SOUND SOURCE INTERACTIVE, INC.
COMMON STOCK PURCHASE AGREEMENT
September 8, 2000.
1. PURCHASE AND SALE OF STOCK 1
1.1 Issuance and Sale of Initial Shares 1
1.2 Initial Closing 2
1.3 Amendment of Charter Documents 2
1.4 Change of Directors of Subsidiaries 3
1.5 Issuance and Sale of Subsequent Shares 3
1.6 Subsequent Closing 3
1.7 Change of Directors of SSI/DE 4
1.8 Use of Proceeds 4
2. REPRESENTATIONS AND WARRANTIES OF SSI/DE 4
2.1 Organization, Good Standing and Qualification 4
2.2 Authorization 5
2.3 Capitalization 5
2.4 Subsidiaries 6
2.5 Valid Issuance of Shares 6
2.6 SEC Reports 6
2.7 Financial Statements 7
2.8 Material Contracts and Agreements 7
2.9 Obligations to Related Parties 7
2.10 Title to Properties and Assets; Liens, etc 8
2.11 Compliance with Other Instruments 8
2.12 Litigation 8
2.13 Taxes 9
2.14 Employees 10
2.15 Insurance 10
2.16 Registration Rights 10
2.17 Governmental Consents 10
2.18 Offering 11
2.19 Operating Rights; Compliance with Laws 11
2.20 Rights in Proprietary Information 11
2.21 Minutes 12
2.22 Voting and Shareholders Agreements 12
2.23 Environmental and Safety Laws 12
2.24 Manufacturing and Marketing Rights 12
2.25 Changes 13
2.26 Employee Benefit Plans 14
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER 14
3.1 Organization and Power 14
3.2 Authorization 14
3.3 Investment Representations 14
4. CONDITIONS TO INITIAL AND SUBSEQUENT CLOSING 15
4.1 Conditions to Obligations of Purchaser
at the Initial Closing 15
(a) Representations and Warranties True;
Performance of Obligations 16
(b) Absence of Material Adverse Change 16
(c) Compliance Certificate 16
(d) Accumulated Deficits 16
(e) Financial Certificate 16
(f) Board Approvals 16
(g) Registration Rights Agreement 16
(h) Lock-Up Agreement 16
(i) Written Consent 17
(j) SSI/CA Directors 17
(k) Qualifications, Legal Investment 17
(l) Opinion of SSI/DE's Counsel 17
(m) Proceedings and Documents 17
(n) Absence of Litigation 17
(o) Irrevocable Proxy 17
4.2 Conditions to Obligations of SSI/DE at the
Initial Closing 17
(a) Representations and Warranties True 17
(b) Qualifications, Legal Investment 17
(c) Absence of Litigation 18
4.3 Conditions to Obligations of Purchaser at
the Subsequent Closing 18
(a) Representations and Warranties True;
Performance of Obligations 18
(b) Absence of Material Adverse Change 18
(c) Compliance Certificate 18
(d) DE Amendment 18
(e) Resignation of SSI/DE Directors 18
(f) Qualifications, Legal Investment 18
(g) Absence of Litigation 18
(h) Third Party Consents 19
(i) Opinion of SSI/DE's Counsel 19
4.4 Conditions to Obligations of SSI/DE at
the Subsequent Closing 19
(a) Representations and Warranties True 19
(b) Compliance Certificate 19
(c) DE Amendment 19
(d) Qualifications, Legal Investment 19
(e) Absence of Litigation 19
5. COVENANTS 19
5.1 Covenants of SSI/DE 19
(a) Access 20
(b) Conduct of Business 20
(c) Standstill Provisions 20
(d) License Agreements 20
(e) Termination of Existing Agreements 20
(f) Exclusivity 21
6. MISCELLANEOUS 21
6.1 Governing Law 21
6.2 Survival 22
6.3 Public Disclosure 22
6.4 Successors and Assigns 22
6.5 Entire Agreement 22
6.6 Separability 22
6.7 Amendment and Waiver 22
6.8 Notices, etc 22
6.9 Finders' Fees 23
6.10 Fees and Expenses 23
6.11 Titles and Subtitles 23
6.12 Counterparts 23
6.13 Delays or Omissions 23
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SOUND SOURCE INTERACTIVE, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("Agreement") is made and entered
into as of this 8th day of September, 2000, by and between TDK USA
CORPORATION, a New York corporation ("Purchaser"), and SOUND SOURCE
INTERACTIVE, INC., a Delaware corporation ("SSI/DE").
R E C I T A L S
A. WHEREAS, SSI/DE is the owner, beneficially and of record, of all
of the issued and outstanding capital stock and other securities of each of
SOUND SOURCE INTERACTIVE, INC., a California corporation ("SSI/CA"), and BWTL,
a California corporation (SSI/CA and BWTL are sometimes collectively referred
to herein as the "Subsidiaries").
B. WHEREAS, SSI/DE desires to issue and sell to Purchaser, and
Purchaser desires to purchase and acquire from SSI/DE, a total of Sixteen
Million Six Hundred Sixty-Seven Thousand (16,667,000) shares (the "Shares") of
the common stock, par value $0.001 per share (the "Common Stock"), of SSI/DE
upon the terms and subject to the conditions set forth herein.
C. WHEREAS, the number of authorized but unissued and unreserved
shares of Common Stock under the present Certificate of Incorporation of
SSI/DE are insufficient to permit the issuance and sale by SSI/DE to Purchaser
of all of the Shares as of the date hereof.
D. WHEREAS, the parties hereto desire to provide for (i) the initial
issuance and sale by SSI/DE to Purchaser of Four Million Seven Hundred Fifty
Thousand (4,750,000) Shares, (ii) the amendment of the Certificate of
Incorporation of SSI/DE to increase the number of authorized shares of Common
Stock, and (iii) the subsequent issuance and sale by SSI/DE to Purchaser of
Eleven Million Nine Hundred Seventeen Thousand (11,917,000) Shares, all upon
the terms and subject to the conditions set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
representations, warranties, covenants and agreements hereinafter set forth,
the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF SHARES AND OTHER ACTIONS.
1.1 Issuance and Sale of Initial Shares. Upon the terms and subject
to the conditions set forth in this Agreement, at the Initial Closing (as
defined in Section 1.2 below), SSI/DE shall issue, sell and deliver to
Purchaser, and Purchaser shall purchase and acquire from SSI/DE, Four Million
Seven Hundred Fifty Thousand (4,750,000) shares of SSI/DE's authorized but
unissued and unreserved Common Stock (the "Initial Shares") for the purchase
price of $0.30 per Share and an aggregate purchase price of One Million Four
Hundred Twenty-Five Thousand Dollars ($1,425,000) (the "Initial Purchase
Price").
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1.2 Initial Closing.
(a) The purchase and sale of the Initial Shares shall take
place at the offices of Squire, Sanders & Dempsey, LLP, 801 South Figueroa
Street, 14th Floor, Los Angeles, California, at 10:00 AM, Pacific Time, on
September 8, 2000, or at such other time and place as Purchaser and SSI/DE may
agree upon in writing (which time and place are designated as the "Initial
Closing").
(b) At the Initial Closing, SSI/DE shall deliver to
Purchaser a duly executed stock certificate registered in Purchaser's name
evidencing the Initial Shares against Purchaser's payment to SSI/DE of the
Initial Purchase Price by wire transfer of immediately available funds to a
bank account designated in writing by SSI/DE to Purchaser prior to the Initial
Closing. SSI/DE shall, in addition, deliver or cause to be delivered to
Purchaser the duly executed Registration Rights Agreement and the Lock-Up
Agreement described in Section 4.1 hereof (collectively, the "Ancillary
Agreements"), together with such other documents, instruments and other
deliveries described in Section 4.1 hereof.
1.3 Amendment of Charter Documents.
(a) At the Initial Closing, the Purchaser shall execute and
deliver to SSI/DE a Written Consent of Stockholders of SSI/DE Acting in Lieu
of Special Meeting in substantially the form attached hereto as Exhibit A for
the purpose of authorizing, approving and adopting an amendment to SSI/DE's
Certificate of Incorporation (the "DE Amendment") in substantially the form
attached hereto as Exhibit B for the purpose of increasing its authorized
number of shares of Common Stock to a total of Fifty Million (50,000,000)
shares and changing its corporate name to "TDK Mediactive, Inc."; provided,
however, that the parties hereto understand and acknowledge that the
effectiveness of the foregoing stockholder action shall be subject to and
conditioned upon the fulfillment of all applicable requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the rules of
the Securities and Exchange Commission ("SEC") promulgated thereunder and the
provisions of the Delaware General Corporation Law ("DGCL"). SSI/DE shall
promptly take or cause to be taken, at its sole cost and expense, any and all
actions that may be necessary under the Exchange Act, the SEC rules and the
DGCL to permit the foregoing stockholder action to become effective as soon as
practicable following the Initial Closing, which actions to be taken by SSI/DE
shall include, without limitation, the preparation and filing of a Schedule
14C and any necessary amendments thereto with the SEC pursuant to Section
14(c) of the Exchange Act, the preparation and filing of an information
statement and any necessary amendments thereto with the SEC pursuant to Rule
14f-1 under the Exchange Act (the "Information Statement") and the delivery of
the Schedule 14C, the Information Statement and any other written notice
required by the DGCL to the stockholders of SSI/DE. SSI/DE shall deliver to
Purchaser a copy of the proposed form of the Schedule 14C and the Information
Statement no less that five (5) business days prior to the proposed date of
filing thereof with the SEC for purposes of review by Purchaser to confirm the
accuracy and completeness of the discussion therein of Purchaser's designees
to the Board of Directors of SSI/DE and of Purchaser's role in the transaction
as contemplated by this Agreement. Upon the effectiveness of the stockholder
actions set forth in the foregoing written consent, SSI/DE shall promptly file
or cause to be filed the DE Amendment with the Delaware Secretary of State.
(b) At the Initial Closing, and at its sole cost and expense,
SSI/DE shall file or cause to be filed with the California Secretary of State
an amendment to the Articles of Incorporation of SSI/CA (the "CA Amendment")
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in substantially the form attached hereto as Exhibit C for the purpose of
changing SSI/CA's corporate name to "TDK Mediactive, Inc."
1.4 Change of Directors of Subsidiaries.
(a) At the Initial Closing, SSI/DE shall execute and deliver
to SSI/CA a Written Consent of Sole Shareholder of SSI/CA Acting in Lieu of
Special Meeting in substantially the form attached hereto as Exhibit D for the
purpose of removing from office without cause all of the then acting directors
of SSI/CA and electing in their place and stead the following persons: Kenichi
Aoshima, Vincent J. Bitetti, Masatoshi Shikanai, Shin Tanabe, and John T.
Wholihan. From and after the Initial Closing, SSI/DE shall not, without the
prior written approval of Purchaser, remove any of the foregoing designees or
elect any other person as a director of SSI/CA.
(b) At the Initial Closing, SSI/DE shall execute and deliver
to BWTL a Written Consent of Sole Shareholder of BWTL Acting in Lieu of
Special Meeting in substantially the form attached hereto as Exhibit E for the
purpose of removing from office without cause all of the then acting directors
of BWTL and electing in their place and stead the following persons: Kenichi
Aoshima, Vincent J. Bitetti, Masatoshi Shikanai, Shin Tanabe, and John T.
Wholihan. From and after the Initial Closing, SSI/DE shall not, without the
prior written approval of Purchaser, remove any of the foregoing designees or
elect any other person as a director of BWTL. SSI/DE shall take any and all
actions necessary to dissolve BWTL as soon as practicable after the Initial
Closing.
1.5 Issuance and Sale of Subsequent Shares. Upon the terms and
subject to the conditions set forth in this Agreement, and subject to and
conditioned upon the filing of the DE Amendment with the Delaware Secretary of
State pursuant to Section 1.3(a) hereof, at the Subsequent Closing (as defined
in Section 1.6 below), SSI/DE shall issue, sell and deliver to Purchaser, and
Purchaser shall purchase and acquire from SSI/DE, Eleven Million Nine Hundred
Seventeen Thousand (11,917,000) shares of SSI/DE's authorized and unissued
Common Stock (the "Subsequent Shares") for the purchase price of $0.30 per
Share and an aggregate purchase price of Three Million Five Hundred Seventy
Five Thousand One Hundred Dollars ($3,575,100) (the "Subsequent Purchase
Price").
1.6 Subsequent Closing.
(a) The purchase and sale of the Subsequent Shares shall take
place at the offices of Squire, Sanders & Dempsey, LLP, 801 South Figueroa
Street, 14th Floor, Los Angeles, California, at 10:00 AM, Pacific Time, on the
first business day following the filing of the DE Amendment with the Delaware
Secretary of State, or at such other time and place as Purchaser and SSI/DE
may agree upon in writing (which time and place are designated as the
"Subsequent Closing").
(b) At the Subsequent Closing, SSI/DE shall deliver to
Purchaser a duly executed stock certificate registered in Purchaser's name
evidencing the Subsequent Shares against Purchaser's payment to SSI/DE of the
Subsequent Purchase Price by wire transfer of immediately available funds to a
bank account designated in writing by SSI/DE to Purchaser prior to the
Subsequent Closing.
1.7 Change of Directors of SSI/DE. In the event that the designated
directors described in Section 4.3(e) herein shall not have resigned as of the
Subsequent Closing, the Purchaser may, at its sole election, waive such
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condition or execute and deliver to SSI/DE a Written Consent of Stockholders
of SSI/DE Acting in Lieu of Special Meeting in substantially the form attached
hereto as Exhibit F for the purpose of removing from office without cause all
of the then acting directors of SSI/DE and electing in their place and stead
the following persons: Kenichi Aoshima, Vincent J. Bitetti, Masatoshi
Shikanai, Shin Tanabe, and John T. Wholihan; provided, however, that the
parties hereto understand and acknowledge that the effectiveness of the
foregoing stockholder action shall be subject to and conditioned upon the
fulfillment of all applicable requirements under the Exchange Act, the SEC
rules and the DGCL. For purposes of fulfilling the closing condition in
Section 4.3(e) herein, SSI/DE shall promptly take or cause to be taken, at its
sole cost and expense, any and all actions that may be necessary under the
Exchange Act, the SEC rules and the DGCL to permit the foregoing stockholder
action to become effective as soon as practicable following the Subsequent
Closing, which actions to be taken by SSI/DE shall include, without
limitation, the preparation and filing of the Schedule 14C, the Information
Statement and any necessary amendments thereto with the SEC and the delivery
of the Schedule 14C, the Information Statement and any other written notice
required by the DGCL to the stockholders of SSI/DE.
1.8 Use of Proceeds. SSI/DE hereby agrees that the proceeds of the
issuance and sale of the Shares to Purchaser hereunder shall be used solely
for general corporate purposes, and shall not, without the prior approval of
Purchaser (which approval may be granted or withheld in its sole and absolute
discretion) be used for (i) the payment of any dividend or other distribution
in respect of any of the shares of capital stock or other securities of
SSI/DE, or (ii) the repurchase, redemption or other acquisition of any of the
shares of capital stock or other securities of SSI/DE (other than a capital
contribution by SSI/DE to SSI/CA, the proceeds of which shall be used by
SSI/CA solely in conformity with this Section 1.8).
2. REPRESENTATIONS AND WARRANTIES OF SSI/DE.
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit G, specifically identifying the relevant subparagraphs hereof, SSI/DE
hereby represents and warrants to Purchaser as follows:
2.1 Organization, Good Standing and Qualification.
(a) SSI/DE is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as presently conducted and as presently
proposed to be conducted. SSI/DE is duly qualified as a foreign corporation
to transact business in and is in good standing under the laws of the State of
California, and is not qualified as a foreign corporation to transact business
or required to so qualify in any other jurisdiction, except to the extent that
the failure to so qualify would not have or be reasonably expected to have a
material adverse effect in excess of $20,000, individually or in the
aggregate, on the assets, liabilities, business, results of operation,
prospects or condition (financial or otherwise) of SSI/DE and the
Subsidiaries, taken as a whole, or upon SSI/DE's ability to consummate the
transactions contemplated by or to perform its obligations in this Agreement
or any of the Ancillary Agreements ("Material Adverse Effect"). SSI/DE has
heretofore delivered to Purchaser true, correct and complete copies of
SSI/DE's Certificate of Incorporation and Bylaws, as amended through the date
hereof, and no amendments have been made thereto since the date of such
delivery.
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(b) Each of the Subsidiaries is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
California, and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted and as presently proposed to be conducted. None of the Subsidiaries
is qualified as a foreign corporation to transact business in any other
jurisdiction and no such qualification is presently required, except to the
extent that the failure to so qualify would not have a Material Adverse
Effect. SSI/DE has heretofore delivered to Purchaser true, correct and
complete copies of the Articles of Incorporation and Bylaws of SSI/CA, as
amended through the date hereof, and no amendments have been made thereto
since the date of such delivery.
2.2 Authorization. SSI/DE has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Ancillary Agreements, to consummate the transactions contemplated
hereunder and thereunder, and to issue and sell the Shares hereunder;
provided, however, that SSI/DE's corporate power and authority to issue and
sell the Subsequent Shares is subject to and conditioned upon the filing of
the DE Amendment with the Delaware Secretary of State. All corporate action
on the part of SSI/DE, its officers, directors and stockholders necessary for
the authorization, execution and delivery by SSI/DE of this Agreement and the
Ancillary Agreements, the performance by SSI/DE of all of its obligations
hereunder and thereunder, and the authorization, issuance, sale and delivery
of the Shares hereunder have been taken or will be taken prior to the Initial
Closing with respect to the Initial Shares and prior to the Subsequent Closing
with respect to the Subsequent Shares. This Agreement and the Ancillary
Agreements, when executed and delivered, shall constitute valid and legally
binding obligations of SSI/DE, enforceable against it in accordance with the
respective terms thereof, except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights and remedies,
(ii) applicable laws and general principles of equity relating to the
availability of specific performance, injunctive relief or other equitable
remedies, and (iii) applicable laws which may limit the enforceability of the
indemnification provisions contained in the Registration Rights Agreement.
2.3 Capitalization. As of the date hereof, the authorized capital
stock of SSI/DE consists of 20,000,000 shares of Common Stock, of which
5,911,796 shares are issued and outstanding. All issued and outstanding
shares of the Common Stock have been duly authorized and validly issued, are
fully paid and non-assessable and were issued in compliance with applicable
federal and state securities laws. All issued and outstanding shares of the
Common Stock are free of preemptive, first refusal or similar rights created
by or contained in any agreement or other instrument to which SSI/DE is a
party or by which it is bound, and to the knowledge of SSI/DE, any other
agreement or instrument, except that Eric H. Winston holds a presently
exercisable option to purchase 100,000 shares of Common Stock from Vincent J.
Bitetti. As of the date hereof, (i) 635,256 shares of Common Stock are
reserved for issuance in connection with the exercise of outstanding options
issued to directors, officers, employees and consultants pursuant to SSI/DE's
1992 Stock Option Plan, the 1995 Stock Option Plan, and the 1999 Director
Stock Plan, and (ii) 6,493,824 shares of Common Stock are reserved for
issuance in connection with the exercise of outstanding warrants. All of the
outstanding options and warrants have been duly authorized and validly issued
and were issued in compliance with applicable federal and state securities
laws. Of the outstanding warrants, 240,000 have an exercise price of $5.80
per share, and the remainder have an exercise price of $4.40 per share. The
Schedule of Exceptions sets forth, as of the date hereof, the holders of
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record of the options and warrants (other than the redeemable warrants) to
purchase Common Stock, together with the exercise price, date of grant and
number of shares issuable upon exercise of said outstanding options and
warrants for each holder thereof. Except as set forth above and in the
Schedule of Exceptions, there are no outstanding options, warrants or other
rights (including preemptive, first refusal or conversion rights) or any
agreements of any kind for the purchase or acquisition from SSI/DE or the
Subsidiaries of any shares of their capital stock. Except as set forth on the
Schedule of Exceptions, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereunder will cause any
outstanding options or warrants to become exercisable. There are no
outstanding obligations of SSI/DE to repurchase, redeem or otherwise acquire
any shares of its capital stock.
2.4 Subsidiaries. SSI/DE is the owner, beneficially and of record,
of all of the issued and outstanding capital stock and other securities of
each of the Subsidiaries, free and clear of any liens, encumbrances, security
interests, charges or adverse claims or rights of any kind. All of the
outstanding capital stock of each of the Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and were issued in compliance
with applicable federal and state securities laws. Except for the
Subsidiaries, neither SSI/DE nor any of the Subsidiaries owns or controls,
directly or indirectly, any interest in any corporation, association or
business entity. Neither SSI/DE nor any of the Subsidiaries is, directly or
indirectly, a participant in any joint venture, partnership, limited liability
company or similar arrangement.
2.5 Valid Issuance of Shares. The Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be (i) duly authorized, validly issued, fully paid and
nonassessable, (ii) issued in compliance with applicable federal and state
securities laws, and (iii) free of any liens, encumbrances, preemptive rights,
rights of first refusal or other restrictions, other than restrictions on
transfer under applicable federal and state securities laws and other than
liens or encumbrances created by or imposed upon Purchaser.
2.6 SEC Reports. All reports filed by SSI/DE with the SEC pursuant
to the Exchange Act since June 30, 1996, including without limitation reports
on Forms 10-KSB, 10-QSB, 8-K and any proxy statements or information
statements (collectively, the "SEC Reports"), have been timely filed with the
SEC by SSI/DE (subject to applicable grace periods) and were in compliance in
all material respects with the requirements applicable at the time of filing.
As of the date of filing, none of the SEC Reports contained any untrue
statements of material facts nor did they omit to state any material facts
necessary to make the statements made therein not misleading. Amendments have
been filed to the SEC Reports to the extent necessary to comply with the
reporting requirements of the Exchange Act. SSI/DE has not received any
comment letters from the SEC with respect to the SEC Reports.
2.7 Financial Statements. The audited consolidated balance sheet,
statement of operations and cash flow statement of SSI/DE as of June 30, 1999
and for the fiscal year then ended (as disclosed in the SEC Reports), and the
unaudited consolidated balance sheet, statement of operations and cash flow
statement of SSI/DE as of March 31, 2000 and for the nine-month period then
ended (together, the "Financial Statements"), are complete and correct in all
material respects, fairly present the financial condition of SSI/DE and the
Subsidiaries and the results of operations as of the dates and for the periods
referred to and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied by SSI/DE, except that the
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unaudited Financial Statements are subject to normal and recurring year-end
audit adjustments and may not contain all footnotes required by GAAP. True
and complete copies of the Financial Statements have heretofore been delivered
to Purchaser, and no changes have been made thereto since the date of
delivery. Except as set forth in the Schedule of Exceptions, there are no
material liabilities, direct or indirect, fixed or contingent, of SSI/DE or
any of the Subsidiaries which are not reflected in the consolidated balance
sheet of SSI/DE as of March 31, 2000, except for liabilities and obligations
incurred in the ordinary course of business subsequent to March 31, 2000 which
do not have a Material Adverse Effect. The Financial Statements included in
the SEC Reports comply in all material respects with Regulation S-X
promulgated under the Securities Act of 1933, as amended (the "Securities
Act").
2.8 Material Contracts and Agreements. Except as set forth on the
Schedule of Exceptions, neither SSI/DE nor any of its Subsidiaries has any
material contract, agreement, lease, or other commitment, whether written or
oral (collectively, "Material Contracts"). For the purpose of this Section
2.8, employment contracts and contracts with labor unions shall be considered
to be Material Contracts regardless of amount. All Material Contracts to
which SSI/DE or any of its Subsidiaries are a party are valid and binding and
in full force and effect in all material respects, and [except as set forth in
the Schedule of Exceptions] neither SSI/DE nor any of its Subsidiaries are in
breach thereof, and to SSI/DE's knowledge, no other party thereto is in
material breach thereof, except for such breaches as would not have a Material
Adverse Effect.
2.9 Obligations to Related Parties. There are no obligations of
SSI/DE or any of its Subsidiaries to any officers, directors, or employees of
SSI/DE or any of its Subsidiaries, including any member of their immediate
families, other than (i) for payment of salary or fees for services rendered,
(ii) reimbursement of reasonable expenses incurred on behalf of SSI/DE or any
of its Subsidiaries, (iii) other standard employee benefits made generally
available to all employees (including stock option agreements under any stock
option plan approved by the Board of Directors of SSI/DE), and (iv)
obligations disclosed in the proxy statement filed on November 22, 1999 by
SSI/DE with the SEC. None of the foregoing persons is indebted to SSI/DE or
any of its Subsidiaries, and to the knowledge of SSI/DE, none of such persons
has any direct or indirect ownership interest in any firm, corporation or
business entity with which SSI/DE or any of its Subsidiaries are affiliated or
with which SSI/DE or any of its Subsidiaries have a business relationship or
which competes with SSI/DE or any of its Subsidiaries, except that such
persons may own stock in publicly traded companies that may compete with
SSI/DE or its Subsidiaries. To the knowledge of SSI/DE, none of the foregoing
persons has, directly or indirectly, an interest in any Material Contract of
SSI/DE or any of its Subsidiaries with any third party.
2.10 Title to Properties and Assets; Liens, Etc. Except as set forth
on the Schedule of Exceptions, each of SSI/DE and its Subsidiaries has good
and marketable title to its properties and assets, and good title to all its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance, or charge, other than (a) liens resulting from taxes which have
not yet become delinquent, or (b) minor liens, encumbrances, or defects of
title which do not, individually or in the aggregate, materially detract from
the value of the property subject thereto or materially impair the operations
of SSI/DE or any of its Subsidiaries or their use of their property and
assets. All material facilities, machinery, equipment, fixtures, vehicles and
other properties owned, leased or used by SSI/DE or any of its Subsidiaries
are in satisfactory operating condition and repair, normal wear and tear
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excepted, are adequate for the uses and purposes for which they are presently
being used, and are not in need of maintenance or repairs, except for
ordinary, routine maintenance and repairs which are not material in nature or
cost. Set forth on the Schedule of Exceptions is a correct and complete list
(including the amount of rent or other payment called for and a brief
description of the leased property) of all material leases under which SSI/DE
or any of its Subsidiaries is a lessee. SSI/DE and each of its Subsidiaries
enjoy peaceful and undisturbed possession under all such leases, are not in
default in any material respect under any such lease, and to SSI/DE's
knowledge, there is no default by any lessor under any such lease, except for
such defaults as would not have a Material Adverse Effect. Neither SSI/DE nor
any of its Subsidiaries presently own and have not previously owned any real
property.
2.11 Compliance with Other Instruments. Neither SSI/DE nor any of
its Subsidiaries is in violation of any provision of their certificate or
articles of incorporation or bylaws, any judgment, decree, writ, injunction or
order of any court or governmental agency or, to SSI/DE's knowledge, of any
statute, rule or regulation applicable to any of them except for such
violations as would not have a Material Adverse Effect. The execution,
delivery, and performance of and compliance with this Agreement and the
Ancillary Agreements, and the issuance and sale of the Shares pursuant hereto,
will not result in any violation of any provision of SSI/DE's certificate of
incorporation or bylaws, or any Material Contract, or be in conflict with or
constitute a default under any such provision, except for such violations as
would not have a Material Adverse Effect, or result in the creation of any
mortgage, pledge, lien, encumbrance, or charge upon any of the properties or
assets of either SSI/DE or any of its Subsidiaries or the suspension,
revocation, impairment, forfeiture or nonrenewal of any material permit,
license, authorization or approval applicable to SSI/DE or any of its
Subsidiaries, their business or any of their assets or properties.
2.12 Litigation. There are no actions, proceedings, or
investigations before any court, or administrative agency pending or, to
SSI/DE's knowledge, currently threatened against or with respect to SSI/DE or
any of its Subsidiaries (or any basis therefor known to SSI/DE), which
question the validity of this Agreement or any action taken or to be taken in
connection herewith, or which, either individually or in the aggregate, if
decided adversely to SSI/DE or any of its Subsidiaries, would have a Material
Adverse Effect, or in any material impairment of the right or ability of
SSI/DE and any of its Subsidiaries to carry on their business as now conducted
or as proposed to be conducted. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to SSI/DE)
involving the current or prior employment of any of SSI/DE's or any of its
Subsidiaries' employees, former employees or consultants, their use in
connection with SSI/DE's or any of its Subsidiaries' business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Neither SSI/DE nor any of its Subsidiaries is a party or subject to, and none
of their assets are bound by, the provisions of any order, writ, injunction,
judgment, or decree of any court or governmental agency or instrumentality.
Except as set forth on the Schedule of Exceptions, there is no action, suit,
proceeding, or investigation by SSI/DE or any of its Subsidiaries currently
pending or that SSI/DE or any of its Subsidiaries intends to initiate.
2.13 Taxes. Each of SSI/DE and its Subsidiaries has timely filed all
tax returns and reports as required by applicable tax laws, rules or
regulations. These returns and reports are true and correct in all material
respects. Each of SSI/DE and its Subsidiaries has paid all taxes and other
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assessments required to be paid by it under applicable tax laws, rules or
regulations, except those contested by it in good faith that are listed in the
Schedule of Exceptions. The provision for taxes for each of SSI/DE and its
Subsidiaries as shown in the Financial Statements is adequate for taxes due or
accrued as of the respective dates thereof. Neither SSI/DE nor any of its
Subsidiaries has elected pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor have they made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a Material Adverse Effect. Neither SSI/DE nor
any of its Subsidiaries has ever had any tax deficiency proposed or assessed
against them and has not executed any waiver of any statute of limitations on
the assessment or collection of any tax or governmental charge. Neither
SSI/DE's nor either of its Subsidiaries' federal income tax returns and none
of their state income or franchise tax or sales or use tax returns have ever
been audited by governmental authorities and, to SSI/DE's knowledge, no such
audit or examination is threatened. No claim has ever been made by any tax
authority in any jurisdiction where any of SSI/DE or the Subsidiaries does not
file tax returns that any of them is or may be subject to taxation in such
jurisdiction. Since the date of the Financial Statements, each of SSI/DE and
its Subsidiaries has made adequate provisions on their books of account for
all taxes, assessments and governmental charges with respect to their
business, properties and operations for such period. Each of SSI/DE and its
Subsidiaries has withheld or collected from each payment made to any employee,
independent contractor or third party, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving or authorized
depositories. Neither SSI/DE nor any of the Subsidiaries is obligated to
make, or is a party to any agreement that would obligate any of them to make,
any payment that will not be deductible under Section 280G of the Code.
Neither SSI/DE nor any of the Subsidiaries is a party to any tax allocation,
tax sharing, tax indemnity, gain recognition or closing agreement or other
similar arrangement. Neither SSI/DE nor any of its Subsidiaries has been a
member of any affiliated or combined group filing consolidated or combined tax
returns, except for the affiliated or combined group of which the common
parent is SSI/DE. Neither SSI/DE nor any of its Subsidiaries has any
liability for the taxes of any other person or entity as a transferee or
successor, by contract or otherwise.
2.14 Employees. To SSI/DE's knowledge, no employee of either SSI/DE
or any of its Subsidiaries is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative agency
that would conflict with such employee's obligation to use his or her
commercially reasonable efforts to promote the interests of SSI/DE and any of
its Subsidiaries or that would conflict with SSI/DE's or any of its
Subsidiaries' business as conducted or as proposed to be conducted. To
SSI/DE's knowledge, no employee or consultant of SSI/DE or any of its
Subsidiaries is in violation of any term of any employment contract,
proprietary information and inventions agreement, non-competition agreement,
or any other contract or agreement relating to the relationship of any such
employee or consultant with SSI/DE, any of its Subsidiaries, or any previous
employer. Neither SSI/DE nor any of its Subsidiaries has collective
bargaining agreements with any of its employees, and to SSI/DE's knowledge,
there is no labor union organizing activity pending or threatened with respect
to SSI/DE or any of its Subsidiaries. No employee of SSI/DE or any of its
Subsidiaries has been granted the right to continued employment with either
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SSI/DE or any of its Subsidiaries or to any material compensation following
termination of employment with any of them, except for the rights granted to
Vincent J. Bitetti under the Succession Agreement between him and SSI/DE,
dated as of November 12, 1999. SSI/DE is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with SSI/DE and/or any of its Subsidiaries, nor does SSI/DE or any
of its Subsidiaries have a present intention to terminate the employment of
any officer, key employee or group of key employees.
2.15 Insurance. Each of SSI/DE and its Subsidiaries has adequate
insurance, with financially sound and reputable insurers, with respect to
their properties that are of a character customarily insured by entities
engaged in the same or a similar business similarly situated, against loss or
damage of the kinds customarily insured against by such entities, which
insurance is of such types (including public liability insurance) as are
customarily carried under similar circumstances by such other entities.
2.16 Registration Rights. Except as set forth on the Schedule of
Exceptions, neither SSI/DE nor any of its Subsidiaries is under any obligation
to register under the Securities Act any of its presently outstanding
securities or any of its securities which may hereafter be issued.
2.17 Governmental Consents. Except where the failure to obtain the
following would not have a Material Adverse Effect, all consents, approvals,
orders, or authorizations of, or registrations, qualifications, designations,
declarations, or filings with, any governmental authority, required on the
part of SSI/DE or any of its Subsidiaries in connection with the valid
execution and delivery of this Agreement and the offer, sale or issuance of
the Shares contemplated hereby have been obtained, or will be effective at the
Initial Closing with respect to the Initial Shares and at the Subsequent
Closing with respect to the Subsequent Shares, excluding notices required or
permitted to be filed with certain state and federal securities commissions
after the Initial or Subsequent Closing, as applicable, which notices will be
filed on a timely basis.
2.18 Offering. Assuming the accuracy of the representations and
warranties of Purchaser contained in Section 3.3 hereof, the offer, issue, and
sale of the Shares are and will be exempt from the registration requirements
of the Securities Act and the registration or qualification requirements of
applicable state securities laws. Neither SSI/DE nor any authorized agent
acting on its behalf will take any action that would cause the loss of such
exemption.
2.19 Operating Rights; Compliance with Laws. To SSI/DE's knowledge,
each of SSI/DE and its Subsidiaries has all operating authority, licenses,
franchises, permits, certificates, consents, rights and privileges
(collectively "Permits") as are necessary or appropriate to the operation of
their business as now conducted and as proposed to be conducted, except where
the failure to obtain the foregoing would not have a Material Adverse Effect.
Such Permits are in full force and effect, no violations have been recorded in
respect of any such Permits, and no proceeding is pending or, to the knowledge
of SSI/DE, threatened that could result in the revocation or limitation of any
of such Permits. Each of SSI/DE and its Subsidiaries has conducted its
business so as to comply in all material respects with all such material
Permits. Neither SSI/DE nor any of its Subsidiaries is in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of their business or the ownership or use of their properties or
assets, which violation would have a Material Adverse Effect.
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2.20 Rights in Proprietary Information. Each of SSI/DE and its
Subsidiaries has sufficient right, title and interest in and to all
proprietary and intellectual property rights in each case that are material to
the conduct of their business as now conducted, without any known conflict or
infringement of the rights of others. The Schedule of Exceptions contains a
complete list of all copyrights, tradenames, trademarks, trademark
applications, patents and patent applications of each of SSI/DE and its
Subsidiaries. There are no outstanding options, licenses, claims, security
interests, liens or agreements of any kind ("Encumbrances") relating to the
foregoing, and neither SSI/DE nor any of its Subsidiaries is bound by or a
party to any Encumbrances with respect to the patents, trademarks, service
marks, tradenames, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity, except as set
forth in the Schedule of Exceptions. Neither SSI/DE nor any of its
Subsidiaries has received any communications alleging that any of them has
violated or, by conducting their business as proposed, would violate any of
the patents, trademarks, service marks, trade names, or other proprietary
rights of any other person or entity, nor does SSI/DE have reason to believe
that they have violated or, by conducting their business as proposed, would
violate any of the patents, trademarks, service marks, trade names, or other
proprietary rights of any person or entity. SSI/DE does not believe it is or
will be necessary to utilize any inventions, trade secrets or proprietary
information of any of its employees made or developed prior to their
employment with SSI/DE or any of its Subsidiaries, except for inventions,
trade secrets or proprietary information that have been assigned to either
SSI/DE or any of its Subsidiaries. Each of SSI/DE and its Subsidiaries has
taken and continues to take reasonable security measures to protect the
secrecy, confidentiality, and value of all trade secrets, know-how,
inventions, designs, processes, and technical data utilized in the conduct of
their business.
2.21 Minutes. Except as disclosed in the Schedule of Exceptions, the
minutes of SSI/DE and SSI/CA made available to Purchaser's counsel for review
contain a complete summary of all meetings of and actions by directors and
shareholders of SSI/DE and SSI/CA, from July 2, 1996 to the date hereof, and
reflect all transactions referred to in such minutes accurately in all
material respects.
2.22 Voting and Shareholders Agreements. Except as described in
SSI/DE's proxy statement filed with the SEC on November 22, 1999, to SSI/DE's
knowledge, there exist no voting agreements, voting trusts, proxies or similar
arrangements involving shares of either SSI/DE's or any of its Subsidiaries'
capital stock or any shareholder of SSI/DE or any of its Subsidiaries. Except
as described in the foregoing proxy statement, to SSI/DE's knowledge, there
exist no shareholder agreements or other commitments, arrangements or
understandings among the shareholders of either SSI/DE or any of its
Subsidiaries involving the sale or other transfer of shares of SSI/DE's or any
of its Subsidiaries' capital stock.
2.23 Environmental and Safety Laws. To SSI/DE's knowledge, neither
SSI/DE nor any of its Subsidiaries is in violation of any applicable statute,
law or regulation relating to the environment or occupational health and
safety (the "Environmental Laws"), and, to SSI/DE's knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. Each of SSI/DE and its Subsidiaries has conducted
its operations in compliance in all material respects with the Environmental
Laws. Neither SSI/DE nor any of its Subsidiaries has released and, to the
knowledge of SSI/DE, there have been no releases of, hazardous materials on,
under, from, or into any of their properties or assets or any property
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operated or used by them. Neither SSI/DE nor any of its Subsidiaries has
transported or arranged for the transportation or disposal of any hazardous
material in connection with the operation of its business. No order has been
issued, no environmental claim has been filed, no penalty has been assessed
and no investigation or review is pending or, to SSI/DE's knowledge,
threatened by any governmental or regulatory authority with respect to any
alleged failure by either SSI/DE or any of its Subsidiaries to have any
license or permit required under applicable Environmental Laws in connection
with the conduct of its business or with respect to any generation, treatment,
storage, recycling, transportation, discharge or release of any hazardous
material in connection with their business or operations, and to the knowledge
of SSI/DE, there are no facts or circumstances in existence which could
reasonably be expected to form the basis for any such order, claim, penalty or
investigation. There are no environmental investigations, studies, audits,
tests, reviews or other analyses that are in possession of either SSI/DE or
any of its Subsidiaries in relation to any site or facility now or previously
owned, operated or leased by any of them.
2.24 Manufacturing and Marketing Rights. Except as set forth on the
Schedule of Exceptions, neither SSI/DE nor any of its Subsidiaries has granted
rights to manufacture, produce, assemble, license, market, or sell their
products to any other person and are not bound by any agreement that affects
any of their exclusive rights to develop, manufacture, assemble, distribute,
market or sell their products.
2.25 Changes. Except as set forth on the Schedule of Exceptions,
since March 31, 2000, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of either SSI/DE or any of its Subsidiaries
from that reflected in the Financial Statements, except changes in the
ordinary course of business that have not been, in the aggregate, materially
adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of either SSI/DE
or any of its Subsidiaries (as such business is presently conducted and as it
is proposed to be conducted);
(c) any waiver by either SSI/DE or any of its Subsidiaries of
a valuable right or of a material debt owed to them;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by either SSI/DE or any of its
Subsidiaries, except in the ordinary course of business consistent with past
practice and that is not material to the assets, properties, financial
condition, operating results or business of either SSI/DE or any of its
Subsidiaries (as such business is presently conducted and as it is proposed to
be conducted);
(e) any material change or amendment to a Material Contract
by which either SSI/DE or any of its Subsidiaries or any of their assets or
properties is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer or director;
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(g) any sale, assignment or transfer of any material patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of either SSI/DE or any of its Subsidiaries;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of either SSI/DE or any of
its Subsidiaries;
(j) any mortgage, pledge, transfer of a security interest in,
or lien, created by either SSI/DE or any of its Subsidiaries, with respect to
any of their material properties or assets, except liens for taxes not yet due
or payable;
(k) any direct or indirect loans or guarantees made by either
SSI/DE or any of its Subsidiaries to or for the benefit of their employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of their
business;
(l) any declaration, setting aside or payment or other
distribution in respect of any of either SSI/DE's or any of its Subsidiaries'
capital stock, or any direct or indirect redemption, purchase or other
acquisition of any of such stock by either SSI/DE or any of its Subsidiaries;
(m) any debt, obligation or liability incurred, assumed or
guaranteed by either SSI/DE or any of its Subsidiaries, except those for
current liabilities incurred in the ordinary course of business consistent
with past practice;
(n) to SSI/DE's knowledge, any other event or condition of
any character that could reasonably be expected to materially and adversely
affect the assets, properties, financial condition, operating results or
business of either SSI/DE or any of its Subsidiaries (as such business is
presently conducted and as it is proposed to be conducted); or
(o) any agreement or commitment by either SSI/DE or any of
its Subsidiaries to do any of the things described in this Section 2.25.
2.26 Employee Benefit Plans. Neither SSI/DE nor any of its
Subsidiaries has any "employee benefit plans" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended, or any
similar plans.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to SSI/DE as follows:
3.1 Organization and Power. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of New York. Purchaser has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
purchase the Shares hereunder.
3.2 Authorization. The execution, delivery and performance of this
Agreement by Purchaser has been duly authorized by all necessary corporate
action on the part of Purchaser. This Agreement, when executed and delivered,
shall constitute the valid and legally binding obligation of Purchaser,
enforceable against it in accordance with the terms thereof, except as may be
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limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights and remedies, and (ii) applicable laws and general
principles of equity relating to the availability of specific performance,
injunctive relief or other equitable remedies.
3.3 Investment Representations.
(a) Purchaser is acquiring the Shares for Purchaser's own
account, not as nominee or agent, for investment and not with a view to, or
for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act.
(b) Purchaser understands that (i) the Shares have not been
registered under the Securities Act by reason of a specific exemption
therefrom, that they must be held by Purchaser indefinitely, and that
Purchaser must, therefore, bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration; (ii) the Shares will be
endorsed with the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT, OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT."
and (iii) SSI/DE will instruct any transfer agent not to register the transfer
of any of the Shares unless the conditions specified in the foregoing legend
are satisfied; provided, however, that no such opinion of counsel shall be
necessary if the sale, transfer or assignment is made pursuant to SEC Rule 144
or Rule 144A and Purchaser provides SSI/DE with evidence reasonably
satisfactory to SSI/DE and its counsel that the proposed transaction satisfies
the requirements of Rule 144 or Rule 144A. SSI/DE agrees to remove the
foregoing legend from any securities if the requirements of SEC Rule 144(k)
(or any successor rule or regulation) apply with respect to such securities
and SSI/DE and its counsel are provided with reasonably satisfactory evidence
that the requirements of Rule 144(k) apply.
(c) Purchaser acknowledges that it is able to fend for itself,
can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Shares.
(d) Purchaser is an "accredited investor" within the meaning of
SEC Rule 501 of Regulation D, as presently in effect.
(e) Purchaser understands that the Shares it is purchasing are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from SSI/DE in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances, and Purchaser represents that it is familiar
with SEC Rule 144 and Rule 144A, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
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(f) Purchaser was not formed for the specific purpose of
acquiring the Shares.
3.4 Purchaser's principal business address is as set forth on the
signature page hereto.
4. CONDITIONS TO INITIAL AND SUBSEQUENT CLOSINGS.
4.1 Conditions to Obligations of Purchaser at Initial Closing.
Purchaser's obligation to purchase the Initial Shares at the Initial Closing
is subject to the fulfillment, at or prior to the Initial Closing, of all of
the following conditions, which conditions may be waived by Purchaser in its
sole discretion:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by SSI/DE in Section 2
hereof shall be true and correct on the date of the Initial Closing with the
same force and effect as if they had been made on and as of said date, and
SSI/DE shall have performed and satisfied all obligations and conditions
herein required to be performed or satisfied by it on or prior to the Initial
Closing.
(b) Absence of Material Adverse Change. Neither SSI/DE nor any
of its Subsidiaries shall have experienced any material adverse change to
their assets, properties, liabilities, business, operations, financial
condition or prospects as of the Initial Closing, including, without
limitation, any material adverse change in the extent or nature of either
SSI/DE's or any of its Subsidiaries' lines of credit from and after May 11,
2000 and through the date of the Initial Closing.
(c) Compliance Certificate. SSI/DE shall have delivered to
Purchaser a certificate, executed by the Chief Executive Officer or President
and the Secretary of SSI/DE, dated the date of the Initial Closing, certifying
to the fulfillment of the conditions specified in subparagraphs (a) and (b) of
this Section 4.1 and subparagraph (f) of this Section 4.1 with respect to the
Board of Directors of SSI/DE.
(d) Accumulated Deficits. The accumulated deficits of each of
SSI/DE and its Subsidiaries on a consolidated basis (as determined in
accordance with GAAP, consistently applied) shall not have exceeded
$20,000,000 as of the Initial Closing.
(e) Financial Certificate. SSI/DE shall have delivered to
Purchaser a certificate, executed by the Chief Executive Officer or President
and the Chief Financial Officer of SSI/DE, dated the date of the Initial
Closing, certifying (i) that the statement of cash flows presented to
Purchaser on June 9, 2000 accurately represents in all material respects the
projected financial position and forecast of the results of operations of
SSI/DE and its Subsidiaries for the period ending December 31, 2003, and (ii)
the fulfillment of the condition specified in subparagraph (d) of this Section
4.1.
(f) Board Approvals. This Agreement and the Ancillary
Agreements, and the transactions contemplated hereunder and thereunder, shall
have been approved by the Board of Directors of each of Purchaser, TDK
Corporation (the parent Company of Purchaser), and SSI/DE on or prior to the
Initial Closing.
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(g) Registration Rights Agreement SSI/DE and Purchaser shall
have entered into the Registration Rights Agreement, dated as of the date
hereof, in the form of Exhibit H attached hereto (the "Registration Rights
Agreement").
(h) Lock-Up Agreement. SSI/DE, the Purchaser and Vincent J.
Bitetti shall have entered into the Lock-Up Agreement, dated as of the date
hereof, in the form of Exhibit I attached hereto (the "Lock-Up Agreement").
(i) Written Consent. Vincent J. Bitetti shall have executed
and delivered to Purchaser the Written Consent of Stockholders of SSI/DE
Acting in Lieu of Special Meeting in substantially the form attached hereto as
Exhibit A, relating to the approval of the DE Amendment in substantially the
form attached hereto as Exhibit B.
(j) SSI/CA Directors. Each of the existing directors of SSI/CA
shall have resigned or been removed from office without cause by SSI/DE, and
each of the following persons shall have been appointed by SSI/DE to serve as
directors of SSI/CA: Kenichi Aoshima, Vincent J. Bitetti, Masatoshi Shikanai,
Shin Tanabe and John T. Wholihan, effective as of the date of the Initial
Closing.
(k) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection with
the lawful sale and issuance of the Initial Shares pursuant to this Agreement
shall have been duly obtained and shall be effective on and as of the Initial
Closing.
(l) Opinion of SSI/DE's Counsel. SSI/DE shall have delivered
to Purchaser an opinion of Swidler Berlin Shereff Friedman, LLP, counsel for
SSI/DE, addressed to the Purchaser, dated as of the date of the Initial
Closing, and substantially in the form of Exhibit J attached hereto.
(m) Proceedings and Documents. All corporate and other
proceedings of each of SSI/DE and its Subsidiaries in connection with the
transactions contemplated at the Initial Closing shall be completed, and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser and its counsel, who shall have received all such
counterpart originals or certified or other copies of such documents as they
may reasonably request.
(n) Absence of Litigation. As of the date of the Initial
Closing, there shall be no pending or threatened suit, action or other legal
or administrative proceeding seeking to prohibit or enjoin, challenge the
legality or validity of or recover damages or other relief in connection with
this Agreement or the Ancillary Agreements or the transactions contemplated
hereunder and thereunder.
(o) Irrevocable Proxy. Vincent J. Bitetti shall have executed
and delivered to Purchaser the Irrevocable Proxy in the form attached hereto
as Exhibit K.
4.2 Conditions to Obligations of SSI/DE at Initial Closing. SSI/DE's
obligation to issue and sell the Initial Shares at the Initial Closing shall
be subject to the fulfillment, at or prior to the Initial Closing, of all of
the following conditions, which conditions may be waived by SSI/DE in it sole
discretion:
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(a) Representations and Warranties True. The representations
and warranties made by Purchaser in Section 3 hereof shall be true and correct
at the date of the Initial Closing, with the same force and effect as if they
had been made on and as of said date.
(b) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection with
the lawful sale and issuance of the Initial Shares pursuant to this Agreement
shall have been duly obtained and shall be effective on and as of the Initial
Closing.
(c) Absence of Litigation. As of the date of the Initial
Closing, there shall be no pending or threatened suit, action or other legal
or administrative proceeding seeking to prohibit or enjoin, challenge the
legality or validity of or recover damages or other relief in connection with
this Agreement or the Ancillary Agreements or the transactions contemplated
hereunder and thereunder.
4.3 Conditions to Obligations of Purchaser at Subsequent Closing.
Purchaser's obligation to purchase the Subsequent Shares at the Subsequent
Closing is subject to the fulfillment, at or prior to the Subsequent Closing,
of all of the following conditions, which conditions may be waived by
Purchaser in its sole discretion:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by SSI/DE in Section 2
hereof shall be true and correct on the date of the Subsequent Closing with
the same force and effect as if they had been made on and as of said date, and
SSI/DE shall have performed and satisfied all obligations and conditions
herein required to be performed or satisfied by it on or prior to the
Subsequent Closing.
(b) Absence of Material Adverse Change. Neither SSI/DE nor any
of its Subsidiaries shall have experienced any material adverse change to any
of their assets, properties, liabilities, business, operations, financial
condition or prospects from and after the Initial Closing through the date of
the Subsequent Closing.
(c) Compliance Certificate. SSI/DE shall have delivered to
Purchaser a certificate, executed by the Chief Executive Officer or President
and the Secretary of SSI/DE, dated the date of the Subsequent Closing,
certifying to the fulfillment of the conditions specified in subparagraphs (a)
and (b) of this Section 4.3.
(d) DE Amendment. The DE Amendment shall have been filed with
the Delaware Secretary of State.
(e) Resignation of SSI/DE Directors. At the Subsequent
Closing, each of Richard Azevedo, Mark A. James and Samuel L. Poole shall have
resigned as directors of SSI/DE and the resulting vacancies shall have been
filled by the SSI/DE Board of Directors' appointment of Kenichi Aoshima,
Masatoshi Shikanai, and Shin Tanabe.
(f) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection with
the lawful sale and issuance of the Subsequent Shares pursuant to this
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Agreement shall have been duly obtained and shall be effective on and as of
the Subsequent Closing.
(g) Absence of Litigation. As of the date of the Subsequent
Closing, there shall be no pending or threatened suit, action or other legal
or administrative proceeding seeking to prohibit or enjoin, challenge the
legality or validity of or recover damages or other relief in connection with
this Agreement or the Ancillary Agreements or the transactions contemplated
hereunder and thereunder.
(h) Third Party Consents. Each of SSI/DE and its Subsidiaries
shall have delivered to Purchaser true and correct copies of all written
consents of third parties (including, without limitation, licensors) required
to be obtained pursuant to the terms of all Material Contracts of each of
SSI/DE and its Subsidiaries as a result of or in connection with the proposed
transactions contemplated by this Agreement or the Ancillary Agreements.
(i) Opinion of SSI/DE's Counsel. SSI/DE shall have delivered
to Purchaser an opinion of Swidler Berlin Shereff Friedman, LLP, counsel for
SSI/DE, addressed to the Purchaser, dated as of the date of the Subsequent
Closing, and substantially in the form of Exhibit J attached hereto.
4.4 Conditions to Obligations of SSI/DE at Subsequent Closing.
SSI/DE's obligation to issue and sell the Subsequent Shares at the Subsequent
Closing shall be subject to the fulfillment, at or prior to the Initial
Closing, of all of the following conditions, which conditions may be waived by
SSI/DE in it sole discretion:
(a) Representations and Warranties True. The representations
and warranties made by Purchaser in Section 3 hereof shall be true and correct
at the date of the Subsequent Closing, with the same force and effect as if
they had been made on and as of said date.
(b) Compliance Certificate. Purchaser shall have delivered to
SSI/DE a certificate, executed by the President and the Secretary of
Purchaser, dated the date of the Subsequent Closing, certifying to the
fulfillment of the conditions specified in subparagraph (a) of this Section
4.4.
(c) DE Amendment. The DE Amendment shall have been filed with
the Delaware Secretary of State.
(d) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection with
the lawful sale and issuance of the Subsequent Shares pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the Subsequent Closing.
(e) Absence of Litigation. As of the date of the Subsequent
Closing, there shall be no pending or threatened suit, action or other legal
or administrative proceeding seeking to prohibit or enjoin, challenge the
legality or validity of or recover damages or other relief in connection with
this Agreement or the Ancillary Agreements or the transactions contemplated
hereunder and thereunder.
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5. COVENANTS.
5.1 Covenants of SSI/DE. In addition to any other covenants of
SSI/DE stated under this Agreement, SSI/DE further covenants and agrees as
follows:
(a) Access. From the date hereof to the Initial Closing,
SSI/DE shall permit, and shall cause its Subsidiaries to permit, Purchaser and
its accountants, advisors, attorneys and other agents and representatives full
and complete access during regular business hours to the respective assets,
properties, premises, books, records, files, documents, information, data,
directors, officers, employees, accountants, attorneys and other agents and
representatives of each of SSI/DE and its Subsidiaries for inspection, review,
copying and consultation for purposes of Purchaser's due diligence
investigation of the assets, properties, liabilities, business, operations,
financial condition and prospects of SSI/DE and its Subsidiaries; provided,
however, that such investigation shall not unreasonably interfere with the
business and operations of either SSI/DE or any of its Subsidiaries; and
provided further, however, that Purchaser shall continue to observe all of the
terms and conditions of that certain Mutual Nondisclosure Agreement, dated as
of April 19, 2000, by and between Purchaser and SSI/DE.
(b) Conduct of Business. From the date hereof to the
Initial Closing, SSI/DE shall, and shall cause its Subsidiaries to, (i)
continue to conduct their business, as presently conducted, in the ordinary
course and consistent with past practice, (ii) use their commercially
reasonable best efforts to preserve and maintain intact the goodwill of their
employees, licensors, licensees, contractors, suppliers, customers and other
third parties having business dealings with each of SSI/DE and its
Subsidiaries, and (iii) refrain from engaging in any transaction other than in
the ordinary course of business and consistent with past practice, except as
may be approved in advance by Purchaser.
(c) Standstill Provisions From the date hereof to the
Initial Closing, and except as may be approved in advance by Purchaser, SSI/DE
shall refrain from, and shall cause its Subsidiaries to refrain from, (i)
issuing any shares of capital stock or other securities, other than pursuant
to the exercise of existing stock options or warrants, (ii) granting any stock
options, warrants or other rights to acquire capital stock or other
securities, other than pursuant to existing employee stock option plans and
consistent with past practice, (iii) entering into, amending or voluntarily
terminating any employment agreement with any new or existing employee, (iv)
granting any increase in the compensation, bonuses, benefits or other
remuneration payable to any employee or consultant, (v) entering into,
amending or voluntarily terminating any license, royalty or distribution
agreement, and (vi) entering into, amending or voluntarily terminating any
lease or rental agreement.
(d) License Agreements. From the date hereof to the Initial
Closing, SSI/DE shall use, and shall cause its Subsidiaries to use, all
commercially reasonable best efforts to amend, on or prior to the Initial
Closing, all existing license agreements to delete the termination right of
the licensor upon a change in management or control of either SSI/DE or any of
its Subsidiaries. Notwithstanding the foregoing, the SSI/DE shall comply
with, and shall cause its Subsidiaries to comply with, all notice, consent and
other requirements under all of the license agreements to ensure that neither
SSI/DE nor any of its Subsidiaries breaches any of the terms of the license
agreements by entering into or performing its obligations under this
Agreement.
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(e) Termination of Existing Agreements. Upon the request of
Purchaser, SSI/DE shall use, and shall cause the Subsidiaries to use, their
commercially reasonable efforts to cooperate with and assist Purchaser in
connection with the termination of the following agreements: (i) the
Underwriting Agreement, dated as of July 1, 1996, by and among SSI/DE and the
underwriters thereto; (ii) the Stockholder Voting Agreement, dated as of April
30, 1996, by and among Vincent J. Bitetti, Eric Winston and ASSI, Inc., and
(iii) the Consent of ASSI, Inc. pursuant to the Stockholder Voting Agreement,
dated as of April 27, 1998.
(f) Exclusivity. In recognition of the time and expense
incurred to date and to be hereafter incurred by Purchaser in connection with
the proposed transactions contemplated herein, SSI/DE agrees that, from the
date hereof to the Initial Closing, it shall refrain from, and shall cause its
Subsidiaries to refrain from, and shall cause any of their directors,
officers, employees, agents and other representatives to refrain from,
soliciting, entertaining, discussing, negotiating, considering or providing
confidential or proprietary information in connection with any offer, proposal
or other inquiry from any other party with respect to the purchase, issuance
or sale of the capital stock or assets of either SSI/DE or any of its
Subsidiaries, in whole or in part, or with respect to any merger,
consolidation, reorganization, recapitalization or other similar transaction
involving SSI/DE or any of its Subsidiaries, without the prior written consent
of Purchaser. SSI/DE shall immediately notify Purchaser of any communication
or other contact from or with any other party regarding any such offer,
proposal or other inquiry. Notwithstanding the foregoing, in the event of and
to the extent required by the fiduciary obligations of SSI/DE's Board of
Directors, as determined in good faith by such Board of Directors on the basis
of a written opinion of outside legal counsel, if either SSI/DE or any of its
Subsidiaries receives a proposal that has not been solicited by any of them or
any director, officer, employee, agent or other representative thereof, with
respect to a Control Transaction (as hereinafter defined), SSI/DE or its
Subsidiaries may participate in such discussions or negotiations or furnish
(pursuant to a confidentiality agreement in customary form) confidential or
proprietary information in response to such proposal; provided, however, that
in the event that SSI/DE or any of its Subsidiaries consummates a Control
Transaction with any person or entity (other than Purchaser or its affiliates)
at any time on or prior to the expiration of the one-year period following the
date hereof, either SSI/DE or one of its Subsidiaries shall immediately pay to
Purchaser the sum of $500,000 in cash as compensation for the time, effort and
expense incurred by Purchaser to date and to be hereafter incurred by
Purchaser in connection with the transactions contemplated herein and for the
loss of opportunity suffered by Purchaser on account of the consummation of a
Control Transaction by either SSI/DE or any of its Subsidiaries with any other
person or entity. For purposes of this Agreement, "Control Transaction" means
any transaction that involves a (i) merger, consolidation, reorganization,
recapitalization or other similar business combination involving either SSI/DE
or any of its Subsidiaries; (ii) sale of all or substantially all of the
assets of either SSI/DE or any of its Subsidiaries; or (iii) sale or issuance
of common stock or other equity securities by either SSI/DE or any of its
Subsidiaries to a person which, following such sale or issuance, will
beneficially own the common stock or other equity securities of either SSI/DE
or any of its Subsidiaries representing a majority of the voting power with
respect to the election of the directors of either SSI/DE or any of its
Subsidiaries.
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6. MISCELLANEOUS.
6.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
6.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by Purchaser and
the Initial Closing and Subsequent Closing of the transactions contemplated
hereby. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of SSI/DE pursuant hereto shall be
deemed to be representations and warranties by SSI/DE hereunder as of the date
of such certificate or instrument.
6.3 Public Disclosure. SSI/DE shall inform Purchaser prior to
making any public comment, statement or announcement or otherwise disclosing
or permitting the disclosure of this Agreement, any of the terms, conditions
or other aspects of the transactions described herein or the existence or
status of the discussions between the parties regarding a potential
transaction. SSI/DE shall provide a copy of any such proposed disclosure to
Purchaser prior to dissemination and all such disclosures shall conform to
applicable legal requirements and shall accurately reflect the terms of the
proposed transaction.
6.4 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the respective successors and assigns of the parties hereto.
6.5 Entire Agreement. This Agreement, the Exhibits hereto, and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and no party shall be liable or bound to any other party in any manner
by any representations, warranties, covenants, or agreements except as
specifically set forth herein or therein. Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the parties
hereto and their respective successors and assigns, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided herein.
6.6 Separability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.7 Amendment and Waiver. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), with the written
consent of SSI/DE and Purchaser.
6.8 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or on the third day following mailing by registered or
certified mail, return receipt requested, postage prepaid, addressed: (a) if
to Purchaser, at Purchaser's address as set forth under Purchaser's signature
at the end of this Agreement, or at such other address as Purchaser shall have
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furnished to SSI/DE in writing, or (b) if to SSI/DE, at its address as set
forth at the end of this Agreement, or at such other address as SSI/DE shall
have furnished to Purchaser in writing.
6.9 Finders' Fees.
(a) SSI/DE (i) represents and warrants to Purchaser that
neither SSI/DE nor any of the Subsidiaries has retained any finder or broker
in connection with the transactions contemplated by this Agreement and (ii)
hereby agrees to indemnify and to hold Purchaser harmless of and from any
liability for any commission or compensation in the nature of a finder's fee
to any broker or other person or firm (and the costs and expenses, including
reasonable attorneys' fees, of defending against such liability or asserted
liability) for which either SSI/DE or any of its Subsidiaries or any of their
employees or representatives is responsible.
(b) Purchaser (i) represents and warrants to SSI/DE that
Purchaser has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) hereby agrees to indemnify and to
hold SSI/DE harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses, including reasonable attorneys' fees, of
defending against such liability or asserted liability) for which such
Purchaser or any of its employees or representatives are responsible.
6.10 Fees and Expenses. The parties hereto shall each bear their
respective legal, accounting and other costs and expenses incurred by them in
connection with the negotiation, preparation, execution and delivery of this
Agreement, any other related agreements and the consummation of the proposed
transactions contemplated herein. If legal action is brought by, or on behalf
of, either party to enforce or interpret this Agreement, the prevailing party
shall be entitled to recover its attorneys' fees and legal costs in connection
therewith.
6.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
6.13 Delays or Omissions. No delay or omission by either party in
exercising any right, power or remedy of such party under this Agreement shall
impair any such right, power or remedy, nor shall any such delay or omission
be construed to be a waiver of any breach or default by the other party of any
provision of this Agreement. No waiver of any single breach or default shall
be deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character
on the part of either party must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to a party, shall be cumulative
and not alternative.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties as of the date first above written.
Address:
26115 Mureau Road
Suite B
Calabasas, California 91302-3126 SOUND SOURCE INTERACTIVE, INC.,
a Delaware corporation
By:
----------------------------
Vincent J. Bitetti, CEO
Address:
12 Harbor Park Drive
Port Washington, NY 11050 TDK USA CORPORATION,
a New York corporation
By:
-------------------------------
Kenichi Aoshima, President
<PAGE>
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EXHIBIT A
WRITTEN CONSENT OF STOCKHOLDERS OF SSI/DE
ACTING IN LIEU OF SPECIAL MEETING
[ATTACHED]
<PAGE>
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EXHIBIT B
SSI/DE'S CERTIFICATE OF INCORPORATION
[ATTACHED]
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EXHIBIT C
ARTICLES OF INCORPORATION OF SSI/CA
[ATTACHED]
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EXHIBIT D
WRITTEN CONSENT OF SOLE SHAREHOLDER OF SSI/CA
ACTING IN LIEU OF SPECIAL MEETING
[ATTACHED]
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EXHIBIT E
WRITTEN CONSENT OF SOLE SHAREHOLDER OF BWTL
ACTING IN LIEU OF SPECIAL MEETING
[ATTACHED]
<PAGE>
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EXHIBIT F
WRITTEN CONSENT OF STOCKHOLDERS OF SSI/DE
ACTING IN LIEU OF SPECIAL MEETING
[ATTACHED]
<PAGE>
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EXHIBIT G
SCHEDULE OF EXCEPTIONS
[ATTACHED]
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EXHIBIT H
REGISTRATION RIGHTS AGREEMENT
[ATTACHED]
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EXHIBIT I
LOCK-UP AGREEMENT
[ATTACHED]
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EXHIBIT J
OPINION OF SSI/DE'S COUNSEL
SWIDLER BERLIN SHEREFF FRIEDMAN LLP
[ATTACHED]
<PAGE>
<PAGE>
EXHIBIT K
IRREVOCABLE PROXY
[ATTACHED]
