PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT dated as of June 2, 1997 by
and among JAMtv Corporation, a Delaware corporation (the "COMPANY"), each of the
Persons identified on the signature pages hereto as a GS Investor (individually,
a "GS INVESTOR" and collectively, the "GS INVESTORS") and each of the Persons
identified on the signature pages hereto as an Existing Investor (individually,
an "EXISTING INVESTOR" and collectively, the "EXISTING INVESTORS" and together
with the GS Investors, the "INVESTORS").
WHEREAS, Digital Entertainment Networks, L.L.C., an Illinois
limited liability company (the "ILLINOIS PREDECESSOR"), conducted business as
JAMtv Music Network;
WHEREAS, simultaneously with the execution of this Agreement, all
of the members of the Illinois Predecessor contributed all of their membership
interests in the Illinois Predecessor to the Company in exchange for common
stock of the Company (the "TRANSFER");
WHEREAS, simultaneously with the execution of this Agreement and
with the Transfer, all of the assets and liabilities of the Illinois Predecessor
were distributed to the Company as the sole member (such step, together with the
steps described in the previous recital, the "REORGANIZATION") and the Company,
as the sole member of the Illinois Predecessor, will effect the dissolution of
the Illinois Predecessor (the "DISSOLUTION");
WHEREAS, the Company's Restated Certificate of Incorporation
filed with the Secretary of State of the State of Delaware as of May 29, 1997,
among other things, (a) authorizes a class of Convertible Preferred Stock,
consisting of 2,500,000 shares, par value $.01 per share, which shares have been
designated as Series A Convertible Preferred Stock (the "SERIES A PREFERRED
STOCK"), (b) authorizes 8,000,000 shares of Common Stock of the Company, par
value $.01 per share (the "COMMON STOCK"), (c) authorizes 2,000,000 shares of
preferred stock, par value $.01 per share and (d) sets forth the terms,
designations, powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions, of
the Series A Preferred Stock; and
WHEREAS, the Company wishes to sell to the Investors, and the
Investors wish to purchase from the Company, an aggregate of 1,666,666 shares of
Series A Preferred Stock on the terms and subject to the conditions contained
herein;
NOW, THEREFORE, the parties hereto, intending to be bound hereby,
do agree as follows:
SECTION 1. DEFINITIONS. In this Agreement, the following terms
have the meanings specified or referred to in this SECTION 1 and shall be
equally applicable to both the singular and plural forms.
"BENEFIT PLAN" means any plan, program, policy, payroll practice,
contract, or other arrangement providing for fringe benefits or other employee
benefits of any kind, whether formal or informal, funded or unfunded, and
whether or not legally binding, including, without limitation each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is now or
previously has been maintained, contributed to, or required to be contributed to
by the Company or the Illinois Predecessor for the benefit of any kind of the
employees of either of them, and pursuant to which the Company has or may have
any liability, contingent or otherwise.
"CERTIFICATE OF INCORPORATION" means the Restated Certificate of
Incorporation of the Company in the form attached hereto as EXHIBIT 1.
"CLOSING" has the meaning specified in SECTION 2.4.
"CLOSING DATE" has the meaning specified in SECTION 2.4.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" has the meaning specified in the fourth recital to
this Agreement.
"COMPANY" has the meaning specified in the first paragraph of
this Agreement.
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"DOCUMENTS" means this Agreement, the Registration Rights
Agreement and the Stockholders' Agreement.
"EMPLOYMENT AGREEMENTS" means employment agreements between the
Company and each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ in the
forms attached hereto as EXHIBIT 5, EXHIBIT 6 and EXHIBIT 7, respectively.
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind.
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"ENVIRONMENTAL COSTS" means, without limitation, any actual or
potential cleanup costs, remediation, removal, or other response costs (which
without limitation shall include costs to cause the Company to come into
compliance with Environmental Laws), investigation costs (including without
limitation reasonable fees of consultants, counsel, and other experts in
connection with any environmental investigation, testing, audits or studies),
losses, liabilities or obligations (including without limitation, liabilities or
obligations under any lease or other contract), payments, damages (including
without limitation any actual, punitive or consequential damages under any
statutory laws, common law cause of action or contractual obligations or
otherwise, including without limitation damages (a) of third parties for
personal injury or property damage, or (b) to natural resources), civil or
criminal fines or penalties, judgments, and amounts paid in settlement arising
out of or relating to or resulting from any Environmental Matter.
"ENVIRONMENTAL LAWS" means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601
ET SEQ., the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. Sections 11001 ET SEQ., the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 ET SEQ., the Occupational Safety and Health Act, 29 U.S.C.
Sections 641, ET SEQ., as any of the above statutes have been or may be amended
from time to time, all rules and regulations promulgated pursuant to any of the
above statutes, and any other Requirements of Laws governing Environmental
Matters, as the same have been or may be amended from time to time, including
any common law cause of action providing any right or remedy with respect to
Environmental Matters.
"ENVIRONMENTAL MATTER" means any matter arising out of, relating
to, or resulting from pollution, contamination, protection of the environment,
human health or safety, health or safety of employees, sanitation, and any
matters relating to emissions, discharges, disseminations, releases or
threatened releases, of Hazardous Substances into the air (indoor and outdoor),
surface water, groundwater, soil, land surface or subsurface, buildings,
facilities, real or personal property or fixtures or otherwise arising out of,
relating to, or resulting from the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any (i) corporation which is a member of
the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as the Company (or, with respect to periods prior to the
Reorganization, the Illinois Predecessor), (ii) partnership or other trade or
business under
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common control (within the meaning of Section 414(c) of the Code) with the
Company (or, with respect to periods prior to the Reorganization, the
Illinois Predecessor), and (iii) member of the same affiliated service group
(within the meaning of Section 414(m) of the Code) as the Company (or, with
respect to periods prior to the Reorganization, the Illinois Predecessor),
any corporation described in clause (i) or any partnership or other trade or
business described in clause (ii).
"EXISTING INVESTOR PURCHASE PRICE" has the meaning specified in
SECTION 2.2.
"EXISTING INVESTORS" has the meaning specified in the first
paragraph of this Agreement.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"GS INVESTORS" has the meaning specified in the first paragraph
of this Agreement.
"GS PURCHASE PRICE" has the meaning specified in SECTION 2.2.
"HAZARDOUS SUBSTANCES" means any pollutants, contaminants, toxic
or hazardous or extremely hazardous substances, materials, wastes, constituents
or chemicals (including, without limitation, petroleum or any by-products or
fractions thereof, any form of natural gas, asbestos and asbestos-containing
materials, polychlorinated biphenyls ("PCBs") and PCB-containing equipment,
radon and other radioactive elements, infectious, carcinogenic, mutagenic, or
etiologic agents) that are regulated by, or may now or in the future form the
basis of liability under, any Environmental Laws.
"ILLINOIS PREDECESSOR" has the meaning specified in the first
recital to this Agreement.
"IMAGINATION PILOTS AGREEMENTS" means the agreements between the
Company and Imagination Pilots, Inc. in the forms attached hereto as EXHIBIT 8
and EXHIBIT 9.
"INDEMNIFIED PERSONS" has the meaning specified in SECTION 10.1.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual property
rights, including, without limitation, Proprietary Technology, patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service ▇▇▇▇ applications, copyrights, know-how, franchises,
licenses, trade secrets, proprietary processes and formulae.
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"INTERIM FINANCIALS" has the meaning specified in SECTION 3.8.
"INVESTORS" has the meaning specified in the first paragraph of
this Agreement.
"JAM PRODUCTIONS AGREEMENTS" means the agreements between the
Company (in the case of EXHIBIT 10, as successor to the Illinois Predecessor)
and Jam Productions, Ltd. in the forms attached hereto as EXHIBIT 10 and EXHIBIT
11.
"LOSS" has the meaning specified in SECTION 10.1.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i)
the business, assets, liabilities, results of operations, condition (financial
or otherwise) or prospects of the Company or (ii) on the ability of the Company
to perform its obligations under or with respect to, or to consummate the
transactions contemplated by, the Documents.
"PERMITTED ENCUMBRANCES" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable or which
are the subject of a good faith dispute and for which the Company has made
proper reserves, (b) liens of landlords and liens of carriers, warehousemen,
mechanics and materialmen and other like liens arising in the ordinary course of
business for sums not yet due and payable (provided that any such non-consensual
lien secures only obligations not in default and the holder thereof has not
taken any steps to enforce it), (c) other liens or imperfections on property
which are not material in amount or do not materially detract from the value of
or materially impair the existing use of the property affected by such lien or
imperfection and (d) liens identified on SCHEDULE 1 hereto.
"PERSON" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"PROPRIETARY TECHNOLOGY" means all source and object code,
algorithms, architecture, structure, software, firmware, display screens,
layouts, processes, inventions, trade secrets, know-how, development tools and
other proprietary rights owned by the Company (or owned by the Illinois
Predecessor prior to the Reorganization), pertaining to any product or service
manufactured, marketed or sold, or proposed to be manufactured, marketed or sold
(as the case may be), by the Company, or used, employed or exploited in the
development, license, sale, marketing, distribution or maintenance thereof, and
all documentation and media constituting, describing or relating to the above,
including, without limitation, manuals, memoranda,
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know-how, notebooks, patents and patent applications, trademarks and
trademark applications, copyrights and copyright applications, records and
disclosures.
"PURCHASE PRICE" has the meaning specified in SECTION 2.2.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form of EXHIBIT 2 hereto.
"REORGANIZATION" has the meaning specified in the third recital
to this Agreement.
"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body or common law.
"SERIES A PREFERRED STOCK" has the meaning specified in the
fourth recital to this Agreement.
"SERIES A RESERVED SHARES" has the meaning specified in SECTION
2.1.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement in
the form of EXHIBIT 3 hereto.
"TAX" means any federal, state, local or foreign net income,
alternative or add-on minimum, gross income, gross receipts, property, sales,
use, transfer, gains, license, excise, employment, payroll, withholding or
minimum tax, or any other tax custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any Governmental Body.
"TAX RETURN" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return and declaration of estimated Tax.
"TRANSFER" has the meaning specified in the second recital to
this Agreement.
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SECTION 2. ISSUANCE AND SALE OF SERIES A PREFERRED STOCK.
2.1. ISSUANCE OF SERIES A PREFERRED STOCK AND RESERVATION OF
SERIES A RESERVED SHARES. Subject to the terms and conditions hereof, the
Company has authorized (a) the issuance on the Closing Date of 1,666,666 shares
of Series A Preferred Stock, and (b) the reservation of such number of shares of
Common Stock as is necessary, but not less than 1,666,666 shares of Common
Stock, for issuance upon conversion of the Series A Preferred Stock (such
reserved shares being referred to herein as the "SERIES A RESERVED SHARES").
2.2. AGREEMENT TO SELL AND PURCHASE THE SERIES A PREFERRED
STOCK. At the Closing, (a) the Company is issuing and selling, and each GS
Investor is purchasing from the Company, upon the terms and subject to the
conditions hereinafter set forth, the number of shares of Series A Preferred
Stock set forth in SCHEDULE I, for the purchase price set forth in SCHEDULE I
(representing an aggregate purchase price of $4,500,000 (the "GS PURCHASE
PRICE") for all the shares of Series A Preferred Stock being sold to the GS
Investors);
(b) the Company is issuing and selling, and each Existing
Investor is purchasing from the Company, upon the terms and subject to the
conditions hereinafter set forth, the number of shares of Series A Preferred
Stock set forth in SCHEDULE I, for the purchase price set forth in SCHEDULE I
(representing an aggregate purchase price of $500,000.00 (the "EXISTING INVESTOR
PURCHASE PRICE" and aggregated with the GS Purchase Price, the "PURCHASE PRICE")
for all the shares of Series A Preferred Stock being sold to the Existing
Investors).
2.3. DELIVERY OF SERIES A PREFERRED STOCK TO THE INVESTORS.
At the Closing, the Company is delivering to each GS Investor and each
Existing Investor one certificate representing the number of shares of Series
A Preferred Stock being purchased by such Investor, registered in the name of
such Investor. Delivery of such certificate to each Investor is being made
against receipt by the Company from such Investor of the portion of the
Purchase Price to be paid by such Investor (as set forth in SCHEDULE I
hereto), which amount is being paid, in the case of each GS Investor, by a
wire transfer to an account designated at least two business days prior to
the Closing Date by the Company, or in the case of each Existing Investor, by
the cancellation by such Existing Investor of a promissory note of the
Company payable to such Existing Investor in an amount equal to the portion
of the Purchase Price to be paid by such Existing Investor.
2.4. THE CLOSING. The closing (the "Closing") hereunder with
respect to the transactions contemplated hereby is
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taking place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, simultaneously with the execution and delivery
of this Agreement (the "CLOSING DATE").
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Investors as follows:
3.1. REORGANIZATION. (a) Except as set forth on SCHEDULE 3.1
hereto, the Reorganization complied and the Dissolution will comply in all
respects with all applicable provisions of federal and state law.
(b) The Reorganization transferred good and sufficient title
to all properties and assets, real, personal or mixed, tangible or intangible,
owned or held by the Illinois Predecessor, and all obligations and liabilities
of the Illinois Predecessor, to the Company.
(c) The Reorganization did not and the Dissolution will not:
(i) violate any Court Order or Requirements of Laws
applicable to the Illinois Predecessor or the Company or any of their
properties or assets,
(ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the
creation of any Encumbrance upon any of the properties or assets of the
Illinois Predecessor or the Company under, (A) the Certificate of
Incorporation of the Company, the articles of organization of the
Illinois Predecessor or the Operating Agreement of the Illinois
Predecessor, (B) the by-laws of the Company or (C) any note, indenture,
mortgage, lease agreement or other contract, agreement or instrument to
which the Illinois Predecessor or the Company is or was a party or by
which any of them or the properties or assets of any of them is or was
bound or affected, or
(iii) require the approval, consent, authorization or act of,
or the making of any declaration, filing or registration with, any
Person, except for articles of dissolution of the Illinois Predecessor
to be filed with the Secretary of the State of the State of Illinois and
except for approvals and consents which have been obtained.
(d) SCHEDULE 3.1 contains a list of all holders of membership
or other equity interests in the Illinois Predecessor that were outstanding as
of the time immediately prior to the
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Reorganization, including the number of membership or other equity interests
held by such holder. All of such membership or other equity interests were
validly issued, were not issued in violation of any preemptive or similar
rights, and were issued in compliance with all applicable federal and state
securities laws.
3.2. ORGANIZATION AND GOOD STANDING; POWER AND AUTHORITY;
QUALIFICATIONS. The Company 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, lease and operate its
properties, to carry on its business as presently conducted and as proposed to
be conducted and to carry out the transactions contemplated by this Agreement.
The Company is qualified to transact business as a foreign corporation in, and
is in good standing under the laws of, those jurisdictions listed on SCHEDULE
3.2 hereto, which jurisdictions constitute all of the jurisdictions wherein the
character of the property owned or leased or the nature of the activities
conducted by the Company makes such qualification necessary.
3.3. AUTHORIZATION OF THE DOCUMENTS. The execution, delivery
and performance by the Company of each of the Documents have been duly
authorized by all requisite corporate action by the Company, and each Document
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally or equitable principles.
The execution, delivery and performance of the Documents and the
consummation of the transactions contemplated thereby, the compliance with the
provisions thereof by the Company and the issuance, sale and delivery of the
Series A Preferred Stock and the Series A Reserved Shares by the Company will
not:
(a) violate any Court Order or Requirements of Laws
applicable to the Company or any of its properties or assets,
(b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the
creation of any Encumbrance upon any of the properties or assets of the
Company under, (i) the Certificate of Incorporation, (ii) the by-laws of
the Company or (iii) any note, indenture, mortgage, lease agreement or
other contract, agreement or instrument to which the Company is a party
or by which it or any of its properties or assets is bound or affected,
or
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(c) require the approval, consent, authorization or act of,
or the making of any declaration, filing or registration with, any
Person (other than such notifications or filings required under
applicable state securities laws, if any, which shall be made by the
Company on a timely basis).
3.4. CAPITALIZATION. (a) The authorized capital stock of the
Company immediately upon the consummation at the Closing of the transactions
contemplated hereby shall consist of:
(i) 2,500,000 shares of Series A Preferred Stock, of which
1,666,666 shall have been validly issued to the Investors and be
outstanding, fully paid and non-assessable, with no personal liability
attaching to the ownership thereof, and no other shares of Series A
Preferred Stock shall be issued or outstanding;
(ii) 8,000,000 shares of Common Stock, of which (x) 1,150,530
shares shall have been validly issued and be outstanding, fully paid and
non-assessable, with no personal liability attaching to the ownership
thereof; and (y) 2,500,000 shares shall have been duly reserved for
issuance upon the conversion of the Series A Preferred Stock; and
(iii) 2,000,000 shares of preferred stock, par value $.01 per
share, issuable in series, of which none are outstanding.
(b) SCHEDULE 3.4 hereto contains a list of (i) all holders of
capital stock of the Company, including the number of shares of capital stock
held by each such holder, and (ii) all outstanding warrants, options,
agreements, convertible securities or other commitments pursuant to which the
Company is or may become obligated to issue any shares of the capital stock or
other securities of the Company, which names all Persons entitled to receive
such shares or other securities and the shares of capital stock or other
securities required to be issued thereunder as of the date hereof, in each case
(i) and (ii), immediately upon the consummation of the Closing of the
transactions contemplated hereby. All of the outstanding capital stock and
other securities of the Company were issued in compliance with all applicable
federal and state securities laws.
(c) Except as set forth on SCHEDULE 3.4 or as contemplated by
the Documents, there are, and immediately upon consummation at the Closing of
the transactions contemplated hereby, there will be, no preemptive or similar
rights to purchase or otherwise acquire shares of the capital stock of the
Company pursuant to any provision of law, the Certificate of Incorporation or
by-laws of the Company (in each case as amended and in effect on the date
hereof), or any agreement to which the Company is a party; and, except as
contemplated by the Documents,
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there is, and immediately upon the consummation at the Closing of the
transactions contemplated hereby, there will be, to the best knowledge of the
Company, no agreement, restriction or encumbrance (such as a right of first
refusal, right of first offer, proxy, voting agreement, voting trust,
registration rights agreement, stockholders' agreement, etc.) with respect to
the sale or voting of any shares of capital stock of the Company (whether
outstanding or issuable upon conversion or exercise of outstanding
securities). The transactions contemplated by the Documents will not trigger
any anti-dilution protection provisions given by the Company to any Person or
entity (including without limitation, any stockholder, lender, warrant
holder, lessor and/or licensee).
3.5. AUTHORIZATION OF THE SERIES A PREFERRED STOCK, AND SERIES
A RESERVED SHARES. The authorization, issuance, sale and delivery of the Series
A Preferred Stock and the authorization, reservation, issuance, sale and
delivery of the Series A Reserved Shares have been duly authorized by all
requisite corporate action of the Company, and when issued, sold and delivered
in accordance with this Agreement, the Series A Preferred Stock and the Series A
Reserved Shares will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof, and
not subject to preemptive or any other similar rights of the stockholders of the
Company or others. The terms, designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions, of the Series A Preferred Stock are as stated in
the Certificate of Incorporation. The holders of the Series A Preferred Stock
are parties to the Stockholders' Agreement and are subject to the terms thereof.
3.6. EQUITY INVESTMENTS. Other than the Company's prior
ownership of all of the issued and outstanding equity interests in the Illinois
Predecessor, neither the Company nor the Illinois Predecessor has ever had, nor
does either of them currently have, any subsidiaries, nor has either of them
owned, nor does either of them presently own, any capital stock or other
proprietary interest, directly or indirectly, in any corporation, association,
trust, partnership, limited liability company, joint venture or other entity.
3.7. INTELLECTUAL PROPERTY RIGHTS. Except as set forth on
SCHEDULE 3.7 hereto:
(a) the Company owns, possesses, has the exclusive right to
use, has the right to bring actions for the infringement of, and, where
necessary, has made timely and proper application for, all Intellectual
Property Rights necessary or required for the conduct of its business as
presently conducted or as presently proposed to be conducted
(collectively, the "REQUISITE RIGHTS"), including, without
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limitation, the Intellectual Property Rights identified on SCHEDULE 3.7;
(b) SCHEDULE 3.7 lists all patents, patent applications,
trademarks, trademark applications, registered copyrights and licenses
necessary or required for the conduct of the Company's business as
currently conducted or as proposed to be conducted;
(c) except as set forth in SCHEDULE 3.7, no royalties,
honoraria or fees are payable by the Company or were payable by the
Illinois Predecessor prior to the Reorganization to other persons by
reason of the ownership or use of the Requisite Rights;
(d) no product, service or process manufactured, marketed,
sold or used, or proposed to be manufactured, marketed, sold or used, by
the Company or by the Illinois Predecessor prior to the Reorganization
violates or violated any license or, to the best knowledge of the
Company, will violate any license, or, to the best knowledge of the
Company, infringes upon, or will infringe upon, any Intellectual
Property Rights of any other Person;
(e) there is no litigation (nor to the best knowledge of the
Company does there exist any basis therefor) contesting the validity of
the Intellectual Property Rights of the Company or the right of the
Company to use any product, service or process manufactured, marketed,
sold or used or proposed to be manufactured, marketed, sold or used by
the Company or by the Illinois Predecessor prior to the Reorganization;
(f) there is no pending or, to the knowledge of the Company,
threatened claim (nor to the best knowledge of the Company does there
exist any basis therefor) contesting the validity of the Intellectual
Property Rights of the Company or the right to use any product, service
or process manufactured, marketed, sold or used or proposed to be
manufactured, marketed, sold or used by the Company or by the Illinois
Predecessor prior to the Reorganization; and
(g) neither the Company nor the Illinois Predecessor has
received any notice that any of the Requisite Rights or the operation or
proposed operation of the Company's business conflicts or will conflict
with the asserted rights of any other Person, nor to the best knowledge
of the Company does there exist any basis for any such conflict.
3.8. FINANCIAL INFORMATION. (a) The Company has previously
delivered to each Investor the following financial information:
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(i) the unaudited statement of financial position of the
Illinois Predecessor as of April 30, 1997, and the related unaudited
statements of income, shareholders' equity and cash flows for the
four-month period then ended (the "INTERIM FINANCIALS"); and
(ii) the unaudited statements of financial position of the
Illinois Predecessor as of December 31, 1996, and the related statements
of income, shareholders' equity and cash flows for year then ended.
(b) Except as set forth on SCHEDULE 3.8 hereto, the financial
statements referred to in the foregoing clause (a) of this SECTION 3.8: (i) are
in accordance with the books and records of the Illinois Predecessor; (ii)
fairly present the financial condition and the results of operations of the
Illinois Predecessor as of the dates and for the periods indicated; and (iii)
have been prepared in accordance with generally accepted accounting principles
consistently applied.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
on SCHEDULE 3.9 hereto, the Company has no obligations or liabilities of any
nature (matured or unmatured, fixed or contingent) other than (i) obligations
disclosed or provided for in the Interim Financials and (ii) obligations or
liabilities incurred by the Company or the Illinois Predecessor in the ordinary
course of business since April 30, 1997, none of which either individually or in
the aggregate has been or could reasonably be expected to be material to the
business, assets, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company.
3.10. ABSENCE OF CHANGES. Except as set forth on SCHEDULE 3.10
hereto and except for the Reorganization, since April 30, 1997, there has not
been:
(a) any material adverse change in the business, assets,
liabilities, results of operations, condition (financial or otherwise)
or prospects of the Company (or, with respect to periods prior to the
Reorganization, the Illinois Predecessor) or, to the best knowledge of
the Company, any circumstances or development which could reasonably be
expected to give rise to such a change,
(b) any indebtedness incurred by the Company or the Illinois
Predecessor for borrowed money,
(c) any asset or property of the Company (or, with respect to
periods prior to the Reorganization, the Illinois Predecessor) made
subject to an Encumbrance (other than Permitted Encumbrances),
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(d) any waiver of any material right of the Company (or, with
respect to periods prior to the Reorganization, the Illinois
Predecessor), or the cancellation of any material debt or claim held by
the Company (or, with respect to periods prior to the Reorganization,
the Illinois Predecessor),
(e) any payment of dividends on, or other distributions with
respect to, or any direct or indirect redemption or acquisition of, any
shares of the capital stock of the Company (or, with respect to periods
prior to the Reorganization and other than pursuant to the
Reorganization, any membership units or other equity interest in the
Illinois Predecessor) or any agreement or commitment therefor,
(f) any issuance of any stock, bonds or other securities of
the Company (or, with respect to periods prior to the Reorganization and
other than pursuant to the Reorganization, the Illinois Predecessor), or
any agreement or commitment therefor,
(g) any sale, assignment or transfer of any tangible or
intangible assets of the Company (or, with respect to periods prior to
the Reorganization and other than pursuant to the Reorganization, the
Illinois Predecessor), except in the ordinary course of business,
(h) any loan by the Company (or, with respect to periods
prior to the Reorganization, the Illinois Predecessor) to any officer,
director, employee, consultant or stockholder of the Company or the
Illinois Predecessor or any agreement or commitment therefor (other than
advances to such persons in the ordinary course of business in
connection with travel and travel-related expenses),
(i) any damage, destruction or loss (whether or not covered
by insurance) affecting in any material respect the business, assets,
liabilities, results of operations, condition (financial or otherwise)
or prospects of the Company (or, with respect to periods prior to the
Reorganization, the Illinois Predecessor),
(j) any extraordinary increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee,
consultant or agent of the Company (or, with respect to periods prior to
the Reorganization, the Illinois Predecessor),
(k) any change in the accounting methods, practices or
policies followed by the Company (or, with respect to periods prior to
the Reorganization, the Illinois
-14-
Predecessor) or any change in depreciation or amortization policies or
rates theretofore adopted,
(l) any amendment to or termination of any material agreement
to which the Company (or, with respect to periods prior to the
Reorganization, the Illinois Predecessor) is a party (other than
amendments to or terminations of agreements pursuant to or contemplated
by the Documents) or
(m) any disclosure of information relating to Proprietary
Technology other than in the ordinary course of business, other than
pursuant to a confidentiality agreement and other than to
representatives of the Company (or, with respect to periods prior to the
Reorganization, the Illinois Predecessor).
3.11. TAX MATTERS. Except as set forth on SCHEDULE 3.11
hereto:
(a) the Company and the Illinois Predecessor have each filed
all Tax Returns required to be filed by them prior to the Closing (other
than those subject to a valid extension of time to file on the Closing);
(b) all such Tax Returns are complete and correct and
disclose all Taxes required to be paid by the Company or the Illinois
Predecessor for the periods covered thereby;
(c) the Company and the Illinois Predecessor have each timely
paid or made provision for all Taxes shown as due and payable on such
Tax Returns, and all Taxes which the Company and the Illinois
Predecessor are required by law to withhold or to collect for payment
have been duly withheld or collected and paid over;
(d) in each jurisdiction where the Company sells (or the
Illinois Predecessor sold) personal property, whether tangible or
intangible, the Company or the Illinois Predecessor, as applicable, has
timely withheld or collected and paid over to the appropriate
Governmental Body all sales, use, value-added or similar Taxes with
respect to its sales, and has registered to collect such Taxes, all to
the extent and in the manner required by Requirements of Laws;
(e) neither the Company nor the Illinois Predecessor is or
was required to file any Tax Return for any period ending on or prior to
December 31, 1995;
(f) all deficiencies asserted or assessments made as a result
of any examination of the Tax Returns referred to in clause (a) have
been paid in full;
-15-
(g) neither the Company nor the Illinois Predecessor is
delinquent in the payment of any Taxes, nor has either of them requested
any extension of time within which to file any Tax Return, which Tax
Return has not since been filed;
(h) there is no action, suit, investigation, audit, claim or
assessment pending, proposed or threatened with respect to Taxes of the
Company or the Illinois Predecessor and, to the best knowledge of the
Company, no basis exists therefor;
(i) there are no liens for Taxes upon the assets of the
Company except liens relating to current Taxes not yet due and payable;
(j) neither the Company nor the Illinois Predecessor has
waived or been requested to waive any statute of limitations in respect
of Taxes;
(k) neither the Company nor the Illinois Predecessor has ever
filed consolidated returns under Section 1502 of the Code with any
Person; and
(l) all assets reflected on the financial statements
described in SECTIONS 3.8(A)(I) and 3.8(A)(II) are properly treated as
owned by the Company for all income Tax purposes.
3.12. EMPLOYEE BENEFIT PLANS. (a) Except as set forth on
SCHEDULE 3.12, the Company and the Illinois Predecessor have complied with and
performed all obligations required to be performed by them under or with respect
to each of their Benefit Plans and any related trust or insurance contract and
have complied with all applicable Requirements of Laws with respect to each of
their Benefits Plans. All contributions and other payments required to be made
by the Company or the Illinois Predecessor to each Benefit Plan prior to the
date hereof have been made. There is no claim, dispute, grievance, charge,
complaint, restraining or injunctive order, litigation or proceeding pending, or
to the best knowledge of the Company, threatened or anticipated (other than
routine claims for benefits) against or relating to any Benefit Plan or against
the assets thereof. Neither the Company nor the Illinois Predecessor has
communicated generally to employees or specifically to any employee regarding
any future increase in benefit levels or the creation of any new employee
benefit plan beyond those reflected in the Benefit Plans.
(b) Neither the Company, the Illinois Predecessor, nor any
ERISA Affiliate contributes or has ever contributed to or maintained an employee
benefit plan which is subject either to Title IV of ERISA or Section 412 of the
Code.
-16-
(c) The Company does not, and the Illinois Predecessor did
not, maintain or contribute to any Benefit Plan which provides, and has no
liability or obligation to provide, life insurance, medical or other employee
welfare benefits to any employee (or beneficiary) upon his or her retirement or
termination of employment, except as required by law, and neither the Company
nor the Illinois Predecessor has ever represented, promised or committed to any
employee that such employee would be provided with life insurance, medical, or
other employee welfare benefits upon his retirement or termination of
employment, except to the extent required by law.
(d) Each of the Company's Benefit Plans can be amended,
terminated, or otherwise discontinued, without personal liability to the
Investors.
(e) No "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to
any Benefit Plan of the Company or the Illinois Predecessor.
(f) No transaction contemplated by this Agreement will
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Benefit Plan, agreement, trust, or loan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
compensation or benefits or obligation to fund benefits with respect to any
employee.
3.13. PROPERTIES. (a) Except as set forth on SCHEDULE 3.13
hereto, the Company has good and marketable title to all of the properties,
interests in properties and assets, real, personal or mixed, reflected in the
Interim Financials or acquired by the Company or the Illinois Predecessor after
April 30, 1997 (except property sold or otherwise disposed of since April 30,
1997, in the ordinary course of business and accounts receivable and notes
receivable paid in full subsequent to April 30, 1997), which properties and
assets constitute all assets and properties (other than Intellectual Property
Rights) used in the business of the Company, free and clear of all Encumbrances
except for Permitted Encumbrances.
(b) All furniture, machinery and equipment owned or leased by
the Company which are necessary to the operations of the Company are in good
condition and repair (ordinary wear and tear excepted) and are suitable for the
uses for which they are intended.
(c) All accounts receivable of the Company are valid and
genuine and have arisen from BONA FIDE transactions in the ordinary course of
business. The accounts receivable reflected on the balance sheet included in
the Interim Financials have been
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paid or the Company has no reason to believe will not be paid in the ordinary
course of business of the Company in the book amounts thereof.
3.14. REAL PROPERTY. The Company does not own any real
property. SCHEDULE 3.14 hereto contains a list and description of all real
property leased by the Company.
3.15. CONTRACTS. (a) SCHEDULE 3.15(a) (with paragraph
references corresponding to those set forth below) contains a true and complete
list of each of the following contracts or other arrangements (true and complete
copies or, if none, reasonably complete and accurate written descriptions of
which, together with all amendments and supplements thereto and all waivers of
any terms thereof, have been delivered to the GS Investors and made available to
the Existing Investors prior to the execution of this Agreement), to which the
Company is a party or by which any of its assets and properties is bound:
(i) (A) all contracts providing for a commitment of
employment or consultation services for a specified or unspecified term
or otherwise relating to employment or the termination of employment,
the name, position and rate of compensation of each Person party to such
a contract and the expiration date of each such contract; and (B) any
written or unwritten representations, commitments, promises,
communications or courses of conduct involving in the case of either
clause (A) or clause (B) an obligation of the Company to make payments
in any year to any employee exceeding $65,000;
(ii) all contracts with any Person containing any provision or
covenant prohibiting or limiting the ability of the Company to engage in
any business activity or compete with any Person or prohibiting or
limiting the ability of any Person to compete with the Company;
(iii) all partnership, joint venture, limited liability
company, shareholders' or other similar contracts or agreements with any
Person;
(iv) all contracts relating to indebtedness for borrowed money
of the Company;
(v) all contracts with distributors, dealers, manufacturer's
representatives, sales agencies or franchisees;
(vi) all contracts relating to the future disposition or
acquisition of any assets and properties, other than dispositions or
acquisitions in the ordinary course of business consistent with past
practice;
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(vii) all contracts between or among the Company and any
stockholder of the Company;
(viii) all collective bargaining or similar labor contracts;
(ix) all leases or agreements under which the Company is
lessee of or holds or operates any real property owned by any other
Person;
(x) all leases or other agreements under which the Company is
lessee of or holds or operates any machinery, equipment, vehicle or
other tangible personal property owned by any other Person;
(xi) all guaranties by the Company of the performance,
liabilities or obligations of any other Person;
(xii) all contracts relating to Intellectual Property Rights;
(xiii) all contracts that (A) limit or contain restrictions on
the ability of the Company to declare or pay dividends on, to make any
other distribution in respect of or to issue or purchase, redeem or
otherwise acquire its capital stock, to incur indebtedness, to incur or
suffer to exist any Encumbrance, to purchase or sell any assets and
properties or to change the lines of business in which it participates
or (B) require the Company to maintain specified financial ratios or
levels of net worth or other indicia of financial condition; and
(xiv) all other contracts (other than insurance policies listed
in SCHEDULE 3.18) that (A) involve the payment or potential payment,
pursuant to the terms of any such contract, by or to the Company of more
than $100,000 annually and (B) cannot be terminated within sixty (60)
days after giving notice of termination without resulting in any
material cost or penalty to the Company.
(b) Except as set forth in SCHEDULE 3.15(b), each contract
required to be listed in SCHEDULE 3.15(a) is in full force and effect and
constitutes a legal, valid and binding agreement, enforceable in accordance with
its terms, of each party thereto, subject to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting creditors'
rights generally and to general equitable principles; and except as set forth in
SCHEDULE 3.15(b) neither the Company nor, to the best knowledge of the Company,
any other party to such contract is, or has received notice that it is, in
violation or breach of or default under any such contract (or with notice or
lapse of time or both, would be in violation or breach of or default under any
such contract) in any material respect.
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(c) Except as set forth in SCHEDULE 3.15(c), the Company is
not a party to or bound by any contract that has been or could reasonably be
expected to, individually or in the aggregate with any other such contracts,
have a Material Adverse Effect.
3.16. LABOR RELATIONS; EMPLOYEES. Except as set forth on
SCHEDULE 3.16 hereto:
(i) the Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to the date hereof or
amounts required to be reimbursed to such employees,
(ii) the Company is in compliance in all material respects
with all applicable laws and regulations respecting labor, immigration,
employment and employment practices, terms and conditions of employment
and wages and hours,
(iii) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the best knowledge of the Company, threatened
against or involving the Company,
(iv) neither any grievance which might have a Material Adverse
Effect nor any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claim therefor has been
asserted,
(v) the Company is not a party to any employment or
consulting agreement or any agreement, plan or arrangement providing for
severance payments to any employee of the Company upon termination of
employment or which provides benefits upon a change in control of the
Company, and
(vi) to the best knowledge of the Company, no salaried key
employee has any plans to terminate his or her employment with the
Company.
3.17. LITIGATION; COMPLIANCE WITH LAWS. Except as set forth on
SCHEDULE 3.17, there is no (i) action, suit, claim, proceeding or, to the
knowledge of the Company, investigation pending or, to the best knowledge of the
Company, threatened against or affecting the Company, at law or in equity, or
before or by any Governmental Body, (ii) arbitration proceeding relating to the
Company or (iii) governmental inquiry pending or, to the best knowledge of the
Company, threatened against or affecting the Company, and there is no basis for
any of the foregoing, except for such items that could not reasonably be
expected to have a Material Adverse Effect. The Company is not in default with
respect to any Court Order known to or served upon the Company or the Illinois
Predecessor. There is no action or suit by the Company pending or threatened
against others. The Company
-20-
and the Illinois Predecessor have complied with all Requirements of Laws
applicable to their business, operations, properties, assets, products and
services, and the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed
to be conducted, except where the failure to so comply or obtain permits,
licenses or authorizations could not reasonably be expected to have a
Material Adverse Effect. There is no existing law, rule, regulation or
order, and, except as provided in SCHEDULE 3.17 hereto, the Company after due
inquiry is not aware of any proposed law, rule, regulation or order, whether
federal or state, which would prohibit or restrict the Company from
conducting its business as conducted and as proposed to be conducted, or
otherwise have a Material Adverse Effect.
3.18. INSURANCE. SCHEDULE 3.18 contains a true and complete
list (including the names of the insurers, the names of the Persons to whom such
policies have been issued, the expiration dates thereof, the annual premiums and
payment terms thereof, whether it is a "claims made" or an "occurrence" policy
and a brief description of the interests insured thereby) of all liability,
property, workers' compensation, life, directors' and officers' liability and
other insurance policies currently in effect that insure the business,
operations or employees of the Company or affect or relate to the ownership, use
or operation of any of the assets and properties of the Company and that (i)
have been issued to the Company or (ii) have been issued to any Person (other
than the Company) for the benefit of the Company. The insurance coverage
provided by any of the policies described in clause (i) above will not terminate
or lapse by reason of the transactions contemplated by this Agreement. Each
policy listed on SCHEDULE 3.18 is valid and binding and in full force and
effect, all premiums due thereunder have been paid and neither the Company, the
Illinois Predecessor nor the Person to whom such policy has been issued has
received any notice of cancellation or termination in respect of any such policy
or is in default thereunder. Such insurance policies are in amounts and have
coverages that, based on the experience of the executive officers of the
Company, are reasonable for Persons engaged in such businesses and operations
and having such assets and properties. Neither the Company, the Illinois
Predecessor nor, to the best knowledge of the Company, the Person to whom such
policy has been issued has received notice that any insurer under any policy
referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
3.19. ENVIRONMENTAL MATTERS. (i) There has not been any
material release of Hazardous Substances in violation of any
Environmental Laws on any of the real property currently or formerly
operated or leased by the Company or the Illinois Predecessor;
-21-
(ii) the Company and the Illinois Predecessor have not used
any waste disposal site, or otherwise disposed of, transported, or
arranged for the transportation of any Hazardous Substances to any place
or location in violation of any Environmental Laws; and
(iii) the Company and the Illinois Predecessor have not
received any notice or other communication that either of them is or may
be a potentially responsible person or otherwise liable for any
Environmental Costs in connection with any waste disposal site allegedly
containing any Hazardous Substances.
3.20. MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set
forth in SCHEDULE 3.20 and except for the Employment Agreements, the Imagination
Pilots Agreements and the Jam Productions Agreements, since January 1, 1997,
none of the officers or directors of the Company, nor any persons with which any
officer or director of the Company has any relationship by blood, marriage or
adoption, has engaged in any material transaction with the Company or the
Illinois Predecessor (other than transactions by officers and directors in their
capacity as such) or has or has had any material interest in (i) any contract,
arrangement or understanding with, or relating to the business or operations of,
the Company or the Illinois Predecessor, (ii) any property (real or personal),
tangible or intangible, used or intended to be used in, or pertaining to, the
business of the Company or the Illinois Predecessor or (iii) any business or
entity which competes with, or is a customer or supplier of, the Company.
3.21. USE OF PROCEEDS. The net proceeds received by the
Company from the sale of the Series A Preferred Stock shall be used by the
Company as set forth on SCHEDULE 3.21 hereto.
3.22. OFFERING EXEMPTION. The offering and sale of the Series
A Preferred Stock and the Series A Reserved Shares upon conversion of the Series
A Preferred Shares, as the case may be, are each exempt from registration under
the Securities Act and under applicable state securities and "blue sky" laws.
3.23. BROKERS. Neither the Company, the Illinois Predecessor
nor any of the officers, directors, managers, employees or stockholders of
either of them has employed any broker or finder in connection with the
transactions contemplated by this Agreement.
3.24. REGISTRATION RIGHTS. Except as contemplated by the
Registration Rights Agreement, no Person has any right to cause the Company to
effect the registration under the Securities Act of any shares of Common Stock
or any other securities of the Company.
-22-
3.25. DISCLOSURE. Neither this Agreement nor any other
document, certificate, instrument or written statement furnished or made to the
Investors by or on behalf of the Company in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR. (a) Each
GS Investor represents and warrants to the Company as follows:
(i) Such GS Investor is acquiring the Series A
Preferred Stock being purchased by it hereunder for its own
account, for investment and not with a view to the distribution
thereof within the meaning of the Securities Act.
(ii) Such GS Investor understands that (i) the Series A
Preferred Stock has not been, and that the Series A Reserved
Shares will not be, registered under the Securities Act, by
reason of their issuance by the Company in a transaction exempt
from the registration requirements of the Securities Act and (ii)
the Series A Preferred Stock and the Series A Reserved Shares may
not be sold unless such disposition is registered under the
Securities Act or is exempt from registration.
(iii) Such GS Investor further understands that the
exemption from registration afforded by Rule 144 (the provisions
of which are known to the GS Investor) promulgated under the
Securities Act depends on the satisfaction of various conditions,
and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts.
(iv) Such GS Investor has not employed any broker or
finder in connection with the transactions contemplated by this
Agreement.
(v) Such GS Investor is an "Accredited Investor" (as
defined in Rule 501(a) under the Securities Act).
(vi) Such GS Investor has such knowledge and experience in
financial or business matters that it is capable of evaluating the
merits and risks of the transactions contemplated by this Agreement.
(vii) Such GS Investor has full power and authority
without the consent or approval of any court, agency or other
third party, to enter into and perform this Agreement. This
Agreement has been duly authorized by all necessary action on the
part of such
-23-
GS Investor. When duly executed and delivered this Agreement
will constitute a valid and binding agreement of such GS Investor
enforceable against such GS Investor in accordance with its terms
except to the extent that enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors'
rights generally or equitable principles.
(b) Each Existing Investor represents and warrants to the
Company as follows:
(i) Such Existing Investor is acquiring the Series A
Preferred Stock being purchased by it hereunder for its own
account, for investment and not with a view to the distribution
thereof within the meaning of the Securities Act.
(ii) Such Existing Investor understands that (i) the
Series A Preferred Stock has not been, and that the Series A
Reserved Shares will not be, registered under the Securities Act,
by reason of their issuance by the Company in a transaction
exempt from the registration requirements of the Securities Act
and (ii) the Series A Preferred Stock and the Series A Reserved
Shares may not be sold unless such disposition is registered
under the Securities Act or is exempt from registration.
(iii) Such Existing Investor further understands that
the exemption from registration afforded by Rule 144 (the
provisions of which are known to the Existing Investor)
promulgated under the Securities Act depends on the satisfaction
of various conditions, and that, if applicable, Rule 144 may
afford the basis for sales only in limited amounts.
(iv) Such Existing Investor has not employed any broker
or finder in connection with the transactions contemplated by
this Agreement.
(v) Unless the name of such Existing Investor is set
forth on SCHEDULE 4(b) hereto, such Existing Investor is an
"Accredited Investor" (as defined in Rule 501(a) under the
Securities Act).
(vi) Such Existing Investor has such knowledge and experience
in financial or business matters that it is capable of evaluating the
merits and risks of the transactions contemplated by this Agreement.
(vii) Such Existing Investor has full power and
authority, without the consent or approval of any court, agency
or other third party, to enter into and perform this Agreement.
This Agreement has been duly
-24-
authorized by all necessary action on the part of such Existing
Investor. When duly executed and delivered this Agreement will
constitute a valid and binding agreement of such Existing
Investor enforceable against such Existing Investor in accordance
with its terms except to the extent that enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting
creditors' rights generally or equitable principles.
SECTION 5. DELIVERIES AT THE CLOSING. Simultaneously with the
Closing (or, in the case of (d) and (e) below on or prior to the Closing Date),
the following actions are being taken:
(a) The Stockholders' Agreement is being duly executed and
delivered by the Company and all parties thereto.
(b) The Registration Rights Agreement is being duly executed
and delivered by the Company and the Investors.
(c) The Company is delivering to the Investors:
(i) a long form certificate of good standing of the Company
dated as of a recent date from the State of Delaware;
(ii) a certificate of good standing of the Company dated as of
a recent date from the State of Illinois;
(iii) a certificate of the secretary of the Company as to (1)
the Articles of Incorporation; (2) the by-laws of the Company; (3) the
resolutions of the Board of Directors of the Company authorizing the
execution and performance of the Documents and the transactions
contemplated thereby; (4) the resolutions of the stockholders of the
Company authorizing the execution and performance of the Documents and
the transactions contemplated thereby; and (5) the incumbency and
signatures of the officers of the Company executing the Documents; and
(iv) the opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the
Company, in the form of EXHIBIT 4 attached hereto.
(d) Fully executed copies of the Employment Agreements, the
Imagination Pilots Agreements and the Jam Productions Agreements are being or
have previously been delivered or made available to the GS Investors and made
available to the Existing Investors.
(e) Fully executed copies of the partnership or affiliate
agreements listed on SCHEDULE 5 hereto are being or
-25-
have previously been delivered to the GS Investors and made available to the
Existing Investors.
SECTION 6. TRANSFER TAXES. The Company will be liable for and
will pay, and will hold each Investor harmless from, any and all liability with
respect to any stamp, transfer or similar Taxes arising from the execution,
delivery or performance of this Agreement or any modification, amendment or
alteration of the terms or provisions of this Agreement, and that it will
similarly be liable for, pay and hold each Investor harmless from all issue
Taxes in respect of the issuance of the Series A Preferred Stock and the Series
A Reserved Shares to such Investor.
SECTION 7. EXCHANGES; LOST, STOLEN OR MUTILATED CERTIFICATES.
Upon surrender by an Investor to the Company of any certificate representing
Series A Preferred Stock or Series A Reserved Shares purchased or acquired
hereunder, the Company at its expense will issue in exchange therefor, and
deliver to such Investor, a new certificate or certificates representing such
shares, in such denominations as may be requested by such Investor. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate representing any Series A Preferred Stock or
Series A Reserved Shares purchased or acquired by an Investor hereunder, and in
case of any such loss, theft or destruction, upon delivery of any indemnity
agreement satisfactory to the Company, or in any case of any such mutilation,
upon surrender and cancellation of such certificate, the Company at its expense
will issue and deliver to such Investor a new certificate for such Series A
Preferred Stock or Series A Reserved Shares of like tenor, in lieu of such lost,
stolen or mutilated certificate.
SECTION 8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations and warranties contained in this Agreement
shall survive the Closing for a period of four (4) years from the Closing Date
and shall thereupon terminate and cease to be of further force and effect
together with any associated right to indemnification, except that any
representation and warranty shall survive the time it would otherwise terminate
pursuant to this SECTION 8 if notice of the breach thereof (specifying in
reasonable detail the nature of such beach) giving rise to a right of
indemnification shall have been given to the indemnifying party prior to such
time. The survival periods set forth in this SECTION 8 shall be applicable
regardless of any investigation made by or on behalf of any party. Except as
otherwise provided herein, the covenants and agreements in this Agreement shall
survive without limitation as to time.
SECTION 9. EXPENSES. The Company and the Investors shall each
pay all costs and expenses incurred by it or on its behalf in connection with
this Agreement and the transactions
-26-
contemplated hereby, including, without limiting the generality of the
foregoing, fees and expenses of its own financial consultants, accountants
and counsel, except that the Company shall, promptly following its receipt of
invoices therefor, pay or reimburse the GS Investors for all fees and
expenses (including, without limiting the generality of the foregoing, fees
and expenses of its own accountants and counsel) reasonably incurred by the
Investors in connection with the preparation and negotiation of the Documents
and the consummation of the transactions contemplated by the Documents.
SECTION 10. INDEMNIFICATION.
10.1. GENERAL INDEMNIFICATION. The Company agrees to indemnify
and hold the Investors and their subsidiaries and affiliates (other than the
Company) and the respective partners, officers, directors, employees, agents and
representatives of each of the foregoing (collectively, the "INDEMNIFIED
PERSONS") harmless from and against any and all costs, expenses, losses, claims,
damages, penalties, fines, liabilities and obligations whenever arising or
incurred (including, without limitation, amounts paid in settlement, reasonable
costs of investigation and attorneys' fees and expenses) (individually, a
"LOSS", and collectively, "LOSSES") arising out of or relating to (a) any breach
of any representation or warranty set forth in any Document or any related
schedule or exhibit, and (b) any breach of any covenant or obligation of the
Company contained in any Document.
10.2. CALCULATION OF LOSSES. For purposes of this SECTION 10,
(a) Losses shall, without duplication, include any Loss indirectly incurred as a
result of a decrease in value to the Investors (or their permitted successors
and assigns) of their investment (measured as of the Closing Date) in the
Company pursuant hereto as compared to such value so measured absent the matter,
condition or event giving rise to such Loss and (b) with respect to the
indemnification obligations of the Company, the amount of any Loss shall also
reflect any decrease in the value to the Investors (or their permitted
successors and assigns) of their investment in the Company resulting from any
payments made by the Company to any Indemnified Persons (other than the
Investors) pursuant to SECTION 10.1.
10.3. PROCEDURES RELATING TO INDEMNIFICATION. An indemnified
party under this SECTION 10 shall give prompt written notice to the indemnifying
party (when and to the extent that the indemnified party has actual knowledge
thereof) of any condition, event or occurrence or the commencement of any
action, suit or proceeding for which indemnification may be sought, and the
indemnifying party, through counsel reasonably satisfactory to the indemnified
party and the Company, shall assume the defense thereof or other indemnification
obligation with respect thereto; PROVIDED, HOWEVER, that any indemnified party
shall be entitled
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to participate in any such action, suit or proceeding with counsel of its own
choice but at its own expense and PROVIDED, FURTHER, that any indemnified
party shall be entitled to participate in any such action, suit or proceeding
with counsel of its own choice at the expense of the indemnifying party, if,
in the good faith judgment of the indemnified party's counsel, representation
by the indemnifying party's counsel may present a conflict of interests. The
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this SECTION 10,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In any event, if the indemnifying party fails
to assume the defense within a reasonable time, the indemnified party may
assume such defense or other indemnification obligation and the reasonable
fees and expenses of its attorneys will be covered by the indemnity provided
for in this SECTION 10. No action, suit or proceeding for which
indemnification may be sought shall be compromised or settled in any manner
which might adversely affect the interests of the indemnifying party without
the prior written consent of such indemnifying party (which shall not be
unreasonably withheld). Notwithstanding anything in this SECTION 10 to the
contrary, the indemnifying party shall not, without the written consent of
the indemnified party, (i) settle or compromise any action, suit or
proceeding or consent to the entry of any judgment which does not include as
an unconditional term thereof the delivery by the claimant or plaintiff to
the indemnified party of a written release from all liability in respect of
such action, suit or proceeding or (ii) settle or compromise any action, suit
or proceeding in any manner that may materially and adversely affect the
indemnified party other than as a result of money damages or other money
payments. The indemnifying party shall pay all expenses, including
attorneys' fees, that may be incurred by any indemnified party in enforcing
the indemnity provided for in this SECTION 10.
10.4. EXCLUSIVE REMEDY. From and after the Closing, the
indemnities set forth in this SECTION 10 shall be the exclusive remedies of the
Indemnified Persons for any breach of a representation, warranty, covenant or
agreement of the Company or any Stockholder contained in this Agreement,
PROVIDED that the foregoing shall not be deemed to limit in any respect any
equitable remedies to which the Indemnified Persons may be entitled and shall
not apply to any willful and deliberate material breach of this Agreement on the
part of the Company.
SECTION 11. REMEDIES. In case any one or more of the covenants
and/or agreements set forth in this Agreement shall have been breached by the
Company, the Investor may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for
-28-
specific performance of any such covenant or agreement contained in this
Agreement.
SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall bind
and inure to the benefit of the Company and the Investors and the respective
successors, assigns, heirs and personal representatives of the Company and the
Investors; PROVIDED, HOWEVER, that this Agreement or any right hereunder shall
not be assigned by the Company (except by operation of law) without the consent
of the Investors. Each Investor may assign this Agreement or any right
hereunder to any partnership, corporation, trust or other organization which is
controlled by, controlling or under common control with such Investor. The
transferee of any Series A Preferred Stock or Series A Reserved Shares from an
Investor pursuant to a transfer permitted by the Stockholders' Agreement shall
be deemed to be such Investor's successor and assign under this Agreement.
SECTION 13. ENTIRE AGREEMENT. This Agreement and the other
writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous arrangements
or understandings with respect thereto.
SECTION 14. NOTICES. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Company, to:
JAMtv Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President, CEO and Chairman
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-29-
(ii) if to the GS Investors, to:
c/o Goldman, Sachs & Co.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
with a copy to:
Sidley & Austin
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(iii) if to an Existing Investor, to such Existing
Investor at its address set forth in the stock ledger of the
Company.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
SECTION 15. AMENDMENTS. Any waiver, change, modification or
discharge of the provisions of this Agreement shall require the written consent
of the Company and the Investors as and to the extent provided in this SECTION
15. This Agreement may be amended as to the Investors and their successors and
assigns (determined as provided in SECTION 11), and the Company may take any
action herein prohibited, or omit to perform any act required to be performed by
it in respect of the Investors, if the Company shall obtain the written consent
of the Investors and/or such successors and assigns who are then the registered
holders of not less than a majority of the shares of Series A Preferred Stock
and shares of Common Stock into which shares of Series A Preferred Stock sold
pursuant hereto have been converted then held by the Investors and/or such
successors and assigns.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 17. HEADINGS. The headings of the sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 18. SEVERABILITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such
-30-
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder
of such invalid, illegal or unenforceable provision or provisions or any
other provisions hereof, unless such a construction would be unreasonable.
SECTION 19. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois applicable to
contracts made and to be performed wholly therein.
-31-
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first above written.
COMPANY:
ATTEST: JAMTV CORPORATION, a Delaware
corporation
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------- ---------------------------------
Secretary President
GS INVESTORS:
GS CAPITAL PARTNERS II, L.P., a
Delaware limited partnership
By: GS Advisors, L.P., its
general partner
By: GS Advisors, Inc., its
general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------
Its: Vice President
------------------------------
GS CAPITAL PARTNERS II OFFSHORE, L.P., a
limited partnership organized under the
laws of the Cayman Islands
By: GS Advisors II (Cayman), L.P.,
its general partner
By: GS Advisors II, Inc., its
general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------
Its: Vice President
----------------------------------
-▇▇-
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ GMBH, a
company organized under the laws of
Germany
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Managing
Director
and
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Registered Agent
STONE STREET FUND 1997, L.P., a Delaware
limited partnership
By: Stone Street Asset Corp.,
General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------
Its: Vice President
----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, L.P., a
Delaware limited partnership
By: Stone Street Asset Corp.,
Managing General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------
Its: Vice President
----------------------------------
-33-
PREFERRED STOCK PURCHASE AGREEMENT
Dated as of June 2, 1997
Among
JAMtv Corporation
and
The Investors named on the Signature Pages Hereto
TABLE OF CONTENTS
PAGE
----
SECTION 1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. Issuance and Sale of Series A Preferred Stock. . . . . . . . . . 6
2.1. Issuance of Series A Preferred Stock and
Reservation of Series A Reserved Shares. . . . . . . . . . . 6
2.2. Agreement to Sell and Purchase the Series A
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . 7
2.3. Delivery of Series A Preferred Stock to the
Investors. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4. The Closing. . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3. Representations and Warranties of the Company. . . . . . . . . . 7
3.1. Reorganization . . . . . . . . . . . . . . . . . . . . . . . 8
3.2. Organization and Good Standing; Power and
Authority; Qualifications. . . . . . . . . . . . . . . . . . 8
3.3. Authorization of the Documents.. . . . . . . . . . . . . . . 9
3.4. Capitalization.. . . . . . . . . . . . . . . . . . . . . . . 10
3.5. Authorization of the Series A Preferred
Stock, and Series A Reserved Shares. . . . . . . . . . . . . 11
3.6. Equity Investments.. . . . . . . . . . . . . . . . . . . . . 11
3.7. Intellectual Property Rights.. . . . . . . . . . . . . . . . . 11
3.8. Financial Information. . . . . . . . . . . . . . . . . . . . . 12
3.9. Absence of Undisclosed Liabilities.. . . . . . . . . . . . . . 13
3.10. Absence of Changes.. . . . . . . . . . . . . . . . . . . . . . 13
3.11. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.12. Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . 16
3.13. Properties.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.14. Owned Real Property. . . . . . . . . . . . . . . . . . . . . . 17
3.15. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.16. Labor Relations; Employees.. . . . . . . . . . . . . . . . . . 19
3.17. Litigation; Compliance With Laws.. . . . . . . . . . . . . . . 20
3.18. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.19. Environmental Matters. . . . . . . . . . . . . . . . . . . . . 21
3.20. Material Interests of Certain Persons. . . . . . . . . . . . . 22
3.21. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 22
3.22. Offering Exemption.. . . . . . . . . . . . . . . . . . . . . . 22
3.23. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.24. Registration Rights. . . . . . . . . . . . . . . . . . . . . . 22
3.25. Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4. Representations and Warranties of Each Investor. . . . . . . . . 23
SECTION 5. Deliveries at the Closing. . . . . . . . . . . . . . . . . . . . 25
SECTION 6. Transfer Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . 25
i
PAGE
----
SECTION 7. Exchanges; Lost, Stolen or Mutilated
Certificates.. . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 8. Survival of Representations, Warranties and
Agreements.. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 9. Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 10. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1. General Indemnification. . . . . . . . . . . . . . . . . . . . 27
10.2. Calculation of Losses. . . . . . . . . . . . . . . . . . . . . 27
10.3. Procedures Relating to Indemnification.. . . . . . . . . . . . 27
10.4. Exclusive Remedy.. . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 11. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 12. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 28
SECTION 13. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 14. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 15. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 16. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 17. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 18. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 19. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . 30
ii
LIST OF EXHIBITS
EXHIBIT
1 Certificate of Incorporation
2 Registration Rights Agreement
3 Stockholders' Agreement
4 Form of Opinion of Counsel to the Company
5 Form of Employment Agreement between the Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
6 Form of Employment Agreement between the Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇
7 Form of Employment Agreement between the Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
8 Form of ▇▇▇▇ of Sale, Assignment, and Assumption Agreement between
Imagination Pilots, Inc. and the Company
9 Form of Technology Sale Agreement between Imagination Pilots, Inc. and
the Company
10 Trademark License Agreement, dated as of February 28, 1997, between
Jam Productions, Ltd., and the Illinois Predecessor
11 Form of Multimedia Content Agreement between the Company and Jam
Productions, Ltd.
iii
LIST OF SCHEDULES
Schedule I Purchase of Series A Preferred Stock
Schedule 1 Permitted Encumbrances
Schedule 3.1 Reorganization
Schedule 3.2 Foreign Qualification
Schedule 3.4 Capital Stock
Schedule 3.7 Intellectual Property Rights
Schedule 3.8 Financial Statements
Schedule 3.9 Undisclosed Liabilities
Schedule 3.10 Absence of Changes
Schedule 3.11 Tax Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Properties
Schedule 3.14 Real Property
Schedule 3.15(a) Contracts
Schedule 3.15(b) Status of Contracts
Schedule 3.15(c) Burdensome Contracts
Schedule 3.16 Labor Matters
Schedule 3.17 Litigation; Compliance with Laws
Schedule 3.18 Insurance
Schedule 3.20 Material Interests
Schedule 3.21 Use of Proceeds
Schedule 4(b) Existing Investors who are not Accredited Investors
Schedule 5 Deliveries at the Closing
iv