to be
employed or retained by the Company;
(c) Providing general advice on corporate financial issues, including
advice with respect to capital markets, merger and asset
acquisition or divestiture activities and balance sheet
management activities;
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(d) As requested, assisting in negotiations and related strategy with
respect to any transactions;
(e) Advising and assisting management of the Company in making
appropriate presentations to investors and other third parties;
(f) Other financial, advisory and related business services as may
from time to time be agreed upon by the Purchaser and the
Company.
6.4 Board Designations. For as long as Purchaser shall own any
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Preferred Stock or Common Stock ("Capital Stock") of the Company, Purchaser
shall have the right to designate for nomination in any election of directors to
the Board of Directors such number of individuals as constitutes twenty percent
(20%) of the Board of Directors of the Company, rounded up to the next whole
person ("Purchaser Designees"). As of the date hereof, the Purchaser Designee
is Terren S. Peizer. For as long as Purchaser shall own any Capital Stock of
the Company, any investors introduced to the Company by Purchaser in connection
with its conduct as an active shareholder who consummate an investment in the
Company shall be granted the right, as a group and in connection with such
investment, to designate for nomination in any election of directors to the
Board of Directors such number of individuals as constitutes twenty percent
(20%) of the Board of Directors of the Company ("Investor Designees"). For as
long as Purchaser shall own any Capital Stock of the Company, management of the
Company shall have the right to designate for nomination in any election of
directors to the Board of Directors such number of individuals as constitutes
twenty percent (20%) of the Board of Directors of the Company ("Company
Designees"), provided that the identity of the Purchaser Designees shall be
subject to Purchaser's approval, not to be unreasonably withheld (which
withholding by Purchaser shall be deemed to be reasonable in the event that the
Company submits an individual or individuals who have professional, business or
industry expertise that is already possessed or represented by another member of
the Board of Directors or believed by Purchaser to be insufficient at the time
of such submission). The Company shall submit the names and qualifications of
the proposed Company Designees to Purchaser in writing, and Purchaser shall
approve or disapprove of such Company Designees in writing within 10 business
days. If a Company Designee is not approved, Company management shall have 30
days to provide the name of a new Company Designee. The Purchaser shall use its
best efforts to assist the Company in identifying potential Company Designees.
The Company shall re-submit names until such time as Purchaser approves a
Company Designees or Company Designees. In the event the Board of Directors of
the Company contains eight, nine or fourteen individuals, the percentage of the
Board designation evidenced by the Investor Designees and the Company Designees
shall be rounded up to the next whole person. Each of the Purchaser Designees
and the Investor Designees shall be appointed to the Board as soon as possible
after the Closing Date. Terren S. Peizer shall be named as Chairman of the
Board as soon as possible after the Closing Date.
6.5 Management Hiring/Operations.
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(a) As soon as possible after the Closing Date, the Company shall
hire individuals to serve as President/Chief Operating Officer
and Chief Financial Officer, which individuals shall be subject
to the prior approval of the
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Purchaser in its sole discretion. Such individuals will be in
charge of the day-to-day operations of the Company.
(b) Within ten days after the Closing Date, the Company shall enter
into employment agreements with each of Robert Free and Nick
Freeman, on commercially reasonable terms. The Purchaser shall
assist the Company with respect to such negotiations.
Notwithstanding the foregoing, if the parties mutually agree to
hire a third-party as the Company's Head of Production, then the
requirements of this section will be deemed to be met by such
agreement.
(c) As soon as possible after the Closing Date, the Company shall
effectuate an organization structure whereby an executive
committee is set up, consisting of the Vice Chairman of the Board
of Directors and Chairman of the Executive Committee, the
President/Chief Operating Officer and the Chief Financial
Officer. This committee shall report to the Board of Directors of
the Company.
6.6 Insurance. The Company shall maintain insurance as is standard for
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a public company covering liabilities of its directors and officers arising from
such directors' and officers acts or omissions.
ARTICLE VII
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
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The obligation of the Purchaser to purchase the Purchased Shares
contemplated by this Agreement is conditioned upon the satisfaction or waiver,
at or prior to Closing, of the following conditions:
7.1 Good Standing and Other Certificates. The Purchaser shall have
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received (a) copies of the Company Formation Documents, including all amendments
thereto, in each case certified by the Secretary of State of the State of Nevada
(the "Nevada Secretary of State"), (b) a certificate from the Nevada Secretary
of State to the effect that the Company is in good standing and listing all
charter documents of the Company on file, and (c) if applicable, a certificate
as to the tax status of the Company from the appropriate official in the State
of Nevada.
7.2 Closing Documents. The Closing Documents requiring execution by
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the Company shall have been executed and delivered by the Company.
7.3 Legal Opinion. Purchaser shall have received an opinion of Silicon
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Valley Law Group, LLP, counsel to the Company, in the form attached hereto as
Exhibit B.
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7.4 Employment Agreement. Company shall have entered into an employment
---------------------
agreement with Jack Marshall as Vice Chairman and Chairman of the Executive
Committee on commercially reasonable terms. Purchaser shall have the right to
participate in the negotiations with respect to such employment agreement.
7.5 No Material Adverse Change. Since the date of this Agreement,
-----------------------------
prior to the Closing, there shall have been no Material Adverse Change.
7.6 Truth of Representations and Warranties. The representations and
---------------------------------------
warranties of the Company contained in this Agreement shall have been true and
correct as of the date hereof and shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date, and the Company shall have each delivered
to the Purchaser a certificate, dated the Closing Date, to such effect as to the
respective representations and warranties made by it, provided, however, that
-------- -------
such certificate shall represent and warrant as of the Closing Date regarding
the number of shares of Common Stock authorized, the number of shares of Common
Stock issued and outstanding, the number of shares of Preferred Stock authorized
and the number of shares of Preferred Stock issued and outstanding.
7.7 Performance of Covenants. All of the covenants of the Company to be
------------------------
performed prior to the Closing pursuant to Article V hereof shall have been duly
performed in all material respects, and the Company shall have each delivered to
the Purchaser a certificate, dated the Closing Date, to such effect.
7.8 No Litigation. No action or proceedings shall have been instituted
-------------
before a court or other Governmental Authority which has resulted in a then
pending temporary restraining order, preliminary and permanent judgment, order,
or decree restraining or enjoining the consummation of the transactions
contemplated hereby.
7.9 Voting Agreement. That certain Voting Agreement in the form
-----------------
attached hereto as Exhibit C shall have been executed by the parties thereto.
7.10 Bay Tree Capital Associates, LLC Waiver. Bay Tree Capital
----------------------------------------
Associates, LLC ("Bay Tree") shall have provided a written waiver of its right
of first refusal and its registration rights under that certain ___, dated as of
___, between Bay Tree and the Company in form satisfactory to Purchaser in its
sole discretion.
7.11 Board Resignation. The resignation of Chris McConn, Director of the
------------------
Company, shall have been executed by him.
7.12 Tender of Purchased Stock. The Company shall tender the Purchased
-------------------------
Stock to the Purchaser in accordance with the terms of this Agreement.
7.13 Indemnity Agreement. Company shall have entered into indemnity
--------------------
agreements in the form attached hereto as Exhibit D with each director
designated in accordance with Section 6.4 hereof.
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7.14 Change-of-Control. To the extent applicable, the Company shall have
-----------------
obtained the necessary waivers and consents in order that the purchase by
Purchaser of the Purchased Shares and the conversion of the Purchased Shares
into Common Stock shall not be deemed to be a "change of control" under any
employment agreement of the Company or any stock option plan of the Company.
ARTICLE VIII
CONDITIONS TO THE COMPANY'S OBLIGATIONS
---------------------------------------
The obligation of the Company to sell the Purchased Stock contemplated by
this Agreement is conditioned upon the satisfaction or waiver, at or prior to
Closing, of the following conditions:
8.1 Truth of Representations and Warranties. The representations and
-----------------------------------------
warranties of the Purchaser contained in this Agreement shall be true and
correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
Purchaser shall have delivered to the Company an officer's certificate, dated
the Closing Date, to such effect.
8.2 Third-Party Consents; Government Approvals. All consents, approvals
-------------------------------------------
or waivers, if any, disclosed on Schedule 8.2 attached hereto shall have been
-------------
received and delivered to the Company. All of the consents, approvals,
authorizations, exemptions and waivers from Government Authorities that shall be
required in order to permit the consummation of the transactions contemplated
hereby shall have been obtained.
8.3 Performance of Agreements. All of the covenants of the Purchaser to
--------------------------
be performed prior to the Closing pursuant to Article V hereof shall have been
duly performed in all material respects, and the Purchaser shall have delivered
to the Company a certificate, dated the Closing Date, to such effect.
8.4 No Litigation. No action or proceeding shall be instituted or
--------------
threatened before a court or other Governmental Authority which has resulted in
a then pending temporary restraining order, preliminary or permanent judgment,
order a decree restraining or enjoining the consummation of the transactions
contemplated hereby.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
9.1 Survival of Representations. The respective representations and
-----------------------------
warranties of the Company and the Purchaser contained in this Agreement shall
survive the Closing for a period of 18 months, at the end of which period no
claim may be made with respect to any such representation or warranty unless
such claim shall have been asserted in writing to the Indemnifying Party during
such period pursuant to Section 9.3, except for the representations and
13
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warranties contained in Sections 3.1, 3.2, 3.3, 3.7, 3.10, 3.11, 3.12 and 4.1,
which, in each case, shall survive indefinitely.
9.2 Indemnification.
---------------
(a) The Company hereby agrees to indemnify and hold the Purchaser and
its officers, directors, affiliates, representatives, trustees,
grantors, beneficiaries and agents, and any successors thereto
(the "Purchaser Indemnitees"), harmless from any and all damages,
losses, costs or reasonable expenses (including, without
limitation, reasonable fees and expenses of investigation and
reasonable attorneys' and consultants' fees and expenses in
connection with any action suit, or proceeding) (collectively,
"Damages") incurred or suffered as a result of or arising out of:
(i) the breach of any representation or warranty made by or on
behalf of the Company pursuant to Article III of this Agreement
or any other certificate or document delivered by the Company
pursuant to this Agreement, (ii) the breach of any covenant or
agreement made or to be performed by the Company pursuant to this
Agreement and (iii) any expenses or Damages resulting or arising
from Purchaser's activities as an active investor pursuant to
Section 6.3, provided that the Company shall not be obligated to
indemnify the Purchaser for any acts of willful misconduct or
recklessness, or knowing misrepresentations regarding the
Company.
(b) The Purchaser hereby agrees to indemnify and hold the Company and
its officers, directors, affiliates, representatives, trustees,
grantors, beneficiaries and agents, and any successors thereto
(the "Company Indemnitees") harmless from Damages incurred or
suffered as a result of or arising out of (i) the breach of any
representation or warranty made by the Purchaser pursuant to
Article IV of this Agreement or any other certificate or document
delivered by the Purchaser pursuant to this Agreement; or (ii)
the breach of any covenant or agreement made or to be performed
by the Purchaser pursuant to this Agreement.
(c) Absent fraud, the indemnification provisions under this Article
IX shall be the exclusive remedy for any breach of the covenants,
obligations, representations or warranties set forth in this
Agreement; provided, however, -------- ------- that the
provisions of this Section 9.2(c) shall not prevent the Company
or the Purchaser from seeking the remedies of specific
performance or injunctive relief in connection with a breach of a
covenant or agreement of any party contained herein.
9.3 Indemnification Procedure.
--------------------------
(a) Any party seeking indemnification (the "Indemnified Party") from
any other party (the "Indemnifying Party") with respect to any
claim, demand, action, proceeding or other matter (the "Claim")
pursuant to this Agreement
14
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shall promptly notify the Indemnifying Party in writing of the
existence of the Claim, setting forth in reasonable detail the
facts and circumstances pertaining thereto and the basis for the
Indemnified Party's right to indemnification.
(b) In the event that any third party notifies any Indemnified Party
with respect to any matter which may give rise to a Claim for
indemnification against the Indemnifying Party under this
Agreement, then the Indemnified Party shall promptly notify the
Indemnifying Party of such Claim; provided, however, that no
delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
liability or obligation hereunder unless (and then solely to the
extent) the Indemnifying Party is prejudiced by such failure to
give notice. The Indemnifying Party, upon waiver of its right to
contest the liability for which indemnification is being sought
and demonstration by the Indemnifying Party of its financial
ability to satisfy any resulting judgment to the reasonable
satisfaction of the Indemnified Party, shall have the right to
assume defense of the Claim if notice is given to the Indemnified
Party within ten (10) days after receipt of notice of such Claim.
If the Indemnifying Party assumes defense of the Claim as
provided in the preceding sentence, then:
(i) the Indemnifying Party will diligently defend the
Indemnified Party against the matter with counsel of its
choice reasonably satisfactory to the Indemnified Party;
(ii) the Indemnified Party may retain separate co-counsel at its
sole cost and expense (except that the Indemnifying Party
will be responsible for the fees and expenses of the
separate co-counsel (a) to the extent the Indemnified Party
concludes reasonably based upon advice of counsel that a
conflict of interest exists between the Indemnified Party
and Indemnifying Party or (b) the named parties to any such
action (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party and such
Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to the
Indemnified Party which are not available to the
Indemnifying Party, or available to the Indemnifying Party,
but the assertion of which would be adverse to the interest
of the Indemnified Party;
(iii)the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the
matter without the written consent of the Indemnifying Party
(not to be withheld or delayed unreasonably; it being
understood and agreed that failure to consent to a judgment
or settlement that provides for relief other than monetary
damages or does not provide an
15
<PAGE>
unconditional release of the Indemnifying Party from
liability shall not be deemed unreasonable); and
(iv) The Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement, without the written
consent of the Indemnified Party (not to be withheld or
delayed unreasonably; it being understood and agreed that
failure to consent to a judgment or settlement that provides
for relief other than monetary damages or does not provide
an unconditional release of the Indemnified Party from
liability shall not be deemed unreasonable).
(c) If no Indemnifying Party notifies the Indemnified Party within
ten (10) days after the Indemnified Party has given notice of the
matter that the Indemnifying Party is assuming the defense
thereof, then the Indemnified Party may defend against, or enter
into any settlement with respect to, the matter in any manner it
reasonably may deem appropriate, without prejudice to any of its
rights hereunder.
(d) The Indemnified Party shall be entitled to reimbursement of
reasonable expenses included in Damages with respect to any Claim
(including, without limitation, the cost of defense, preparation
and investigation relating to such Claim) as such expenses are
incurred by the Indemnified Party; provided, however, that the
Indemnified Party shall undertake to repay any amounts arising
solely from the fault of such Indemnified Party.
(e) The rights and remedies of the Purchaser Indemnitees under
Article IX shall not be limited or otherwise affected by or as a
result of any information furnished to, or any investigation made
by or knowledge of, any of the Purchaser Indemnitees or any of
their respective representatives or agents.
ARTICLE X
MISCELLANEOUS
-------------
10.1 Knowledge of the Company. Where any representation or warranty
---------------------------
made by the any party contained in this Agreement is expressly qualified by
reference to its knowledge, such knowledge shall be deemed to exist if the
matter is within the actual knowledge of any of the directors, managers and/or
the executive officers of such party, after having made due inquiry of the
directors, managers and executive officers of such party who would be expected
to have knowledge of the matter.
10.2 Expenses. Except as set forth in Article VI, each party shall pay
--------
all of its own fees, costs and expenses (including, without limitation, fees,
placement fees, costs and expenses of legal counsel, investment bankers, brokers
or other representatives and consultants) incurred in connection with the
negotiation of this Agreement and the other agreements contemplated hereby, the
performance of its obligations hereunder and thereunder, and the consummation of
16
<PAGE>
the transactions contemplated hereby and thereby (collectively, the "Transaction
Expenses"); provided, however, that the Company will pay all such costs as may
-------- -------
be incurred by the Company and any Taxes in the nature of sales, use or other
transfer Taxes imposed in connection with the transactions contemplated hereby
(except that the Company shall not be obligated to pay any income tax that may
accrue to Purchaser as a result of its purchase of the Purchased Stock). The
Company shall be responsible for all Transaction Expenses of the Company, which
Transaction Expenses shall be paid by the Company on or before the Closing Date.
10.3 Governing Law. THE LAW OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO
--------------
ITS CONFLICTS OF LAWS PROVISIONS) SHALL GOVERN ALL ISSUES AND QUESTIONS
CONCERNING THIS AGREEMENT.
10.4 Publicity. Except as otherwise required by law, none of the parties
---------
(nor any Affiliates thereof) hereto shall issue, prior to the Closing, any press
release or make any other public statement, in each case relating to, connected
with or arising out of this Agreement or the matters contained herein, without
obtaining the prior approval of the Company, on the one hand, and the Purchaser,
on the other hand, to the contents and the manner of presentation and
publication thereof. Subsequent to the Closing, the Purchaser shall the right
to approve any public releases of information mentioning it or any of its
directors, managers, officers or employees.
10.5 Notices. Any notice or other communication required or permitted
under this Agreement shall be sufficiently given if delivered in person or sent
by telecopy (confirmed telephonically) or by registered or certified mail
(postage prepaid), or by courier (return receipt requested), addressed as
follows: (i) if to the Purchaser, to Intellect Capital Group, LLC 11111 Santa
Monica blvd., Ste. 650, Los Angeles, CA 90025, Attention: Terren S. Peizer
(Facsimile Number: (310) 479-2959), and a copy to the Purchaser's counsel,
Manatt, Phelps & Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles, CA
90064 (Facsimile Number: (310) 312-4224), Attention: Robert Platt, Esq.; (ii) if
to the Company, to PhotoLoft.Com, Inc., 300 Orchard City Drive, Ste. 142,
Campbell, CA 95008, Attention: Jack Marshall, (Facsimile Number: (408) 364-8778)
and a copy to the Company's counsel, Silicon Valley Law Group, 152 North 3rd
Street, Suite 900, San Jose, CA 95112 (Facsimile Number: (408) 286-1400),
Attention: James C. Chapman, Esq. or such other address or number as shall be
furnished in writing by any such party, and such notice or communication shall
be deemed to have been given as of the date so delivered, sent by facsimile or
mailed.
10.6 Parties in Interest. This Agreement may not be transferred,
--------------------
assigned, pledged or hypothecated by the Company without the prior written
consent of the Purchaser. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. The Purchaser shall have the
right to assign and/or delegate all or any portion of its rights and obligations
under this Agreement and to transfer any of its assets after Closing to any
Affiliate of the Purchaser or any entity majority owned or controlled by
employees of the
17
<PAGE>
Purchaser, provided that Purchaser shall give the Company written notice of such
assignment or transfers.
10.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each counterpart shall constitute an original instrument, but
all of which taken together shall constitute only and one and the same
instrument.
10.8 Entire Agreement. This Agreement, including the other documents
-----------------
referred to herein and therein which form a part hereof and thereof, contain the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
10.9 Amendments. This Agreement may not be changed orally, but only
----------
by an agreement in writing signed by the Purchaser and the Company.
10.10 Severability. In case any provision in this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
10.11 Third-Party Beneficiaries. Except as permitted in Section 10.6,
--------------------------
each party hereto intends that this Agreement shall not benefit or create any
right or cause of action in or on behalf of any Person other than the parties
hereto.
10.12 Attorneys' Fees. Except as provided under Article IX hereof, if
----------------
any action or proceeding shall be commenced to enforce this Agreement or any
right arising in connection with this Agreement, the prevailing party in such
action or proceeding shall be entitled to recover from the other party or
parties the reasonable attorneys' fees, costs and expenses incurred by such
prevailing party in connection with such action or proceeding.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
18
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed on its own behalf or by its respective officer thereunto duly
authorized, all as of the day and year first above written.
PURCHASER:
Intellect Capital Group, LLC
By: /S/ Terren S. Peizer
-----------------------------
Name: Terren S. Peizer
Title: Chairman and CEO
COMPANY:
PhotoLoft.Com, Inc.
By: /S/ Jack Marshall
-----------------------------
Name: Jack Marshall
Title: Chairman and CEO
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
19
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APPENDIX 1
DEFINITIONS
-----------
"1933 Act" shall have the meaning specified in Section 4.2(a).
"Action" means any claim, demand, filing, investigation, action, suit,
proceeding, including administrative and arbitration proceedings, condemnation,
audit or other legal proceeding by any Person or Governmental Authority.
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Agreement" has the meaning set forth in the Preamble hereof.
"Business Day" shall mean any day other than a Saturday or Sunday or any
legal holiday on which commercial banks are authorized or required by law to be
closed for business in Los Angeles, California.
"Claim" shall have the meaning specified in Section 9.3(a).
"Closing" shall have the meaning specified in Section 2.4.
"Closing Date" shall have the meaning specified in Section 2.4.
"Closing Documents" means this Agreement, the Certificate of Designations,
and the Registration Rights Agreement, and all other documents, agreements,
certificates and instruments delivered by the Parties at Closing.
"Company" shall have the meaning specified in the Preamble.
"Company Formation Documents" shall have the meaning specified in Section
3.1.
"Company Indemnitees" shall have the meaning specified in Section 9.2(b)
"Common Stock" shall have the meaning specified in the Recitals.
"Certificate of Designations" shall have the meaning specified in the
Recitals.
"Damages" shall have the meaning specified in Section 9.2(a).
"Domain Names" shall have the meaning specified in Section 3.12.
20
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"Encumbrance" shall mean any encumbrance, security interest, mortgage, deed
of trust, pledge, lien, charge, lease, easement, encroachment, right of first
refusal, right of first offer, purchase offer or other defect in title or
restrictions of any kind or character.
"Financial Statement" shall have the meaning specified in Section 3.7(a).
"Financial Statement Date" shall have the meaning specified in Section
3.7(a).
"Governmental Authority" means any court, government (or governmental or
political subdivision thereof) or governmental department, commission, agency,
body, instrumentality or authority, whether domestic (federal, state or local)
or foreign.
"Indemnified Party" shall have the meaning specified in Section 9.3(a).
"Indemnifying Party" shall have the meaning specified in Section 9.3(a).
"Lien" means, whether or not filed, any mortgage, lien, pledge, collateral
assignment, hypothecation, charge, restriction, security interest, right of
first refusal, right of first offer, purchase offer, easement, encroachment or
encumbrance of any kind.
"Material Adverse Change" shall have the meaning set forth in Section
3.7(b).
"Material Agreements" means those agreements, instruments and other
documents, including, without limitation, Leases, marketing and strategic
alliance agreements, instruments, title coverage and other documents related to
the Real Property identified on Schedule 3.10(a). -----------------
"Nevada Secretary of State" shall have the meaning specified in Section
6.2.
"Party" or "Parties" means the Purchaser and the Company and their
respective successors and assigns.
"Person" means any individual, sole proprietorship, firm, corporation,
partnership, limited liability company, association, joint venture, trust or
other entity or enterprise or any Governmental Authority.
"Preferred Stock shall have the meaning specified in Section 3.2.
"Purchase Price" shall have the meaning specified in Section 2.3.
"Purchased Stock" shall have the meaning specified in the Recitals
"Purchaser" shall have the meaning specified in the Preamble.
"Purchaser Indemnitees" shall have the meaning specified in Section 9.2(a).
21
<PAGE>
"Registration Rights Agreement" shall mean that certain Registration Rights
Agreement to be executed as of the Closing Date by the Company and the Purchaser
in the form attached hereto as Exhibit E.
"SEC" shall have the meaning specified in Section 4.2(b).
"Shareholders" shall have the meaning specified in Section 3.2.
"Trademarks" shall have the meaning specified in Section 3.12.
"Transaction Expenses" shall have the meaning specified in Section 10.2.
22
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