[EXECUTION COPY]
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STOCK PURCHASE AGREEMENT
BY AND BETWEEN
EHOTHOUSE INC.
AND
CHANGE TECHNOLOGY PARTNERS, INC.
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DATED: SEPTEMBER 15, 2000
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS...........................................................1
1.1 Definitions..................................................1
ARTICLE II
PURCHASE AND SALE OF PREFERRED STOCK.................................11
2.1 Purchase and Sale of Preferred Stock........................11
2.2 Closings....................................................11
(a) Initial Closing....................................11
(b) Subsequent Closing.................................12
(c) Subsequent Closing Defined Terms...................13
(d) Subsequent Closing.................................13
(e) Tax Matters........................................14
2.3 Certificate of Incorporation................................14
2.4 Use of Proceeds.............................................14
2.5 Secretary's Certificate.....................................14
2.6 Certificate of Incorporation and By-laws....................15
2.7 Election to Board of Directors..............................15
2.8 Filing of Certificate of Incorporation......................15
2.9 Certificates in Definitive Form.............................16
2.10 Opinions of Counsel.........................................16
2.11 Good Standing Certificates..................................16
2.12 Business Plan...............................................16
2.13 Stockholders Agreement......................................16
2.14 Registration Rights Agreement...............................16
2.15 Consulting Agreements.......................................16
2.16 Restricted Stock Agreements.................................16
2.17 Proprietary Invention Agreements............................17
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
....................................................................17
3.1 Corporate Existence and Power...............................17
3.2 Authorization; No Contravention.............................17
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3.3 Governmental Authorization; Third Party Consents............17
3.4 Binding Effect..............................................18
3.5 Litigation..................................................18
3.6 Compliance with Laws........................................18
3.7 Capitalization..............................................18
3.8 No Default or Breach; Contractual Obligations...............20
3.9 Title to Properties.........................................20
3.10 FIRPTA......................................................20
3.11 Financial Statements........................................20
3.12 Taxes.......................................................20
3.13 Investment Company..........................................21
3.14 Private Offering............................................21
3.15 Employee Benefit Plans......................................22
3.16 Liabilities.................................................22
3.17 Intellectual Property.......................................22
3.18 Potential Conflicts of Interest.............................22
3.19 Broker's, Finder's or Similar Fees..........................23
3.20 Qualified Small Business....................................23
3.21 Disclosure..................................................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
....................................................................23
4.1 Existence and Power.........................................23
4.2 Authorization; No Contravention.............................24
4.3 Governmental Authorization; Third Party Consents............24
4.4 Binding Effect..............................................24
4.5 Purchase for Own Account....................................24
4.6 Restricted Securities.......................................25
4.7 Broker's, Finder's or Similar Fees..........................25
4.8 Accredited Investor.........................................25
4.9 SEC Documents...............................................25
4.10 Capitalization..............................................26
4.11 Investment Company..........................................26
ARTICLE V
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CONDITIONS TO THE
OBLIGATION OF THE PURCHASER TO CLOSE.................................26
5.1 Representation and Warranties...............................26
5.2 Compliance with this Agreement..............................26
5.3 Officer's Certificate.......................................27
5.4 Secretary's Certificate.....................................27
5.5 Subsequent Purchased Shares.................................27
5.6 Registration Rights.........................................27
5.7 Transaction Documents.......................................27
5.8 Good Standing Certificates..................................27
5.9 No Material Adverse Change..................................27
5.10 Consents and Approvals......................................27
5.11 No Material Judgment or Order...............................28
5.12 No Litigation...............................................28
5.13 Strategic Investment Round..................................28
ARTICLE VI
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
....................................................................28
6.1 Representation and Warranties...............................29
6.2 Compliance with this Agreement..............................29
6.3 Officer's Certificate.......................................29
6.4 Secretary's Certificate.....................................29
6.5 Payment of Purchase Price...................................30
6.6 Good Standing Certificates..................................30
ARTICLE VII
INDEMNIFICATION
....................................................................30
7.1 Indemnification by the Indemnifying Party...................30
7.2 Notification................................................31
7.3 Contribution................................................32
7.4 Limitation on Liability.....................................32
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ARTICLE VIII
COVENANTS
....................................................................32
8.1 Preservation of Existence...................................32
8.2 Reservation of Common Stock.................................33
8.3 Books and Records; Business Plan............................33
8.4 New Securities Issuances....................................33
8.5 Friends and Family Investment Round.........................35
8.6 Strategic Investment Round..................................35
8.7 Key-Man Insurance...........................................35
8.8 Stock Option Plan...........................................35
8.9 Advisory Board..............................................36
8.10 Inspection Rights...........................................36
8.11 Subsequent Closing Date.....................................36
8.12 Notification of Certain Matters.............................36
8.13 Issuance of Purchaser Common Stock..........................37
(a) Demand Right.......................................37
(b) Exercise of the Demand Right.......................37
(c) Effectiveness of Exercise of the Demand Right......37
(d) Automatic Exercise.................................38
(e) Reservation of Demand Shares.......................38
(g) Incidental or "Piggy-Back" Registration Rights. ...38
(g) Charges, Taxes and Expenses........................40
(h) Specific Performance...............................40
8.14 Class B Common Stock........................................40
ARTICLE IX
TERMINATION OF AGREEMENT
....................................................................40
9.1 Termination.................................................40
9.2 Survival....................................................41
ARTICLE X
MISCELLANEOUS
....................................................................41
10.1 Survival of Representations and Warranties..................41
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10.2 Notices.....................................................42
10.3 Successors and Assigns; Third Party Beneficiaries...........43
10.4 Amendment and Waiver........................................43
10.5 Counterparts................................................43
10.6 Headings....................................................44
10.7 Severability................................................44
10.8 Rules of Construction.......................................44
10.9 Interpretation..............................................44
10.10 Certain Acknowledgments.....................................44
10.11 Entire Agreement............................................44
10.12 Fees........................................................45
10.13 Publicity; Confidentiality..................................45
10.14 Further Assurances..........................................46
10.15 GOVERNING LAW...............................................46
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DISCLOSURE SCHEDULES AND EXHIBITS
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DISCLOSURE SCHEDULES
Schedule 2.17 Proprietary Invention Agreements
Schedule 3.7 Capitalization
Schedule 3.8 Contractual Obligations
Schedule 3.12 Taxes
Schedule 3.17 Intellectual Property
Schedule 3.18 Potential Conflicts of Interest
EXHIBITS
Exhibit A Form of Business Plan
Exhibit B Form of By-laws
Exhibit C Form of Certificate of Incorporation
Exhibit D Form of Consulting Agreements
Exhibit E Form of Proprietary Invention Agreements
Exhibit F Form of Registration Rights Agreement
Exhibit G Form of Restricted Stock Agreements
Exhibit H Form of Stockholders Agreement
Exhibit I Form of Opinion of Rosenman & Colin LLP
Exhibit J Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated September 15, 2000 (this
"AGREEMENT"), by and between eHotHouse Inc., a Delaware corporation (the
"COMPANY"), and Change Technology Partners, Inc., a Delaware corporation (the
"PURCHASER").
WHEREAS, upon the terms and conditions set forth in this
Agreement, the Company proposes to issue and sell to the Purchaser, for the
aggregate purchase price of $3,000,000 in cash and a covenant to issue 6,374,502
shares of the Common Stock of the Purchaser, par value $0.01 per share (the
"PURCHASER COMMON STOCK") in accordance with Section 8.13 herein, an aggregate
of 9,166,667 shares, par value $0.01 per share, of Series A Convertible
Participating Preferred Stock of the Company (the "PREFERRED STOCK"); and
WHEREAS, upon the terms and conditions set forth herein, the
Purchaser may invest in the Company an additional $2,000,000 in cash and a
covenant to issue a number of shares of Purchaser Common Stock determined in
accordance with Article II herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
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1.1 DEFINITIONS. All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed to be references to Articles and Sections
of, and Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. All Exhibits and Schedules attached hereto shall be deemed
incorporated herein as if set forth in full herein and, unless otherwise defined
therein, all terms used in any Exhibit or Schedule shall have the meaning
ascribed to such term in this Agreement. The words "INCLUDE," "INCLUDES" and
"INCLUDING" shall be deemed to be followed by the phrase "WITHOUT LIMITATION."
The words "HEREOF," "HEREIN" and "HEREUNDER" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement unless the context shall otherwise
require. Unless otherwise expressly provided herein, any agreement, instrument
or statute defined
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or referred to herein or in any agreement or instrument that is referred to
herein means such agreement, instrument or statute as from time to time amended,
modified or supplemented, including (in the case of agreements or instruments)
by waiver or consent and (in the case of statutes) by succession of comparable
successor statutes and references to all attachments thereto and instruments
incorporated therein. As used in this Agreement, and unless the context requires
a different meaning, the following terms have the meanings indicated:
"AFFILIATE" means any Person who is an "AFFILIATE" as defined
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"AGREEMENT" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"ANNUAL REPORT" means the Purchaser's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999 as filed with the Commission.
"APPROVED PURCHASE PRICE PER SHARE" has the meaning set forth
in Section 2.2(b)(iii).
"AUTOMATIC EXERCISE" has the meaning set forth in Section
8.13(d).
"BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"BUSINESS PLAN" means the Business Plan of the Company
substantially in the form attached hereto as EXHIBIT A.
"BY-LAWS" means the by-laws of the Company in effect on the
Closing Date, as the same may be amended from time to time, as attached hereto
as EXHIBIT B.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock.
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"CERTIFICATE OF INCORPORATION" means the Second Amended and
Restated Certificate of Incorporation of the Company in effect on the Closing
Date, as the same may be amended from time to time, as attached hereto as
EXHIBIT C.
"CLAIMS" has the meaning set forth in Section 3.5.
"CLASS A COMMON STOCK" means the Class A Common Stock of the
Company, par value $0.01 per share, that shall entitle the holder thereof: (i)
to one (1) vote per share of Class A Common Stock held as of the record date of
any vote of the stockholders of the Company; and (ii) to the other rights set
forth in the Certificate of Incorporation.
"CLASS B COMMON STOCK" means the Class B Common Stock of the
Company, par value $0.01 per share, that shall: (i) entitle the holder thereof
to receive, within a reasonable time after notice of exchange, from the Company,
for every share of Class B Common Stock held, one (1) share of Purchaser Common
Stock (such Purchaser Common Stock to be issued to the Company by the Purchaser
upon demand by the Company in accordance with Section 8.13 herein); (ii) be used
by the Company only in connection with future financings or acquisitions by the
Company reviewed and approved by a majority of the members of the Board of
Directors, including at least one representative of the Purchaser, and only as a
portion of the consideration thereof; (iii) entitle the holder thereof to one
(1) vote per share of Class B Common Stock held as of the record date of any
vote of the stockholders of the Company; and (iv) entitle the holder thereof to
the other rights set forth in the Certificate of Incorporation.
"CLASS C COMMON STOCK" means the Class C Common Stock of the
Company, par value $0.01 per share, that shall: (i) be convertible into Class A
Common Stock at any time or from time to time by the holder thereof; (ii) be
automatically convertible into Class A Common Stock at any time upon the
transfer or assignment by the Purchaser to any third party (other than an
Affiliate); (iii) entitle the holder thereof to ten (10) votes per share of
Class C Common Stock held as of the record date of any vote of the stockholders
of the Company; (iv) entitle the holder thereof to vote together with holders of
the Preferred Stock, if both the Class C Common Stock and the Preferred Stock
are outstanding, as one class, to elect sixty percent (60%) of the Board of
Directors (rounded to the nearest board seat); and (v) entitle the holder
thereof to the other rights set forth in the Certificate of Incorporation.
"CLOSING" has the meaning set forth in Section 2.2(a).
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"CLOSING DATE" has the meaning set forth in Section 2.2(a).
"CLOSING PRICE" of the Purchaser Common Stock as of any day,
means (i) if the Purchaser Common Stock is listed on a national securities
exchange, the mean between the highest and lowest sale prices reported as having
occurred on the primary exchange with which the Purchaser Common Stock is listed
and traded on such date; or (ii) if the Purchaser Common Stock is not listed on
any national securities exchange but is quoted in the National Market System of
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") on a last sale basis, or on the Over the Counter Bulletin Board, the
average between the high bid price and low ask price reported on such date, or,
if there is no such sale on that date, then on the last preceding date on which
a sale was reported.
"CODE" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
"COMMISSION" means the United States Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"COMMON STOCK" means the Class A Common Stock, the Class B
Common Stock and the Class C Common Stock .
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"CONDITION OF THE COMPANY" means the assets, business,
properties, prospects, operations or condition (financial or otherwise) of the
Company.
"CONDITION OF THE PURCHASER" means the assets, business,
properties, prospects, operations or condition (financial or otherwise) of the
Purchaser.
"CONSENT" means the approval by a majority of the members of
the Board of Directors, including at least one representative of the Purchaser
and one Management Director.
"CONSULTING AGREEMENTS" means the Consulting Agreements
substantially in the form attached collectively hereto as EXHIBIT D.
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend,
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guaranty, letter of credit or other obligation, contractual or otherwise (the
"PRIMARY OBLIGATION") of another Person (the "PRIMARY OBLIGOR"), whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security therefor,
(b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"CONTRACTUAL OBLIGATIONS" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, lease, deed of trust or other
instrument to which such Person is a party or by which it or any of its property
is bound.
"DEMAND NOTICE" has the meaning set forth in Section 8.13(b).
"DEMAND RIGHT" has the meaning set forth in Section 8.13(a).
"DEMAND SHARES" has the meaning set forth in Section 8.13(a).
"DESIGNATED HOLDER" has the meaning set forth in Section
8.13(f)(i).
"EXCHANGE ACT" means the United States Securities Exchange Act
of 1934, as amended, or any successor statute thereto, and the rules and
regulations of the Commission thereunder.
"EXEMPT ISSUANCES" means (a) any issuance of shares of
restricted stock or options to purchase shares of the Purchaser's Capital Stock
(subject to adjustment in the event of stock splits, combinations or similar
occurrences) to employees, officers, directors and consultants of the Purchaser
pursuant to a stock option plan or other employee benefits arrangements, (b) a
subdivision of the outstanding shares of the Purchaser's Capital Stock into a
larger number of shares of its Capital Stock, (c) any
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issuance of the Purchaser's Capital Stock (i) as a dividend on shares of its
Capital Stock or (ii) upon conversion or exercise of any Stock Equivalents, (d)
the Purchaser's Capital Stock issued in consideration of an acquisition by the
Purchaser of another Person, (e) the Purchaser's Capital Stock issued in
connection with equipment lease financing transactions, commercial bank
financing transactions, executive search services transactions, partnering
arrangements, strategic partnerships or real estate leasing transactions (or
upon conversion or exercise of any such securities), where the issuance of any
such securities is not for the purpose of raising additional equity capital for
the Purchaser, (f) the Purchaser's Capital Stock issued for non-cash
consideration by the Purchaser to another Person and (g) any issuance to the
public pursuant to an effective registration statement filed under the
Securities Act.
"EXERCISE DATE" has the meaning set forth in Section 8.13(c).
"EXPIRATION DATE" has the meaning set forth in Section
8.13(a).
"FINANCIAL STATEMENTS" has the meaning set forth in Section
3.11.
"FOUNDERS" means Mr. John W. Gildea, Mr. William P. O'Donnell
and Mr. Matthew Ryan.
"GAAP" means United States generally accepted accounting
principles in effect from time to time.
"GOVERNMENTAL AUTHORITY" means the government of any nation,
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"INCIDENTAL REGISTRATION" has the meaning set forth in Section
8.13(f)(i).
"INDEBTEDNESS" means, as to any Person, (a) all obligations of
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable and accrued commercial or trade liabilities arising in the
ordinary course of business, (c) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
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obligated to be made by such Person, whether periodically or upon the happening
of a contingency, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person under leases which have been
or should be, in accordance with GAAP, recorded as capital leases, (f) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases other than leases included in clause (e)) on any property or asset owned
or held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of that
Person, and (g) any Contingent Obligation of such Person.
"INDEMNIFIED PARTY" has the meaning set forth in Section 7.1.
"INDEMNIFYING PARTY" has the meaning set forth in Section 7.1.
"INDEPENDENT FINANCIAL EXPERT" means an independent nationally
recognized investment banking firm.
"INTELLECTUAL PROPERTY" means patents, copyrights, trade
secrets, know- how, trademarks, service marks, trade names, and Internet domain
names.
"INVESTMENT COMPANY ACT" means the Investment Company Act of
1940, as amended, or any successor statute thereto.
"INVESTMENT NOTICE" has the meaning set forth in Section
2.2(b)(iii).
"KNOWLEDGE" means the knowledge of the Company and Founders
after due inquiry.
"LIABILITIES" has the meaning set forth in Section 3.16.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock and equity related
preferences).
"LOSSES" has the meaning set forth in Section 7.1.
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"MANAGEMENT DIRECTOR" has the meaning set forth in Section
2.7.
"MARKET PRICE" means, with respect to each share of Purchaser
Common Stock as of any date, the average of the daily Closing Prices per share
of Purchaser Common Stock for the thirty (30) consecutive Trading Days prior to
fifth (5th) Trading Day prior to any such date; PROVIDED THAT, if on any of such
Trading Days there is no Closing Price, the Market Price for a share of
Purchaser Common Stock shall be the fair market value of such share as
determined in good faith by the Board of Directors of the Purchaser. If the
Board of Directors of the Purchaser is unable to determine the fair market
value, or if the Company notifies the Purchaser within five (5) Business Days
after receipt of a notice from the Purchaser of the Board's determination of
fair market value that the Company disagrees with such determination, then the
Purchaser and the Company shall select an Independent Financial Expert which
shall determine such fair market value. If the Purchaser and the Company are
unable to agree upon an Independent Financial Expert within fifteen (15) days
after the request by the Company, the Purchaser, on the one hand, and the
Company, on the other, shall each select an Independent Financial Expert within
five (5) days following the expiration of such fifteen (15) day period, and
these two Independent Financial Experts shall select a third Independent
Financial Expert. The determination of fair market value by such Independent
Financial Expert shall be final, binding and conclusive on the Purchaser and the
Company. All costs and fees of any Independent Financial Experts retained in
accordance with the foregoing shall be borne equally by the Purchaser and the
Company.
"NEW SECURITIES" means any Purchaser Common Stock or any
security or obligation which is by its terms convertible into shares of
Purchaser Common Stock (so long as such convertible security (i) does not
entitle the holder thereof to a dividend, interest payment or the equivalent
thereof and (ii) is not a debt security whether or not it is exchangeable for or
convertible into Purchaser Common Stock).
"ORDERS" has the meaning set forth in Section 3.2.
"PERMITS" has the meaning set forth in Section 3.6.
"PERSON" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
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"PREFERRED STOCK" has the meaning set forth in the recitals to
this Agreement.
"PROPRIETARY INVENTION AGREEMENT" means the Proprietary
Invention Agreement substantially in the form attached hereto as EXHIBIT E.
"PURCHASE PRICE SECURITIES" has the meaning set forth in
Section 2.1.
"PURCHASED SHARES" has the meaning set forth in Section 2.1.
"PURCHASER" has the meaning set forth in the preamble to this
Agreement.
"PURCHASER COMMON STOCK" has the meaning set forth in the
recitals to this Agreement.
"PURCHASER COMMON STOCK PER SHARE MARKET PRICE" means the
Market Price per share of Purchaser Common Stock as of the Subsequent Closing
Date.
"PURCHASER NOTICE" has the meaning set forth in Section
8.13(f)(i).
"PURCHASER UNDERWRITER" has the meaning set forth in Section
8.13(f)(i).
"QUARTERLY REPORTS" means the Purchaser's Quarterly Reports on
Form 10-QSB for the quarters ended March 31, 2000 and June 30, 2000, each as
filed with the Commission.
"REGISTRABLE SECURITIES" means, subject to Section 8.13
herein, Demand Shares issued by the Purchaser pursuant to the terms set forth
herein.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT F.
"REGISTRATION STATEMENT" means a Registration Statement filed
pursuant to the Securities Act.
"REPRESENTATIVES" means the officers and directors of the
Purchaser and the employees, counsel, accountants and other authorized
representatives of the Purchaser or any of its Affiliates.
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"REQUIREMENTS OF LAW" means, as to any Person, any law,
statute, treaty, rule, regulation, right, privilege, qualification, license or
franchise or determination of an arbitrator or a court or other Governmental
Authority or stock exchange, in each case applicable or binding upon such Person
or any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.
"RESTRICTED STOCK AGREEMENTS" means the Restricted Stock
Agreements substantially in the form attached hereto as EXHIBIT G.
"SECURITIES ACT" means the United States Securities Act of
1933, as amended, or any successor statute thereto, and the rules and
regulations of the Commission thereunder.
"SEC DOCUMENTS" means the Annual Report, the Quarterly Reports
and all other documents filed by the Purchaser with the Commission thereafter
prior to the date hereof pursuant to Sections 13 or 15(d) of the Exchange Act ,
but shall not include any portion of any document which is not deemed to be
filed under applicable Commission rules and regulations.
"STOCK EQUIVALENTS" means any security or obligation which is
by its terms convertible into or exchangeable or exercisable for shares of
common stock or other Capital Stock of a Person, and any option, warrant or
other subscription or purchase right with respect to common stock or such other
Capital Stock.
"STOCK OPTION PLAN" means the Stock Option Plan of the Company
to be adopted after the date hereof pursuant to which up to 1,500,000 shares of
restricted stock and options to purchase shares of Class A Common Stock are
reserved and available for grant to employees, officers, directors and
consultants of the Company.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
substantially in the form attached hereto as EXHIBIT H.
"SUBSEQUENT CLOSING" has the meaning set forth in Section
2.2(d).
"SUBSEQUENT CLOSING DATE" has the meaning set forth in Section
2.2(d).
"STRATEGIC INVESTMENT ROUND" means the consummation by the
Company after the date hereof of a (i) common equity and/or (ii) convertible
preferred equity (i.e.,
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11
convertible into common equity) financing from one or more strategic investors
(other than the Purchaser) resulting in net proceeds to the Company of at least
$1,000,000 in cash.
"SUBSEQUENT PURCHASE PRICE SECURITIES" has the meaning set
forth in Section 2.2(c).
"SUBSEQUENT PURCHASED SHARES" has the meaning set forth in
Section 2.2(c).
"TAXES" has the meaning set forth in Section 3.12.
"TRADING DAY" shall mean, so long as the Purchaser Common
Stock is listed or admitted to trading on a national securities exchange, a day
on which the principal national securities exchange on which the Common Stock is
listed is open for the transaction of business, or, if the Purchaser Common
Stock is not so listed or admitted for trading on any national securities
exchange, a day on which NASDAQ is open for the transaction of business.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement,
the Stockholders Agreement, the Registration Rights Agreement, the Certificate
of Incorporation, the By-laws, the Consulting Agreements, the Restricted Stock
Agreements and the Proprietary Invention Agreements.
"$" means the United States dollar.
ARTICLE II
PURCHASE AND SALE OF PREFERRED STOCK
------------------------------------
2.1 PURCHASE AND SALE OF PREFERRED STOCK. Subject to the terms
and conditions herein set forth, the Company agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, on the Closing
Date, 9,166,667 shares of Preferred Stock, for an aggregate purchase price of
$3,000,000 in cash and a covenant to issue 6,374,502 shares of Purchaser Common
Stock (the "PURCHASE PRICE SECURITIES") in accordance with Section 8.13 herein
to the Company. All of the shares of Preferred Stock being purchased pursuant to
the foregoing on the Closing Date shall be referred to herein as the "PURCHASED
SHARES."
<PAGE>
12
2.2 CLOSINGS.
(a) INITIAL CLOSING. The closing of the sale and
purchase of the Purchased Shares (the "CLOSING") shall take place at the offices
of Paul, Weiss, Rifkind, Wharton & Garrison, at 2:00 p.m., local time, on the
date hereof, or at such other time, place and date that the Company and the
Purchaser may agree in writing. The "CLOSING DATE" shall be the date the Closing
occurs. On the Closing Date, the Company shall deliver to the Purchaser a
certificate or certificates in definitive form and registered in the name of the
Purchaser, representing the Purchased Shares, against delivery by the Purchaser
to the Company of the aggregate purchase price therefor by wire transfer in
immediately available funds or certified or clearinghouse check representing the
cash portion of the purchase price.
(b) SUBSEQUENT CLOSING.
(i) Unless this Section 2.2(b) shall have
terminated pursuant to Article IX, and subject to the satisfaction or waiver of
the conditions set forth in Articles V and VI, if the Strategic Investment Round
is consummated, the Company may, at anytime thereafter and prior to the one (1)
year anniversary of the Closing Date, require the Purchaser to purchase, and the
Company shall issue and sell to the Purchaser, for the aggregate purchase price
of $2,000,000 in cash and a covenant to issue a number of shares of Purchaser
Common Stock equal to $7,000,000 divided by the Purchaser Common Stock Per Share
Market Price, that number of shares of Preferred Stock equal to $9,000,000
divided by the Approved Purchase Price per Share; PROVIDED, HOWEVER, that the
number of shares of the Preferred Stock purchased pursuant to the foregoing
shall be increased (and the aggregate consideration thereof shall be
appropriately increased) to the extent required to ensure that the Purchaser
will not be deemed to be an "INVESTMENT COMPANY" within the meaning of the
Investment Company Act, so long as any such additional issuance and sale to the
Purchaser does not have a material adverse effect on the Condition of the
Company. If the Subsequent Closing is consummated pursuant to this Section
2.2(b)(i), Section 2.2(b)(ii) shall become void and of no further force and
effect.
(ii) Notwithstanding Section 2.2(b)(i),
unless this Section 2.2(b) shall have terminated pursuant to Article IX, at any
time after the Closing Date and prior to the one (1) year anniversary of the
Closing Date, if the Strategic Investment Round has not yet been consummated,
the Purchaser may require the Company to issue and sell to the Purchaser, for
the aggregate purchase price of $2,000,000 in cash and a covenant to issue a
number of shares of Purchaser Common
<PAGE>
13
Stock equal to $7,000,000 divided by the Purchaser Common Stock Per Share Market
Price, that number of shares of Preferred Stock equal to $9,000,000 divided by
the Approved Purchase Price Per Share; PROVIDED, HOWEVER, that the number of
shares of the Preferred Stock purchased pursuant to the foregoing shall be
increased (and the aggregate consideration thereof shall be appropriately
increased) to the extent required to ensure that the Purchaser will not be
deemed to be an "INVESTMENT COMPANY" within the meaning of the Investment
Company Act, so long as any such additional issuance and sale to the Purchaser
does not have a material adverse effect on the Company as to result in the
Condition of the Company. If the Subsequent Closing is consummated pursuant to
this Section 2.2(b)(ii), Section 2.2(b)(i) shall become void and of no further
force and effect.
(iii) In connection with (A) Section
2.2(b)(i), the Company may exercise its rights thereunder by providing notice to
the Purchaser, and (B) Section 2.2(b)(ii), the Purchaser may exercise its rights
thereunder by providing notice to the Company (each such notice, the "INVESTMENT
NOTICE"), in either case the Board of Directors shall convene, as soon as
practicable after receiving the Investment Notice, and in any event within two
(2) Business Days of such date, to determine the purchase price per share in
accordance with the following sentence. The "APPROVED PURCHASE PRICE PER SHARE"
shall be the fair market value of a share of Preferred Stock as determined with
the Consent of the Board of Directors on the date so determined (or such other
date as determined with the Consent of the Board of Directors), PROVIDED,
HOWEVER, that if the Board of Directors fails to determine such fair market
value, then the Purchaser (i) may revoke, without prejudice, the Investment
Notice or (ii) may request that the Company, by Consent of the Board of
Directors, and the Purchaser select an Independent Financial Expert which shall
determine such fair market value; PROVIDED, FURTHER, HOWEVER, if the Company and
the Purchaser are unable to agree upon an Independent Financial Expert within
five (5) days, the Company, by Consent of the Board of Directors, and the
Purchaser each shall each select an Independent Financial Expert within five (5)
days thereafter, and these two Independent Financial Experts shall select a
third Independent Financial Expert. The determination of such fair market value
by such Independent Financial Expert shall be final, binding and conclusive on
the Company and the Purchaser; PROVIDED THAT, with respect to Section 2.2(b)(ii)
only, the Purchaser shall have two (2) Business Days after receipt of written
notice of such determination revoke, without prejudice, the Investment Notice.
All costs and fees of any Independent Financial Experts retained in accordance
with the foregoing shall be borne equally by the Company and Purchaser.
(c) SUBSEQUENT CLOSING DEFINED TERMS. All of the
shares of Preferred Stock purchased by the Purchaser pursuant to this Section
2.2 on the
<PAGE>
14
Subsequent Closing Date shall be referred to herein as the "SUBSEQUENT PURCHASED
SHARES." The number of shares of Purchaser Common Stock equal to $7,000,000
divided by the Purchaser Common Stock Per Share Market Price as of the
Subsequent Closing shall be referred to herein as the "SUBSEQUENT PURCHASE PRICE
SECURITIES."
(d) SUBSEQUENT CLOSING. The closing of the sale and
purchase of the Subsequent Purchased Shares (the "SUBSEQUENT CLOSING") pursuant
to Section 2.2(b)(i) shall take place at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, at 10:00 a.m., local time, on the second Business Day
following the date upon which the conditions set forth in Articles V and VI
shall be satisfied or waived in accordance with this Agreement, or at such other
time, place and date that the Company and the Purchaser may agree in writing.
The Subsequent Closing pursuant to Section 2.2(b)(ii) shall take place at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison, at 10:00 a.m., local time,
on the tenth Business Day following the date the purchase price per share is
finally determined, PROVIDED THAT if the conditions set forth in Articles V
(other than Section 5.14) and VI shall not have be satisfied or waived in
accordance with this Agreement as of such date, the Subsequent Closing shall
take place the second Business Day following the date upon which the conditions
set forth in Articles V (other than Section 5.14) and VI shall be satisfied or
waived in accordance with this Agreement, or at such other time, place and date
that the Company and the Purchaser may agree in writing. The "SUBSEQUENT CLOSING
DATE" shall be the date the Subsequent Closing occurs. On the Subsequent Closing
Date, the Company shall deliver to the Purchaser a certificate or certificates
in definitive form and registered in the name of the Purchaser, representing the
Subsequent Purchased Shares, against delivery by the Purchaser to the Company of
the aggregate purchase price therefor by wire transfer in immediately available
funds or certified or clearinghouse check representing the cash portion of the
purchase price.
(e) TAX MATTERS. The Company and Purchaser each agree
to (i) treat the aggregate purchase price referred to in Section 2.2(a) herein
as the aggregate purchase price for the Purchased Shares for all tax purposes
unless a contrary treatment is required by law and (ii) treat the aggregate
purchase price referred to in Section 2.2(b) herein as the aggregate purchase
price for the Subsequent Purchased Shares for all tax purposes unless a contrary
treatment is required by law.
2.3 CERTIFICATE OF INCORPORATION. All Preferred Stock
purchased hereunder shall have the preferences and rights set forth in the
Certificate of Incorporation.
<PAGE>
15
2.4 USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Purchased Shares to the Purchaser in accordance with the
Business Plan. If issued and sold to the Purchaser, the Company shall use the
proceeds from the sale of the Subsequent Purchased Shares to the Purchaser in
accordance with the Business Plan.
2.5 SECRETARY'S CERTIFICATE. At the Closing, the
Purchaser shall receive a certificate from the Company, in form and substance
satisfactory to the Purchaser, dated the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company, certifying (a) that the
Company is in good standing with the Secretary of State of the State of
Delaware, (b) that the attached copies of the Certificate of Incorporation, the
By- laws and resolutions of the Board of Directors and resolutions of the
stockholders of the Company approving this Agreement and each of the other
Transaction Documents and the transactions contemplated hereby and thereby, are
all true, complete and correct and remain unamended and in full force and effect
and (c) as to the incumbency and specimen signature of each officer of the
Company executing this Agreement, each other Transaction Document and any other
document delivered in connection herewith on behalf of the Company.
At the Closing, the Company shall receive a certificate from
the Purchaser, in form and substance satisfactory to the Company, dated the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Purchaser, certifying (a) that the Purchaser is in good standing with the
Secretary of State of the State of Delaware, (b) that the attached copies of the
Certificate of Incorporation of the Purchaser, the By-laws of the Purchaser and
resolutions of the Board of Directors of the Purchaser approving this Agreement
and each of the other Transaction Documents to which it is a party and the
transactions contemplated hereby and thereby, are all true, complete and correct
and remain unamended and in full force and effect and (c) as to the incumbency
and specimen signature of each officer of the Purchaser executing this
Agreement, each other Transaction Document to which it is a party and any other
document delivered in connection herewith on behalf of the Purchaser.
2.6 CERTIFICATE OF INCORPORATION AND BY-LAWS. On or prior
to the Closing Date, the Company shall have amended its Certificate of
Incorporation and By-laws (among other things, to: (a) increase the size of the
Board of Directors to five (5) members; (b) designate the common stock of the
Company existing prior to the date hereof as "CLASS A COMMON STOCK"; (c) create
a new series of common stock of the Company designated "CLASS B COMMON STOCK";
(d) create a new series of common stock of the Company designated "CLASS C
COMMON STOCK"; (e) create a new series of preferred stock of the Company
designated"SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK";
<PAGE>
16
and (f) create "BLANK CHECK" preferred stock), in form and substance
satisfactory to the Purchaser.
2.7 ELECTION TO BOARD OF DIRECTORS. On or prior to the
Closing Date, (i) Mr. William Avery, Mr. Michael Gleason and Mr. Ronald Nealson
shall have been elected to the Board of Directors as the representatives of the
Purchaser and (ii) Mr. Matthew Ryan, as Chief Executive Officer of the Company,
and one individual designated by the Chief Executive Officer of the Company and
subject to the reasonable approval of the Purchaser, shall have been elected to
the Board of Directors as the representatives of the management of the Company
(including any successors thereto, each, a "MANAGEMENT DIRECTOR"). As of the
Closing Date, each member of the Board of Directors shall be indemnified against
all liabilities and expenses incurred in connection with his services to the
Company to the fullest extent permitted by Delaware law.
2.8 FILING OF CERTIFICATE OF INCORPORATION. On or prior
to the Closing Date, the Certificate of Incorporation shall have been duly filed
by the Company with the Secretary of State of the State of Delaware in
accordance with the General Corporation Law of the State of Delaware, and the
Purchaser shall have received evidence of such filing in form and substance
reasonably satisfactory to the Purchaser.
2.9 CERTIFICATES IN DEFINITIVE FORM. At the Closing, the
Company shall deliver to the Purchaser certificates in definitive form
representing the number of Purchased Shares purchased hereunder, registered in
the name of the Purchaser.
2.10 OPINIONS OF COUNSEL. On or prior to the Closing Date,
the Purchaser shall have received an opinion of Rosenman & Colin LLP, dated the
Closing Date, relating to the transactions contemplated by or referred to
herein, substantially in the form attached hereto as EXHIBIT I. On or prior to
the Closing Date, the Company shall have received an opinion of Paul, Weiss,
Rifkind, Wharton & Garrison, dated the Closing Date, relating to the
transactions contemplated by or referred to herein, substantially in the form
attached hereto as EXHIBIT J.
2.11 GOOD STANDING CERTIFICATES. On or prior to the
Closing Date, the Company shall have delivered to the Purchaser, dated within
five days of the Closing Date, a good standing certificate for the Company for
its jurisdiction of incorporation and the Purchaser shall have received a
certificate from the an officer of the Company that to there are no facts that
have arisen since the date of such good standing certificate that would cause
the Company not to be in good standing for its jurisdiction of incorporation. On
or prior to the Closing Date, the Purchaser shall have delivered to the Company,
dated
<PAGE>
17
within five days of the Closing Date, a good standing certificate for the
Purchaser for its jurisdiction of incorporation and the Company shall have
received a certificate from the an officer of the Purchaser that to there are no
facts that have arisen since the date of such good standing certificate that
would cause the Purchaser not to be in good standing for its jurisdiction of
incorporation.
2.12 BUSINESS PLAN. On or prior to the Closing Date, the
Board of Directors shall have approved the Business Plan in form and substance
reasonably satisfactory to the Purchaser.
2.13 STOCKHOLDERS AGREEMENT. On or prior to the Closing
Date, the Company and the other parties thereto shall have duly executed and
delivered the Stockholders Agreement.
2.14 REGISTRATION RIGHTS AGREEMENT. On or prior to the
Closing Date, the Company and the other parties thereto shall have duly executed
and delivered the Registration Rights Agreement.
2.15 CONSULTING AGREEMENTS. On or prior to the Closing
Date, the Company and Mr. John W. Gildea and Mr. William P. O'Donnell shall have
each duly executed and delivered the Consulting Agreements, as appropriate.
2.16 RESTRICTED STOCK AGREEMENTS. On or prior to the
Closing Date, the Company and each of Mr. John W. Gildea and/or Mr. William P.
O'Donnell (on behalf of Iron City Capital, LLC, a Delaware limited liability
company wholly-owned by Mr. John W. Gildea and Mr. William P. O'Donnell) and Mr.
Matthew Ryan shall have duly executed and delivered the Restricted Stock
Agreements, as appropriate.
2.17 PROPRIETARY INVENTION AGREEMENTS. On or prior to the
Closing Date, the Company and each of the employees and consultants of the
Company, including, without limitation, each of the Founders, shall have duly
executed and delivered a Proprietary Invention Agreement, as appropriate.
Schedule 2.17 sets forth the names of each of the employees, consultants and
independent contractors of the Company as of the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
<PAGE>
18
The Company represents and warrants to the Purchaser as
follows:
3.1 CORPORATE EXISTENCE AND POWER. The Company: (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation; and (b) has the requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and each of the other Transaction Documents. The Company is a newly
formed corporation and, except for the activities contemplated by this Agreement
and except for the incurrence and payment of professional, marketing and other
fees disclosed to the Purchaser in writing, (i) has not engaged in any business
whatsoever and has not entered into any Contractual Obligations with any Person
other than as disclosed on SCHEDULE 3.8 and (ii) is not subject to or bound by
any obligation or undertaking other than as disclosed on SCHEDULE 3.8.
3.2 AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by the Company of this Agreement and each of the other
Transaction Documents and the transactions contemplated hereby and thereby: (a)
have been duly authorized by all necessary corporate action of the Company; (b)
do not contravene the terms of the Certificate of Incorporation or the By-laws;
(c) do not violate, conflict with or result in any breach, default or
contravention of (or with due notice or lapse of time or both would result in
any breach, default or contravention of), or the creation of any Lien under, any
Contractual Obligation of the Company or any Requirement of Law applicable to
the Company; and (d) do not violate any judgment, injunction, writ, award,
decree or order of any nature (collectively, "ORDERS") of any Governmental
Authority against, or binding upon, the Company.
3.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. No
approval, consent, compliance, exemption, authorization or other action by, or
notice to, or filing with, any Governmental Authority or any other Person, and
no lapse of a waiting period under a Requirement of Law, is necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the sale, issuance and delivery of the Purchased Shares) by,
or enforcement against, the Company of this Agreement and the other Transaction
Documents or the transactions contemplated hereby and thereby.
3.4 BINDING EFFECT. This Agreement and each of the other
Transaction Documents have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or
<PAGE>
19
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
3.5 LITIGATION. There are no actions, suits, proceedings,
claims, complaints, disputes, arbitrations or investigations (collectively,
"CLAIMS") pending or, to the Knowledge of the Company, threatened, at law, in
equity, in arbitration or before any Governmental Authority against the Company.
The Company has not received written notice of any Order and no Order has been
issued by any court or other Governmental Authority against the Company
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any of the other Transaction Documents.
3.6 COMPLIANCE WITH LAWS. The Company is in compliance in
all material respects with all Requirements of Law and all Orders issued by any
court or Governmental Authority against the Company that are not expressly
covered by any other representation or warranty of the Company set forth in this
Article III in all respects. The Company has all licenses, permits and approvals
of any Governmental Authority (collectively, "PERMITS") that are necessary for
the conduct of the business of the Company; (ii) such Permits are in full force
and effect; and (iii) no violations are or have been recorded in respect of any
Permit. No material expenditure is presently required by the Company to comply
with any existing Requirement of Law or Order.
3.7 CAPITALIZATION.
(a) SCHEDULE 3.7 sets forth, as of the Closing
Date, after giving effect to the transactions contemplated by this Agreement,
the number of authorized capital stock of the Company and the number of issued
and outstanding shares of each series of capital stock. SCHEDULE 3.7 sets forth,
as of the Closing Date, a true and complete list of (x) the stockholders of the
Company (including any trust or escrow agent arrangement created in connection
with any employee stock option plan) and, opposite the name of each stockholder,
the amount of all outstanding capital stock and Stock Equivalents of the Company
owned by such stockholder and (y) the holders of Stock Equivalents of the
Company and, opposite the name of each such holder, the amount of all Stock
Equivalents of the Company owned by such holder. SCHEDULE 3.7 sets forth the
number of shares of Class A Common Stock reserved for issuance upon conversion
of the Purchased Shares and number of shares of Class C Common Stock reserved
for issuance upon conversion of the Purchased Shares. Except as set forth on
SCHEDULE 3.7, there are no options, warrants, conversion privileges,
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire (i) any authorized but unissued,
<PAGE>
20
unauthorized or treasury shares of the Company's Capital Stock, (ii) any Stock
Equivalents of the Company or (iii) other securities of the Company and there
are no commitments, contracts, agreements, arrangements or understandings by the
Company to issue any shares of the Company's Capital Stock or any Stock
Equivalents of the Company or other securities of the Company.
The Purchased Shares are duly authorized, validly issued,
fully paid and non-assessable, were issued in compliance with the registration
and qualification requirements of all applicable federal, state and foreign
securities laws and will be free and clear of all other Liens (other than those
imposed by the Stockholders Agreement). The shares of Common Stock issuable upon
conversion of the Purchased Shares have been duly reserved for issuance upon
conversion of the Preferred Shares and, when issued in compliance with the
provisions of the Certificate of Incorporation, will be validly issued, fully
paid and non-assessable and not subject to any preemptive rights or similar
rights that have not been satisfied and will be free and clear of all other
Liens (other than those imposed by the Stockholders Agreement). All of the
issued and outstanding shares of Common Stock and Preferred Stock are all duly
authorized, validly issued, fully paid and non-assessable, and were issued in
compliance with the registration and qualification requirements of all
applicable federal, state and foreign securities laws.
(b) The Company does not directly or indirectly
own or have any investment in any of the Capital Stock of, or any other
proprietary interest in, any Person.
(c) The Purchased Shares to be purchased by the
Purchaser hereunder represent, in the aggregate, on the Closing Date, not less
than 75.34% of the outstanding shares of Class A Common Stock on a fully diluted
basis assuming the conversion, exercise or exchange of any outstanding
securities into shares of Class A Common Stock, including, without limitation,
all of the Class B Common Stock, Class C Common Stock, the Series A Preferred
Stock and all Stock Equivalents, but excluding the grant of 1,500,000 options
that may be granted under the Stock Option Plan and the exercise thereof.
(d) On or prior to the Subsequent Closing Date,
the Company shall revise SCHEDULE 3.7 as attached hereto to give effect to the
transactions contemplated by this Agreement as of the Subsequent Closing Date.
3.8 NO DEFAULT OR BREACH; CONTRACTUAL OBLIGATIONS. The
Company has not received notice of a default and is not in default under, or
with respect to, any Contractual Obligation nor does any condition exist that
with notice or lapse of time or
<PAGE>
21
both would constitute a default thereunder. SCHEDULE 3.8 lists all of the
Contractual Obligations to which the Company is a party, whether written or
oral. All of such Contractual Obligations are valid, subsisting, in full force
and effect and binding upon the Company and the other parties thereto, and the
Company has paid in full or accrued all amounts due thereunder and has satisfied
in full or provided for all of its liabilities and obligations thereunder. To
the Knowledge of the Company, no other party to any such Contractual Obligation
is in default thereunder, nor does any condition exist that with notice or lapse
of time or both would constitute a default by such other party thereunder. On or
prior to the Subsequent Closing Date, the Company shall revise SCHEDULE 3.8 as
attached hereto to reflect any changes after the date hereof.
3.9 TITLE TO PROPERTIES. The Company has good, record and
marketable title in fee simple to, or holds interests as lessee under leases in
full force and effect in, all real property used in connection with its business
or otherwise owned or leased by it.
3.10 FIRPTA. The Company is not a "FOREIGN PERSON" within
the meaning of Section 1445 of the Code.
3.11 FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser an unaudited financial statement of the Company as of September
12, 2000 (the "FINANCIAL STATEMENTS"). The Financial Statements fairly presents
in all material respects the financial position of the Company as of the date
thereof. The Financial Statements fairly presents, in all material respects, the
results of operations for the period then ended. The Company has no outstanding
Indebtedness other than as disclosed on the Financial Statements.
3.12 TAXES. Except as set forth on SCHEDULE 3.12, (a) the
Company has paid all federal, state, county, local, foreign and other taxes,
including, without limitation, income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, gross receipts taxes, franchise taxes, employment and
payroll related taxes, property taxes and import duties, whether or not measured
in whole or in part by net income (hereinafter, "TAXES" or, individually, a
"TAX") shown to be due on all returns for Taxes filed by the Company, and all
deficiencies or other additions to Tax, interest and penalties owed by it in
connection with any such Taxes, other than Taxes being disputed by the Company
in good faith for which adequate reserves have been made in accordance with
GAAP; (b) the Company has timely filed or caused to be filed all returns for
Taxes that it is required to file on and through the date hereof (including all
applicable extensions), and, to the Knowledge of the Company, all such Tax
returns are accurate and complete; (c) with respect to all Tax returns of the
Company, (i) there is no unassessed Tax deficiency proposed or, to the
<PAGE>
22
Knowledge of the Company, threatened against the Company and (ii) no audit is in
progress with respect to any return for Taxes, no extension of time is in force
with respect to any date on which any return for Taxes was or is to be filed and
no waiver or agreement is in force for the extension of time for the assessment
or payment of any Tax; (d) all provisions for Tax liabilities of the Company
with respect to the Financial Statements have been made in accordance with GAAP
consistently applied, and all liabilities for Taxes of the Company attributable
to periods prior to or ending on the Closing Date have been adequately provided
for on the Financial Statements; and (e) there are no Liens for Taxes on the
assets of the Company.
The Company is an "ELIGIBLE CORPORATION" (as defined in
Section 1202(e)(4) of the Code). The Company has not made any purchases of its
Capital Stock during the one-year period preceding the date hereof having an
aggregate value exceeding five percent (5%) of the aggregate value of all of its
Capital Stock as of the beginning of such period. At or prior to the Closing
Date, the Company's aggregate "GROSS ASSETS" (as defined in Section 1202(d)(2)
of the Code) has at no time exceeded, nor is expected to exceed, $50,000,000,
taking into account the assets of any Persons required to be aggregated with the
Company in accordance with Section 1202(d)(3) of the Code.
3.13 INVESTMENT COMPANY. The Company is not and is not
controlled by or affiliated with an "INVESTMENT COMPANY" within the meaning of
the Investment Company Act, other than solely as a result of this Agreement.
3.14 PRIVATE OFFERING. No form of general solicitation or
general advertising was used by the Company or its representatives in connection
with the offer or sale of the Purchased Shares. No registration of the Purchased
Shares, pursuant to the provisions of the Securities Act or any state securities
or "BLUE SKY" laws, will be required by the offer, sale or issuance of the
Purchased Shares. The Company agrees that neither it, nor anyone acting on its
behalf, shall offer to sell the Purchased Shares or any other securities of the
Company so as to require the registration of the Purchased Shares pursuant to
the provisions of the Securities Act or any state securities or "BLUE SKY" laws,
unless such Purchased Shares or other securities are so registered.
3.15 EMPLOYEE BENEFIT PLANS. The Company does not maintain
or contribute to any plan that is intended to be a tax-qualified plan under
Section 401(a) of the Code.
3.16 LIABILITIES. The Company does not have any direct or
indirect obligation or liability (the "LIABILITIES") other than (a) Liabilities
that would not be
<PAGE>
23
required to be disclosed on the Financial Statements since the date of the
balance sheet and (b) Liabilities incurred in the ordinary course of business.
The Company has no Knowledge of any circumstance, condition, event or
arrangement that could reasonably be expected to give rise hereafter to any
Liabilities of the Company except in the ordinary course of business.
3.17 INTELLECTUAL PROPERTY. The Company has the rights to
use, sell, and/or license all Intellectual Property owned or licensed by the
Company, except as otherwise disclosed on SCHEDULE 3.17. The Company has not
been a party to any claim, nor, to the Knowledge of the Company, is any claim
threatened, that challenges the Company's right to use, sell, or license any
Intellectual Property, except as set otherwise disclosed on SCHEDULE 3.17. It is
not necessary for the Company's business to use any Intellectual Property owned
by any director, officer, employee or consultant of the Company (or persons the
Company presently intends to hire). All present employees of the Company have
executed and delivered Proprietary Invention Agreements with the Company, and
are obligated under the terms thereof to assign all inventions made by them
during the course of employment to the Company. On or prior to the Subsequent
Closing Date, the Company shall revise SCHEDULE 3.17 as attached hereto to
reflect any changes after the date hereof.
3.18 POTENTIAL CONFLICTS OF INTEREST. Except as otherwise
disclosed on SCHEDULE 3.18, no officer, director or one percent (1%) or more
stockholder of the Company, no spouse of any such officer, director or one
percent (1%) or more stockholder, and, to the Knowledge of the Company, no
relative of such spouse or of any such officer, director or stockholder and no
Affiliate of any of the foregoing: (a) owns, directly or indirectly, any
interest in (excepting less than one percent (1%) stock holdings for investment
purposes in securities of publicly held and traded companies), or is an officer,
director, employee or consultant of, any Person which is, or is engaged in
business as, a competitor, lessor, lessee, supplier, distributor, sales agent or
customer of, or lender to or borrower from, the Company; (b) owns, directly or
indirectly, in whole or in part, any tangible or intangible property that the
Company has used, or that the Company will use, in the conduct of business; or
(c) has any cause of action or other claim whatsoever against, or owes or has
advanced any amount to, the Company, except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements existing on the date hereof.
On or prior to the Subsequent Closing Date, the Company shall revise SCHEDULE
3.18 as attached hereto to reflect any changes after the date hereof.
<PAGE>
24
3.19 BROKER'S, FINDER'S OR SIMILAR FEES. There are no
brokerage commissions, finder's fees or similar fees or commissions payable by
the Company in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Company or any action taken by
any such Person.
3.20 QUALIFIED SMALL BUSINESS. The Company covenants and
agrees that, to the extent the Company qualifies as a "QUALIFIED SMALL BUSINESS"
(as defined in Section 1202(d) of the Code), then so long as its shares are held
by the Purchaser (or a transferee in whose hands the shares are eligible to
qualify as "QUALIFIED SMALL BUSINESS STOCK"), it will use commercially
reasonable efforts to cause the shares to qualify as "QUALIFIED SMALL BUSINESS
STOCK"; PROVIDED THAT, notwithstanding the foregoing, the Company shall not be
obligated to take any action, or refrain from any action, which in its good
faith business judgment is not in the best interests of the Company or its
stockholders.
3.21 DISCLOSURE. This Agreement, any of the other
Transaction Documents and the certificates furnished to the Purchaser by the
Company do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading. There is no fact that the Company has not disclosed to the Purchaser
in writing which materially adversely affects, or insofar as the Company can
reasonably foresee could materially adversely affect, the Condition of the
Company or the ability of the Company to perform its obligations under this
Agreement, any of the other Transaction Documents or any document contemplated
hereby or thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser hereby represents and warrants to the Company as
follows:
4.1 EXISTENCE AND POWER. The Purchaser (a) is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its formation and (b) has the requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Transaction Documents to which it is a party.
<PAGE>
25
4.2 AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by the Purchaser of this Agreement and each of the
other Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby: (a) have been duly authorized by all necessary
corporate action of the Purchaser; (b) do not contravene the terms of the
Certificate of Incorporation of the Purchaser or the By- laws of the Purchaser;
(c) do not violate, conflict with or result in any breach, default or
contravention of (or with due notice or lapse of time or both would result in
any breach, default or contravention of), or the creation of any Lien under, any
Contractual Obligation of the Purchaser or any Requirement of Law applicable to
the Purchaser; and (d) do not violate any Orders of any Governmental Authority
against, or binding upon, the Purchaser.
4.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. No
approval, consent, compliance, exemption, authorization or other action by, or
notice to, or filing with, any Governmental Authority or any other Person, and
no lapse of a waiting period under any Requirement of Law, is necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the purchase of the Purchased Shares) by, or enforcement
against, the Purchaser of this Agreement and each of the other Transaction
Documents to which it is a party or the transactions contemplated hereby and
thereby.
4.4 BINDING EFFECT. This Agreement and each of the other
Transaction Documents to which it is a party have been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligations of the Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
4.5 PURCHASE FOR OWN ACCOUNT. The Purchased Shares to be
acquired by the Purchaser pursuant to this Agreement are being or will be
acquired for its own account and with no intention of distributing or reselling
such Purchased Shares or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state,
without prejudice, however, to the rights of the Purchaser at all times to sell
or otherwise dispose of all or any part of such Purchased Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of the Purchaser's property being at all times
within its
<PAGE>
26
control. If the Purchaser should in the future decide to dispose of any of the
Purchased Shares, the Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect. The Purchaser agrees to the imprinting, so long as required by law,
of a legend on certificates representing all of its Purchased Shares and shares
of Common Stock issuable upon conversion of its Purchased Shares to the
following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS."
4.6 RESTRICTED SECURITIES. The Purchaser understands that
the Purchased Shares will not be registered at the time of their issuance under
the Securities Act for the reason that the sale provided for in this Agreement
is exempt pursuant to Section 4(2) of the Securities Act and that the reliance
of the Company on such exemption is predicated in part on the Purchaser's
representations set forth herein.
4.7 BROKER'S, FINDER'S OR SIMILAR FEES. There are no
brokerage commissions, finder's fees or similar fees or commissions payable by
the Purchaser in connection with the transactions contemplated hereby based on
any agreement, arrangement or understanding with the Purchaser or any action
taken by the Purchaser.
4.8 ACCREDITED INVESTOR. The Purchaser is an "ACCREDITED
INVESTOR" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
4.9 SEC DOCUMENTS. As of the Closing Date, each SEC
Document filed pursuant to the Exchange Act does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein, in the light of the circumstances
under which they were made, not misleading.
4.10 CAPITALIZATION. On the Closing Date, after giving
effect to the transactions contemplated by this Agreement, the authorized
capital stock of the
<PAGE>
27
Purchaser shall consist of (i) 500,000,000 shares of the PurchaserCommon Stock,
of which 44,959,000 shares are issued and outstanding, and (ii) 500,000,000
shares of preferred stock, of which (a) 300,000 shares are designated Series A
Convertible Preferred Stock, par value $0.10 per share, of which 3,000 shares
are issued and outstanding and (b) 4,000,000 shares are designated Series B
Convertible Preferred Stock, par value $0.10 per share, of which 3,000,000
shares are issued and outstanding.
4.11 INVESTMENT COMPANY. The Purchaser is not and is not
controlled by or affiliated with an "INVESTMENT COMPANY" within the meaning of
the Investment Company Act, other than solely as a result of this Agreement.
ARTICLE V
CONDITIONS TO THE
OBLIGATION OF THE PURCHASER TO CLOSE
------------------------------------
The obligation of the Purchaser to purchase the Subsequent
Purchased Shares, to pay the purchase price therefor at the Subsequent Closing
and to perform any obligations hereunder shall be subject to the satisfaction as
determined by, or waiver by, the Purchaser of the following conditions on or
before the Subsequent Closing Date.
5.1 REPRESENTATION AND WARRANTIES. The representations
and warranties of the Company contained in Article III hereof shall be true and
correct in all material respects (except for any such representations and
warranties which are qualified by their terms by a reference to materiality or
material adverse effect, which representation as so qualified shall be true and
correct in all respects) at and on the Subsequent Closing Date as if made at and
on such date (PROVIDED THAT the term "PURCHASED SHARES" shall be replaced with
the term "SUBSEQUENT PURCHASED SHARES" and the term "CLOSING DATE" shall be
replaced with the term "SUBSEQUENT CLOSING DATE" throughout Article III solely
for purposes of the foregoing; PROVIDED HOWEVER THAT with respect to Sections
3.7(a), 3.7(b) and 3.7(c), the term "CLOSING DATE" shall not be replaced with
the term "SUBSEQUENT CLOSING DATE" so long as the Company provides a written
update of such sections to the Purchaser, dated as of the Subsequent Closing
Date, which shall be deemed to be incorporated herein as if set forth in full
herein as of the Subsequent Closing Date).
5.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall
have performed and complied in all material respects with all of its agreements
set forth herein that are required to be performed by the Company on or before
the Subsequent Closing Date.
<PAGE>
28
5.3 OFFICER'S CERTIFICATE. The Purchaser shall have
received a certificate from the Company, in form and substance satisfactory to
the Purchaser, dated the Subsequent Closing Date, and signed by the Chief
Executive Officer and Chief Financial Officer of the Company, certifying as to
the matters set forth in Sections 5.1 and 5.2.
5.4 SECRETARY'S CERTIFICATE. The Purchaser shall have
received a certificate from the Company, in form and substance satisfactory to
the Purchaser, dated the Subsequent Closing Date and signed by the Secretary or
an Assistant Secretary of the Company, certifying (a) that the Company is in
good standing with the Secretary of State of the State of Delaware, (b) that the
attached copies of the Certificate of Incorporation and By-laws, are all true,
complete and correct and remain unamended and in full force and effect and (c)
as to the incumbency and specimen signature of each officer of the Company
executing any other document delivered in connection with the Subsequent Closing
on behalf of the Company.
5.5 SUBSEQUENT PURCHASED SHARES. The Company shall have
delivered to the Purchaser certificates in definitive form representing the
number of Subsequent Purchased Shares purchased hereunder, registered in the
name of the Purchaser.
5.6 REGISTRATION RIGHTS. The Purchaser shall be entitled
to the registration rights set forth in the Registration Rights Agreement with
respect to the Subsequent Purchased Shares.
5.7 TRANSACTION DOCUMENTS. As of the Subsequent Closing
Date, each of the Transaction Documents are all true, complete and correct and
remain unamended and in full force and effect.
5.8 GOOD STANDING CERTIFICATES. The Company shall have
delivered to the Purchaser as of the Subsequent Closing Date, a good standing
certificate for the Company for its jurisdiction of incorporation.
5.9 NO MATERIAL ADVERSE CHANGE. Since the date hereof,
there shall have been no material adverse change in the Condition of the
Company.
5.10 CONSENTS AND APPROVALS. All consents, exemptions,
authorizations, or other actions by, or notice to, or filings with, Governmental
Authorities and other Persons in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Company which are necessary or
required in connection
<PAGE>
29
with the issuance and sale of the Subsequent Purchased Shares shall have been
obtained and be in full force and effect, and the Purchaser shall have been
furnished with appropriate evidence thereof and all applicable waiting periods
shall have expired without any action being taken or threatened which would have
a material adverse effect on the Condition of the Company.
5.11 NO MATERIAL JUDGMENT OR ORDER. There shall not be on
the Subsequent Closing Date any Order of a court of competent jurisdiction or
any ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which would, in the reasonable judgment of the Purchaser, (a)
prohibit or restrict (i) the issuance and sale of the Subsequent Purchased
Shares or (ii) the consummation of the transactions contemplated by this
Agreement, (b) subject the Purchaser to any material penalty or onerous
condition under or pursuant to any Requirement of Law if the Subsequent
Purchased Shares were to be purchased hereunder or (c) restrict the operation of
the business of the Company as conducted on the date hereof in a manner that
would have a material adverse effect on the Condition of the Company.
5.12 NO LITIGATION. No action, suit, proceeding, claim or
dispute shall have been brought or otherwise arisen at law, in equity, in
arbitration or before any Governmental Authority against the Company which
would, if adversely determined (a) have a material adverse effect on the
Condition of the Company or (b) have a material adverse effect on the ability of
the Company to perform its obligations under this Agreement or each of the other
Transaction Documents.
5.13 STRATEGIC INVESTMENT ROUND. The Strategic Investment
Round shall have been consummated on terms and conditions approved in advance by
the Consent of the Board of Directors. Prior to the consummation of the
Strategic Investment Round, the Company shall deliver to the Purchaser all
documents, and describe in writing all oral understandings, between the Company
and the Persons participating in the Strategic Investment Round. The
representations and warranties of the Company made to such Persons shall be
deemed to be incorporated herein as if set forth in full herein as of the
Subsequent Closing Date.
ARTICLE VI
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
-----------------------
<PAGE>
30
The obligation of the Company to issue and sell the Subsequent
Purchased Shares and the obligation of the Company to perform its other
obligations hereunder shall be subject to the satisfaction as determined by, or
waiver by, the Company of the following conditions on or before the Subsequent
Closing Date:
6.1 REPRESENTATION AND WARRANTIES. The representations
and warranties of the Purchaser contained in Article IV hereof shall be true and
correct in all material respects (except for any such representations and
warranties which are qualified by their terms by a reference to materiality or
material adverse effect, which representation as so qualified shall be true and
correct in all respects) at and on the Subsequent Closing Date as if made at and
on such date (PROVIDED THAT the term "PURCHASED SHARES" shall be replaced with
the term "SUBSEQUENT PURCHASED SHARES" and the term "CLOSING DATE" shall be
replaced with the term "SUBSEQUENT CLOSING DATE" throughout Article IV solely
for purposes of the foregoing; PROVIDED HOWEVER THAT with respect to Section
4.10, the term "CLOSING DATE" shall not be replaced with the term "SUBSEQUENT
CLOSING DATE" so long as the Purchaser provides a written update of such section
to the Company, dated as of the Subsequent Closing Date, which shall be deemed
to be incorporated herein as if set forth in full herein as of the Subsequent
Closing Date).
6.2 COMPLIANCE WITH THIS AGREEMENT. The Purchaser shall
have performed and complied in all material respects with all of its agreements
set forth herein that are required to be performed by the Company on or before
the Subsequent Closing Date.
6.3 OFFICER'S CERTIFICATE. The Company shall have
received a certificate from the Purchaser, in form and substance satisfactory to
the Company, dated the Subsequent Closing Date, and signed by the Chief
Executive Officer and Chief Financial Officer of the Purchase, certifying as to
the matters set forth in Sections 6.1 and 6.2.
6.4 SECRETARY'S CERTIFICATE. The Company shall have
received a certificate from the Purchaser, in form and substance satisfactory to
the Company, dated the Subsequent Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying (a) that the Purchaser is in good
standing with the Secretary of State of the State of Delaware, (b) that the
attached copies of the Certificate of Incorporation of the Purchaser and the
By-laws of the Purchaser, are all true, complete and correct and remain
unamended and in full force and effect and (c) as to the incumbency and specimen
signature of each officer of the Purchaser executing any other document
delivered in connection with the Subsequent Closing on behalf of the Purchaser.
<PAGE>
31
6.5 PAYMENT OF PURCHASE PRICE. The Purchaser shall be
prepared to pay the aggregate purchase price for the Subsequent Purchased Shares
to be purchased by the Purchaser.
6.6 GOOD STANDING CERTIFICATES. The Purchaser shall have
delivered to the Company as of the Subsequent Closing Date, good standing
certificates for the Purchaser for each of their respective jurisdictions of
incorporation.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 INDEMNIFICATION BY THE INDEMNIFYING PARTY. Except as
otherwise provided in this Article VII, each party hereto (the "INDEMNIFYING
PARTY") agrees to indemnify, defend and hold harmless the other party hereto and
its Affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons (each, an "INDEMNIFIED
PARTY") to the fullest extent permitted by law from and against any and all
losses, Claims, or written threats thereof (including, without limitation, any
Claim by a third party), damages, expenses (including reasonable fees,
disbursements and other charges of counsel incurred by the Indemnifying Party in
any action between the Indemnifying Party and the Indemnified Party or between
the Indemnified Party and any third party or otherwise) or other liabilities
(collectively, "LOSSES") resulting from or arising out of any breach of any
representation or warranty, covenant or agreement by the Indemnifying Party in
this Agreement or the other Transaction Documents to which the Indemnifying
Party is a party. The amount of any payment to any Indemnified Party herewith in
respect of any Loss shall be of sufficient amount to make such Indemnified Party
whole for any diminution in value of the (i) Purchased Shares and any Subsequent
Purchased Shares (if the Company is the Indemnifying Party) and (ii) Purchaser
Price Securities and any Subsequent Purchaser Price Securities (if the Purchaser
is the Indemnifying Party). In connection with the obligation of the
Indemnifying Party to indemnify for expenses as set forth above, the
Indemnifying Party shall, upon presentation of appropriate invoices containing
reasonable detail, reimburse each Indemnified Party for all such expenses
(including reasonable fees, disbursements and other charges of counsel incurred
by the Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party) as they
are incurred by such Indemnified Party; PROVIDED, HOWEVER, that if an
Indemnified Party is reimbursed under this Article VII for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
<PAGE>
32
judicially determined that the Losses in question resulted primarily from the
willful misconduct or gross negligence of such Indemnified Party.
7.2 NOTIFICATION. The Indemnified Party under this
Article VII shall, promptly after the receipt of notice of the commencement of
any Claim against such Indemnified Party in respect of which indemnity may be
sought from the Indemnifying Party under this Article VII, notify the
Indemnifying Party in writing of the commencement thereof. The omission of any
Indemnified Party to so notify the Indemnifying Party of any such action shall
not relieve the Indemnifying Party from any liability which it may have to such
Indemnified Party (a) other than pursuant to this Article VII or (b) under this
Article VII unless, and only to the extent that, such omission results in the
Indemnifying Party's forfeiture of substantive rights or defenses. In case any
such Claim shall be brought against any Indemnified Party, and it shall notify
the Indemnifying Party of the commencement thereof, the Indemnifying Party shall
be entitled to assume the defense thereof at its own expense, with counsel
satisfactory to such Indemnified Party in its reasonable judgment; PROVIDED,
HOWEVER, that any Indemnified Party may, at its own expense, retain separate
counsel to participate in such defense at its own expense. Notwithstanding the
foregoing, in any Claim in which both the Indemnifying Party, on the one hand,
and an Indemnified Party, on the other hand, are, or are reasonably likely to
become, a party, such Indemnified Party shall have the right to employ separate
counsel and to control its own defense of such Claim if, in the reasonable
opinion of counsel to such Indemnified Party, either (x) one or more defenses
are available to the Indemnified Party that are not available to the
Indemnifying Party or (y) a conflict or potential conflict exists between the
Indemnifying Party, on the one hand, and such Indemnified Party, on the other
hand, that would make such separate representation advisable; PROVIDED, HOWEVER,
that the Indemnifying Party (i) shall not be liable for the fees and expenses of
more than one counsel to all Indemnified Parties and (ii) shall reimburse the
Indemnified Parties for all of such fees and expenses of such counsel incurred
in any action between the Indemnifying Party and the Indemnified Parties or
between the Indemnified Parties and any third party, as such expenses are
incurred. The Indemnifying Party agrees that it will not, without the prior
written consent of the Indemnified Party, settle, compromise or consent to the
entry of any judgment in any pending or threatened Claim relating to the matters
contemplated hereby (if any Indemnified Party is a party thereto or has been
actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of each Indemnified
Party from all liability arising or that may arise out of such Claim. The
Indemnifying Party shall not be liable for any settlement of any Claim effected
against an Indemnified Party without its written consent, which consent shall
not be unreasonably withheld. The rights accorded to an Indemnified Party
hereunder shall be
<PAGE>
33
in addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise; PROVIDED, HOWEVER, that notwithstanding the
foregoing or anything to the contrary contained in this Agreement, nothing in
this Article VII shall restrict or limit any rights that any Indemnified Party
may have to seek equitable relief.
7.3 CONTRIBUTION. If the indemnification provided for in
this Article VII from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any Losses referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions which resulted in such Losses, as well as any other relevant equitable
considerations. The relative faults of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties| relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Losses referred to above shall be
deemed to include, subject to the limitations set forth in Section 7.1, any
legal or other fees, charges or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
7.4 LIMITATION ON LIABILITY. Notwithstanding any other
provision of this Agreement, in no event whatsoever shall either party hereto be
entitled to make a claim against the other party for lost profits, use,
production or contract or other consequential, incidental, indirect, special or
punitive damages or for any financial or economic loss whatever and howsoever
caused.
ARTICLE VIII
COVENANTS
---------
8.1 PRESERVATION OF EXISTENCE. Prior to the Subsequent
Closing, the Company shall: (a) preserve and maintain in full force and effect
its existence and good standing under the laws of its jurisdiction of formation
or organization; (b) preserve and maintain in full force and effect all material
rights, privileges, qualifications, applications, licenses and franchises
necessary in the normal conduct of its business; (c) use its reasonable best
efforts to preserve its business organization; (d) conduct its business in
<PAGE>
34
the ordinary course in accordance with sound business practices, keep its
properties in good working order and condition (normal wear and tear excepted),
and from time to time make all needed repairs to, renewals of or replacements of
its properties so that the efficiency of its business operation shall be
reasonably maintained and preserved; (e) comply with all Requirements of Law and
with the directions of any Governmental Authority having jurisdiction over the
Company or its business or property; and (f) file or cause to be filed in a
timely manner all reports, applications, estimates and licenses that shall be
required by a Governmental Authority.
8.2 RESERVATION OF COMMON STOCK. The Company shall at all
times reserve and keep available out of its authorized shares of Class A Common
Stock and Class C Common Stock, solely for the purpose of issue or delivery upon
conversion of the Purchased Shares and/or Class C Common Stock, as provided in
the Certificate of Incorporation, the maximum number of shares of Class A Common
Stock and Class C Common Stock that may be issuable or deliverable upon such
conversion. Such shares of Class A Common Stock and Class C Common Stock are
duly authorized and, when issued or delivered in accordance with the Certificate
of Incorporation, shall be validly issued, fully paid and non-assessable. The
Company shall issue such shares of Class A Common Stock and Class C Common
Stock, in accordance with the terms of the Certificate of Incorporation, and
otherwise comply with the terms hereof and thereof.
If the Subsequent Closing is consummated, the Company shall at
all times reserve and keep available out of its authorized shares of Class A
Common Stock and Class C Common Stock, solely for the purpose of issue or
delivery upon conversion of the Subsequent Purchased Shares and/or Class C
Common Stock, as provided in the Certificate of Incorporation, the maximum
number of shares of Class A Common Stock and Class C Common Stock that may be
issuable or deliverable upon such conversion. Such shares of Class A Common
Stock and Class C Common Stock are duly authorized and, when issued or delivered
in accordance with the Certificate of Incorporation, shall be validly issued,
fully paid and non-assessable. The Company shall issue such shares of Class A
Common Stock and Class C Common Stock, in accordance with the terms of the
Certificate of Incorporation, and otherwise comply with the terms hereof and
thereof.
8.3 BOOKS AND RECORDS; BUSINESS PLAN. From and after the
date of this Agreement, the Company shall keep proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company in accordance with GAAP
consistently applied. Any amendment to the Business Plan after the date hereof
shall be approved in advance by the Consent of the Board of Directors.
<PAGE>
35
8.4 NEW SECURITIES ISSUANCES.
(a) If during the nine (9) month period
following the Closing Date, other than in connection with an Exempt Issuance,
the Purchaser issues to any non- Affiliated Person any New Securities at a per
share price (which shall include the issuance price per share and cash
consideration received by the Purchaser upon conversion) less than $1.255
(subject to adjustment for stock splits, stock dividends, recapitalizations,
etc.), the Company shall have an additional Demand Right for a number of shares
of Purchaser Common Stock equal to (x) fifteen percent (15%) of the difference
between $1.255 (subject to adjustment for stock splits, stock dividends,
recapitalizations, etc.) and the per share price of the New Securities
multiplied by (y) the number of shares of Class B Common Stock used by the
Company in connection with any acquisitions of non-Affiliated Persons in a
transaction approved by Consent of the Board of Directors during the nine (9)
month period following the Closing Date. By way of example only, if during the
nine (9) month period following the Closing Date: (i) the Purchaser were to
issue New Securities at a purchase price per share of $1.00 and (ii) the Company
used 1,000,000 shares of Class B Common Stock in connection with any acquisition
of a non- Affiliated Person, the Company shall have an additional Demand Right
for a number of shares of Purchaser Common Stock equal 38,250 shares of
Purchaser Common Stock to the Company. Any additional Demand Right of the
Company in connection with this Section 8.4(a) shall be exercisable no earlier
than the nine (9) month anniversary of the Closing Date (PROVIDED THAT if such
date is not a Business Day, the next Business Day thereafter).
(b) If during the nine (9) month period
following the Subsequent Closing Date (or such shorter period as discussed in
the final sentence of this Section 8.4(b)), other than in connection with an
Exempt Issuance, the Purchaser issues to any non-Affiliated Person any New
Securities at a per share price (which shall include the issuance price per
share and cash consideration received by the Purchaser upon conversion) less
than the Purchaser Common Stock Per Share Market Price (subject to adjustment
for stock splits, stock dividends, recapitalizations, etc.), the Company shall
have an additional Demand Right for a number of shares of Purchaser Common Stock
equal (x) fifteen percent (15%) of the difference between the Purchaser Common
Stock Per Share Market Price (subject to adjustment for stock splits, stock
dividends, recapitalizations, etc.) and the per share price of the New
Securities multiplied by (y) the number of shares of Class B Common Stock used
by the Company in connection with any acquisitions of non-Affiliated Persons in
a transaction approved by Consent of the Board of Directors during the nine (9)
month period following the Closing Date. Notwithstanding the foregoing, the
Purchaser shall have no obligation under this Section
<PAGE>
36
8.4(b) (and the Company shall have no right under this Section 8.4(b)) so long
as the Company is entitled to any issuance pursuant to Section 8.4(a). If the
Subsequent Closing Date is consummated prior to the nine (9) month anniversary
of the Closing Date, the Company shall only be entitled to an issuance pursuant
to this Section 8.4(b) during the period equal to difference between (x) nine
(9) months and (y) the number of days between the Subsequent Closing Date and
the nine (9) month anniversary of the Closing Date. Any additional Demand Right
of the Company in connection with this Section 8.4(b) shall be exercisable no
earlier than the expiration of the period described in the foregoing sentence
(PROVIDED THAT if such date is not a Business Day, the next Business Day
thereafter).
(c) The Company covenants and agrees that (i)
the number of shares of Class B Common Stock outstanding shall at no time exceed
the number of shares of Purchaser Common Stock the Company is entitled to
receive upon exercise of any Demand Right and (ii) that it will not issue any
shares of Class B Common Stock unless the contemplated holder thereof agrees not
to exchange any such shares of Class B Common Stock for Purchaser Common Stock
for at least one (1) year after any such issuance (PROVIDED THAT there shall be
an appropriate carve-out for any forced exchange of outstanding Class B Common
Stock in connection with the first public offering of the shares of Capital
Stock of the Company pursuant to an effective registration statement filed under
the Securities Act).
8.5 FRIENDS AND FAMILY INVESTMENT ROUND. Subject to
applicable securities laws and the terms and conditions thereof, after the
Closing Date the Company shall have the right to offer up to 416,667 shares of
Class A Common Stock, at a price per share no less than $1.20, to one or more
individuals in a "FRIENDS AND FAMILY" investment round; PROVIDED THAT the number
of Persons investing in the Company pursuant to the foregoing shall not exceed
twenty-five (25).
8.6 STRATEGIC INVESTMENT ROUND. The valuation of the
Company and the price per share of any Capital Stock issued in connection with
any Strategic Investment Round shall be approved in advance by the Consent of
the Board of Directors.
8.7 KEY-MAN INSURANCE. The Company shall maintain a term
life insurance policy for Mr. Matthew Ryan in the amount of at least $2,000,000,
owned by and payable to the Company.
8.8 STOCK OPTION PLAN. As soon as reasonably practicable
after the date hereof, the Company shall establish the Stock Option Plan, on
terms and conditions
<PAGE>
37
approved in advance by the majority of the Board of Directors after full
disclosure of the terms thereof, including at least one representative of the
Purchaser. In connection therewith, the Company shall make an initial grant of
500,000 options to certain members of senior management of the Company, on terms
and conditions approved in advance by the majority of the disinterested members
of the Board of Directors after full disclosure of the terms thereof, including
at least one representative of the Purchaser.
8.9 ADVISORY BOARD. As soon as practicable after the date
hereof, the Company shall establish an Advisory Board to provide overall
guidance to the Company as well as detailed assistance in areas of particular
concern. Members of the Advisory Board shall be approved by the Board of
Directors and shall be selected on the basis of their professional expertise.
8.10 INSPECTION RIGHTS. From and after the date of this
Agreement, the Company will permit the Purchaser and its Representatives to
visit and inspect any of its properties, to examine its corporate, financial and
operating records and make copies thereof or abstracts therefrom, and to discuss
its affairs, business practices, finances and accounts with their respective
directors, officers and independent public accountants, as often as may be
reasonably requested, upon reasonable advance notice to the Company and during
normal business hours.
8.11 SUBSEQUENT CLOSING DATE. On and after the Subsequent
Closing Date, if any, the Preferred Stock (i) shall be convertible into Class C
Common Stock and (ii) shall entitle the holder thereof to vote in a manner
consistent with clauses (iii) and (iv) of the next sentence. The Class C Common
Stock shall be: (i) convertible into Class A Common Stock at any time or from
time to time by the holder thereof; (ii) automatically convertible into Class A
Common Stock at any time upon the transfer or assignment by the Purchaser to any
third party (other than an Affiliate); (iii) entitled to ten (10) votes per
share of Class C Common Stock held as of the record date of any vote of the
stockholders of the Company; and (iv) entitled to vote together with the
Preferred Stock, if both the Class C Common Stock and the Preferred Stock are
outstanding, as one class to elect sixty percent (60%) of the Board of Directors
(rounded to the nearest board seat).
8.12 NOTIFICATION OF CERTAIN MATTERS. Prior to the
Subsequent Closing, the Company shall give notice to the Purchaser, promptly
upon becoming aware of: (i) the occurrence of a material adverse change in the
Condition of the Company; (ii) any occurrence, or failure to occur, of any
event, which occurrence or failure to occur has caused or could reasonably be
expected to cause any representation or warranty in this Agreement to be untrue
or inaccurate in any material respect at any time after the date
<PAGE>
38
hereof and prior to the Subsequent Closing Date; or (iii) any material failure
on the part of the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such party hereunder; PROVIDED
THAT the delivery of any notice pursuant to this Section 8.12 shall not limit or
otherwise affect the remedies available hereunder to the Purchaser.
Prior to the Subsequent Closing, the Purchaser shall give
notice to the Company, promptly upon becoming aware of: (i) the occurrence of a
material adverse change in the Condition of the Purchaser; (ii) any occurrence,
or failure to occur, of any event, which occurrence or failure to occur has
caused or could reasonably be expected to cause any representation or warranty
in this Agreement to be untrue or inaccurate in any material respect at any time
after the date hereof and prior to the Subsequent Closing Date; or (iii) any
material failure on the part of the Purchaser to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such party
hereunder; PROVIDED THAT the delivery of any notice pursuant to this Section
8.12 shall not limit or otherwise affect the remedies available hereunder to the
Company.
8.13 ISSUANCE OF PURCHASER COMMON STOCK.
(a) DEMAND RIGHT. At any time or from time to
time prior to the fifteenth (15th) anniversary of the Closing Date (the
"EXPIRATION DATE"), subject to the terms and conditions set forth in this
Section 8.13, the Purchaser covenants and agrees that, upon demand of the
Company (the "DEMAND RIGHT"), the Purchaser shall issue to the Company that
number of validly issued, fully paid and nonassessable shares of Purchaser
Common Stock (the "DEMAND SHARES") equal to the number of (i) Purchase Price
Securities, (ii) if the Subsequent Closing is consummated, Subsequent Purchase
Price Securities and (iii) any shares of Purchaser Common Stock the Company is
entitled to receive pursuant to Section 8.4 herein (as adjusted from time to
time for stock splits, stock dividends, combinations or other recapitalizations
of the Purchaser Common Stock).
(b) EXERCISE OF THE DEMAND RIGHT. The Demand
Right may be exercised by the Company, in whole or in part, at any time or from
time to time prior to the Expiration Date, by providing written notice (the
"DEMAND NOTICE") to the Purchaser, indicating (i) the number of Demand Shares to
be issued to the Company and (ii) where such Demand Shares should be delivered.
A stock certificate or certificates for the Demand Shares specified in the
Demand Notice shall be delivered to the Company within five (5) Business Days
after receipt by the Purchaser of the Demand Notice.
<PAGE>
39
(c) EFFECTIVENESS OF EXERCISE OF THE DEMAND
RIGHT. The exercise of the Demand Right shall be deemed to have been effective
immediately prior to the close of business on the Business Day on which the
Demand Right is exercised in accordance with Section 8.13(b) (the "EXERCISE
DATE"). The Person in whose name any certificate for shares of Purchaser Common
Stock shall be issuable upon such exercise shall be deemed to be the record
holder of such shares of Purchaser Common Stock for all purposes on the Exercise
Date.
(d) AUTOMATIC EXERCISE. On the Expiration Date
(PROVIDED THAT if such date is not a Business Day, the next Business Day
thereafter), this Section 8.13 shall automatically terminate and the Purchaser
shall deliver to the Company a stock certificate or certificates for all Demand
Shares not issued to the Company prior to the Expiration Date (the "AUTOMATIC
EXERCISE"). From and after the Automatic Exercise, this Section 8.13 shall
become void and of no further force and effect.
(e) RESERVATION OF DEMAND SHARES. The Purchaser
covenants and agrees as follows: (i) all Demand Shares that are issued upon the
exercise of the Demand Right will, upon issuance, be validly issued, fully paid
and nonassessable, not subject to any preemptive rights, and free from all
taxes, liens, security interests, charges, and other encumbrances with respect
to the issuance thereof, other than taxes in respect of any transfer occurring
contemporaneously with such issue; and (ii) during the period within which the
Demand Right may be exercised, the Purchaser will at all times have authorized
and reserved, and keep available free from preemptive rights, a sufficient
number of shares of Purchaser Common Stock to provide for the exercise of the
rights represented by the Demand Right.
(g) INCIDENTAL OR "PIGGY-BACK" REGISTRATION
RIGHTS.
(i) If the Purchaser proposes to file a
Registration Statement under the Securities Act with respect to an offering by
the Purchaser for its own account (other than a Registration Statement on Form
S-4 or S-8 or any successor thereto) or for the account of any stockholder of
the Purchaser (so long as the Purchaser is not otherwise prohibited in
connection with any such Registration Statement from including the Registrable
Securities), then the Purchaser shall give written notice (the "PURCHASER
NOTICE") of such proposed filing to each holder (each, a "DESIGNATED HOLDER")
(as reflected upon the books of the Purchaser) then holding Registrable
Securities at least twenty (20) days before the anticipated filing date, and
such notice shall describe the proposed registration and distribution and offer
such Designated Holders the opportunity to register the number of Registrable
Securities as each such Designated Holder may
<PAGE>
40
request (an "INCIDENTAL REGISTRATION") in writing given to the Purchaser no more
than five (5) days after receipt of the Purchaser Notice. The Purchaser shall
use its commercially reasonable efforts to cause the managing underwriter or
underwriters in the case of a proposed underwritten offering (the "PURCHASER
UNDERWRITER") to permit each of the Designated Holders who have requested in
writing to participate in the Incidental Registration to include its or his
Registrable Securities in such offering on the same terms and conditions as the
securities of the Purchaser or the account of such other stockholder, as the
case may be, included therein.
In connection with any Incidental Registration under this
Section 9 involving an underwritten offering, the Purchaser shall not be
required to include any Registrable Securities in such underwritten offering
unless the Designated Holders thereof accept the terms of the underwritten
offering as agreed upon between the Purchaser, such other stockholders, if any,
and the Purchaser Underwriter, and then only in such quantity as the Purchaser
Underwriter believes will not jeopardize the success of the offering by the
Purchaser. If the Purchaser Underwriter determines that the registration of all
or part of the Registrable Securities which the Designated Holders have
requested to be included would materially adversely affect the success of such
offering, then the Purchaser shall be required to include in such Incidental
Registration, to the extent of the amount that the Purchaser Underwriter
believes may be sold without causing such adverse effect, FIRST, all of the
securities to be offered for the account of the Purchaser; SECOND, the
securities of any Person exercising a demand registration right or similar right
(other than a Designated Holder); and THIRD, Registrable Securities to be
offered for the account of the Designated Holders pursuant to this Section 9 and
any other securities requested to be included in such offering, pro rata based
on the number of securities requested to be registered by each such Person.
(ii) SELLER INFORMATION. The Purchaser
may require each seller of Registrable Securities as to which any registration
is being effected to furnish, and such seller shall furnish, to the Purchaser
such (i) information regarding the distribution of such securities and the
identity of such seller and (ii) written representations, warranties and
agreements, in each case, as the Purchaser may from time to time reasonably
request in writing. The obligations of the Purchaser pursuant to this Section
8.13(f) shall be contingent upon the Purchaser receiving any such information
requested pursuant to the foregoing sentence.
(iii) REGISTRABLE SECURITIES. For the
purposes of this Section 8.13(f), Registrable Securities will cease to be
Registrable Securities, when (i) a Registration Statement covering such
Registrable Securities has been declared effective
<PAGE>
41
under the Securities Act by the Commission and such Registrable Securities have
been disposed of pursuant to such effective Registration Statement, (ii) (x) the
entire amount of the Registrable Securities held by any holder thereof may be
sold in a single sale, in the opinion of counsel satisfactory to the Purchaser,
without any limitation as to volume pursuant to Rule 144 (or any successor
provision then in effect) under the Securities Act and (y) the Designated Holder
owning such Registrable Securities owns less than one percent (1%) of the
outstanding Capital Stock of the Purchaser on a fully diluted basis, or (iii)
the Registrable Securities are proposed to be sold or distributed by a Person
not entitled to the registration rights granted by this Section 8.13(f).
(iv) NOTICE. Any notice required pursuant
to this Section 8.13(f) shall be made in a manner consistent with the books of
the Purchaser.
(v) The Purchaser shall bear its own
expenses in connection with any Incidental Registration pursuant to this Section
8.13(f), whether or not such Incidental Registration becomes effective.
(g) CHARGES, TAXES AND EXPENSES. Issuance of
certificates for Demand Shares upon the exercise of the Demand Right shall be
made without charge to the Company hereof for any issue or transfer tax, or
other incidental expense, in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Purchaser; PROVIDED, HOWEVER, that the Company
shall be required to pay any and all taxes that may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Company as reflected upon the books of the
Purchaser.
(h) SPECIFIC PERFORMANCE. The Company shall have
the right to seek damages or specific performance in the event that the
Purchaser fails to perform its obligations under this Section 8.13. Therefore,
if the Company shall institute any action or proceeding to enforce the
provisions hereof, the Purchaser hereby waives any claim or defense therein that
the Company has an adequate remedy at law.
8.14 CLASS B COMMON STOCK. The Class B Common Stock shall
be used by the Company only in connection with future financings or acquisitions
by the Company reviewed and approved by a majority of the members of the Board
of Directors, including at least one representative of the Purchaser, and only
as a portion of the consideration thereof.
<PAGE>
42
ARTICLE IX
TERMINATION OF AGREEMENT
------------------------
9.1 TERMINATION. Sections 2.2(b), 3.7(d), 8.1, 8.11 and
8.12 and Articles V and VI may be terminated prior to the Subsequent Closing as
follows:
(a) at any time on or prior to the Subsequent
Closing Date, by mutual written consent of the Company and the Purchaser;
(b) at the election of the Company or the
Purchaser by written notice to the other parties hereto after 5:00 p.m., New
York time, on the one (1) year anniversary of the date hereof (PROVIDED THAT if
such date is not a Business Day, the next Business Day thereafter), if the
Subsequent Closing shall not have occurred, unless such date is extended by the
mutual written consent of the Company and the Purchaser; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 9.1(b) shall not be
available (i) to any party whose breach of any representation, warranty,
covenant or agreement under this Agreement has been the cause of, or resulted
in, the failure of the Subsequent Closing to occur on or before such date or
(ii) if the Subsequent Closing has not occurred solely because any party hereto
has not yet obtained a necessary approval from any Governmental Authority;
(c) at the election of the Company, if there has
been a material breach of any representation, warranty, covenant or agreement on
the part of the Purchaser contained in this Agreement, which breach has not been
cured within fifteen (15) Business Days of notice to the Purchaser of such
breach; or
(d) at the election of Purchaser, if there has
been a material breach of any representation, warranty, covenant or agreement on
the part of the Company contained in this Agreement, which breach has not been
cured within fifteen (15) Business Days notice to the Company of such breach.
9.2 SURVIVAL. If Sections 2.2(b), 3.7(d), 8.1, 8.11 and
8.12 and Articles V and VI of this Agreement are terminated and the Subsequent
Closing is not consummated as described above, Sections 2.2(b), 3.7(d) and 8.1
and Articles V and VI shall become void and of no further force and effect.
ARTICLE X
<PAGE>
43
MISCELLANEOUS
-------------
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of
the representations and warranties made herein shall survive the execution and
delivery of this Agreement until the later of the second anniversary of the
Closing Date and the second anniversary of the Subsequent Closing Date, if any,
except for (a) Sections 3.1 (Corporate Existence and Power), 3.2 (Authorization;
No Contravention), 3.4 (Binding Effect), 3.7 (Capitalization), 3.14 (Private
Offering) and 3.19 (Broker's, Finder's or Similar Fees) which representations
and warranties shall survive until the later of the third anniversary of the
Closing Date and the third anniversary of the Subsequent Closing Date, if any,
and (b) Section 3.12 (Taxes), which shall survive until the later to occur of
(i) the lapse of the statute of limitations with respect to the assessment of
any Tax to which such representation and warranty relates (including any
extensions or waivers thereof) and (ii) sixty (60) days after the final
administrative or judicial determination of the Taxes to which such
representation and warranty relates, and no claim with respect to Section 3.12
may be asserted thereafter with the exception of claims arising out of any fact,
circumstance, action or proceeding to which the party asserting such claim shall
have given notice to the other parties to this Agreement prior to the
termination of such period of reasonable belief that a tax liability will
subsequently arise therefrom.
10.2 NOTICES. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:
if to the Company:
eHotHouse Inc.
16 West 19th Street, 2nd Floor
New York, NY 10011
Telecopy : (212) 647-5984
Attention: Chief Executive Officer
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Telecopy: (212) 940-8776
Attention: Henry Bregstein, Esq.
<PAGE>
44
if to the Purchaser:
Change Technology Partners, Inc.
20 Dayton Avenue
Greenwich, CT 06830
Telecopy: (203) 661-1331
Attention: Chief Executive Officer
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: James M. Dubin, Esq.
All such notices, demands and other communications shall be
deemed to have been duly given when delivered by hand, if personally delivered;
when delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 10.2 designate another address or
Person for receipt of notices hereunder.
10.3 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
This Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the parties hereto. Subject to applicable securities
laws and the terms and conditions thereof, the Purchaser may assign any of its
rights under this Agreement or the other Transaction Documents to which it is a
party to any of its Affiliates. The Company may not assign any of its rights
under this Agreement without the written consent of the Purchaser. Except as
provided in Article VII, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of this
Agreement.
10.4 AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the
Company or the Purchaser in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any
<PAGE>
45
remedies that may be available to the Company or the Purchaser at law, in equity
or otherwise.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company or the Purchaser from
the terms of any provision of this Agreement, shall be effective (i) only if it
is made or given in writing and signed by the Company and the Purchaser, and
(ii) only in the specific instance and for the specific purpose for which made
or given. Except where notice is specifically required by this Agreement, no
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
10.5 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. The parties hereto
confirm that any facsimile copy of another party's executed counterpart of this
Agreement (or its signature page thereof) will be deemed to be an executed
original thereof.
10.6 HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
10.7 SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
10.8 RULES OF CONSTRUCTION. Unless the context otherwise
requires, references to sections or subsections refer to sections or subsections
of this Agreement.
10.9 INTERPRETATION. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in the masculine, the feminine
or neuter gender shall include the masculine, the feminine and the neuter.
<PAGE>
46
10.10 CERTAIN ACKNOWLEDGMENTS. Each of the parties hereto
acknowledge that it has been represented by legal counsel of its own choice
throughout all negotiations and preparation and review of this Agreement and
each of the Transaction Documents to which it is a party, and that it has
executed this Agreement and each of the Transaction Documents to which it is a
party voluntarily. Each of the parties hereto acknowledge that it is
sophisticated in transactions of the type contemplated by this Agreement and
each of the Transaction Documents to which it is a party, and each party wishes
to create a relationship based on the terms set forth in this Agreement and each
of the Transaction Documents to which it is a party.
10.11 ENTIRE AGREEMENT. This Agreement, together with the
exhibits and schedules hereto, and the other Transaction Documents are intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, representations, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits and schedules hereto, and the other
Transaction Documents supersede all prior agreements and understandings between
the parties with respect to such subject matter.
10.12 FEES. Upon the Closing, the Company shall reimburse
the Purchaser for its fees, disbursements and other charges of counsel incurred
in connection with the transactions contemplated by this Agreement, PROVIDED
THAT the amount of such reimbursement shall not exceed $50,000 unless otherwise
agreed to by the Company and the Purchaser. Upon the Subsequent Closing, the
Company shall reimburse the Purchaser for its fees, disbursements and other
charges of counsel incurred in connection with the transactions contemplated by
this Agreement, PROVIDED THAT the amount of such reimbursement shall not exceed
$25,000.
10.13 PUBLICITY; CONFIDENTIALITY. Except as may be required
by applicable Requirements of Law, neither of the parties hereto shall issue a
publicity release or public announcement or otherwise make any disclosure
concerning this Agreement, the transactions contemplated hereby, the Purchaser
or the business, technology and financial affairs of the Company, without prior
approval by the other party hereto; PROVIDED, HOWEVER, that nothing in this
Agreement shall restrict any of the Purchaser from disclosing information (a)
that is already publicly available, (b) that was known to the Purchaser on a
non-confidential basis prior to its disclosure by the Company, (c) that may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, PROVIDED THAT the Purchaser will use
<PAGE>
47
reasonable efforts to notify the Company in advance of such disclosure so as to
permit the Company to seek a protective order or otherwise contest such
disclosure, and the Purchaser will use reasonable efforts to cooperate, at the
expense of the Company, with the Company in pursuing any such protective order,
(d) to the extent that the Purchaser reasonably believes it appropriate in order
to protect its investment in the Purchased Shares in order to comply with any
Requirement of Law, (e) to the Purchaser's or the Company's officers, directors,
shareholders, advisors, employees, members, partners, controlling persons,
auditors or counsel or (f) to Persons from whom releases, consents or approvals
are required, or to whom notice is required to be provided, pursuant to the
transactions contemplated by the Transaction Documents; and PROVIDED FURTHER,
that the Purchaser may disclose on its worldwide web page or other corporate
communication (or the worldwide web page or other corporate communication of any
of its ten percent (10%) or more beneficial owners) the name of the Company, the
name of the Chief Executive Officer of the Company, a brief description of the
business of the Company and the aggregate amount of the Purchaser's investment
in the Company. If any announcement is required by law or the rules of any
securities exchange or market on which shares of Common Stock are traded to be
made by any party hereto, prior to making such announcement such party will
deliver a draft of such announcement to the other parties and shall give the
other parties reasonable opportunity to comment thereon.
10.14 FURTHER ASSURANCES. Each of the parties shall execute
such documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
10.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
48
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Stock Purchase Agreement on the date first written
above.
EHOTHOUSE INC.
By: /s/ Matthew Ryan
----------------------------------
Name: Matthew Ryan
Title: President
CHANGE TECHNOLOGY PARTNERS, INC.
By: /s/ Frank Gallagi
----------------------------------
Name: Frank Gallagi
Title: Managing Director and Chief Financial Officer
[SIGNATURE PAGE OF STOCK PURCHASE AGREEMENT]
