EXECUTION COPY
PURCHASE AGREEMENT
among
US ▇▇▇▇▇▇.▇▇▇ INC.,
a Delaware corporation
and
THE PURCHASERS LISTED ON SCHEDULE I HERETO
Dated
September 7, 2000
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made as of September 7, 2000,
by and between US ▇▇▇▇▇▇.▇▇▇ Inc., a Delaware corporation (the "Company"), and
Pequot Private Equity Fund II, L.P., a Delaware limited partnership (the
"Purchaser").
NOW, THEREFORE, the parties hereto hereby agree as follows.
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" shall mean, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person and, in the case of a person who is an
individual, shall include (i) members of such specified person's immediate
family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the
Securities Act) and (ii) trusts, the trustee and all beneficiaries of which are
such specified person or members of such person's immediate family as determined
in accordance with the foregoing clause (i). For the purposes of this
definition, "control," when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" shall have the meaning set forth in the Preamble.
"Applicable Law" shall mean, with respect to any person, any law, statute, rule,
regulation, order, writ, injunction, judgment or decree of any Governmental
Authority to which such person or any of its subsidiaries is bound or to which
any of their respective properties is subject.
"Benefit Plan" shall have the meaning set forth in Section 3.9.
"Certificate of Designations" shall have the meaning set forth in Section 2.1.
"Charter" with respect to any corporation shall mean the certificate of
incorporation or articles of incorporation of such corporation.
"Closing" shall mean the First Closing or Second Closing, as the case may be.
"Closing Date" shall mean the First Closing Date or Second Closing Date, as the
case may be.
"Code" shall mean have the meaning set forth in Section 3.9.
"Commission" shall mean the United States Securities and Exchange Commission.
"Commitment" shall have the meaning set forth in Section 3.14.
"Common Stock" shall mean the common stock, par value $.001 per share, of the
Company.
"Company" shall have the meaning set forth in the Preamble.
"Consumer Business" shall mean all of the activities generating revenue for the
Company, excluding revenue attributable to (i) sales to registered business
users (unless the registered business user was an unregistered customer prior to
September 7, 2000) and (ii) the business of the Company that has been identified
in the Company business plan as the "Trust Advocacy Business."
"Consumer Profitability" shall mean for the three consecutive months immediately
prior to the determination date and for four of the six months immediately prior
to the determination date, that the Gross Margin of the Consumer Business,
reduced by revenue sharing agreements, consumer advertising and promotion
expense, consumer selling expense and consumer bad debt expense (calculated in
the manner set forth in the Consumer Profitability Analysis attached hereto as
Schedule I), is greater than $0.01. "Gross Margin" shall mean gross income net
of return allowances, minus labor costs, telephone expense, data and fulfillment
costs and costs of services-other, all attributable to the Consumer Business and
all as more specifically set forth in Exhibit E attached hereto, which sets
forth an example of the calculation of Consumer Profitability as of June 30,
2000.
"Documents" shall mean (i) this Agreement, (ii) the Certificate of Designation,
(iii) the Stockholders Agreement, (iv) the Investors' Rights Agreement, (v) the
Warrant, (vi) the KL Purchase Agreement and (vii) the Right of First Refusal
Agreement.
"Employee" shall have the meaning set forth in Section 3.9.
"Environmental Claim" shall have the meaning set forth in Section 3.13.
"Environmental Laws" shall have the meaning set forth in Section 3.13.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean with respect to any person (within the meaning of
section 3(9) of ERISA) any other person that would be regarded together with
such person as a single employer under section 414(b), (c), (m) or (o) of the
Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, which are in effect from time to time,
consistently applied.
"Governmental Authority" shall mean any foreign, Federal, state or local court
or governmental or regulatory authority.
"Holder" shall mean any person that is the beneficial owner of Shares, or shares
of Common Stock issued upon conversion of Shares, as a result of the sale,
assignment or other transfer of Shares originally issued to the Purchaser or
issuable or issued upon the conversion or exercise of any such Shares.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended, and applicable rules and regulations and any similar state acts.
"Indebtedness" shall mean, with respect to any person, the aggregate amount of,
without duplication, the following: (i) all obligations for borrowed money; (ii)
all obligations evidenced by bonds, debentures, notes or other similar
instruments; (iii) all obligations to pay the deferred purchase price of
property or services, except trade payables, accrued commissions and other
similar accrued current liabilities in respect of such obligations, if such
liabilities are not overdue and arise in the ordinary course of business or are
being contested in good faith by appropriate proceedings and as to which
adequate reserves have been made on the books of the Company; (iv) all
capitalized lease obligations; (v) all obligations or liabilities of any other
person or persons secured by a Lien on any asset owned by such person or persons
whether or not such obligation or liability is assumed; (vi) all obligations of
such person or persons, contingent or otherwise, in respect of any letters of
credit or bankers' acceptances; and (vii) all guarantees; provided, however,
that the term Indebtedness shall not included Taxes and other governmental
charges which are not yet due and owing, or are being contested in good faith by
appropriate proceedings and as to which adequate reserves have been made on the
books of the Company.
"Indemnified Party" shall have the meaning set forth in Section 8.1.
"Indemnifying Party" shall have the meaning set forth in Section 8.1.
"Investors' Rights Agreement" shall mean the Investors' Rights Agreement to be
entered into by and among the Company, the Purchaser and KL concurrently with
the First Closing, substantially in the form attached as Exhibit A hereto.
"KL Purchase Agreement" shall mean that certain stock purchase agreement, dated
as of the date hereof, by and among the ▇▇▇▇▇▇▇-▇▇▇▇▇ Company ("KL") and the
Purchaser, whereby the Purchaser or its Affiliates shall purchase 3,500,000
shares of Common Stock from KL at a price per share equal to 65% of the
applicable Conversion Price (as defined in the Certificate of Designations) but
no less than $1.20, such transaction to close simultaneously with the First
Closing.
"Lien" shall mean any pledge, lien, claim, restriction, charge or encumbrance of
any kind.
"Material Adverse Effect" shall mean a material adverse effect (i) on the
business, operations, prospects, properties, earnings, assets, liabilities or
condition (financial or other) of the Company and its Subsidiary, taken as a
whole, or (ii) on the ability of the Company or its Subsidiary to perform its
obligations hereunder or under any of the other Documents.
"Materials of Environmental Concern" shall have the meaning set forth in Section
3.13.
"Multiemployer Plan" shall have the meaning set forth in Section 3.9.
"New Investor" shall have the meaning set forth in Section 5.9.
"Notices" shall have the meaning set forth in Section 8.2.
"PBGC" shall have the meaning set forth in Section 3.9.
"Permitted Liens" means: (i) liens for Taxes and other governmental charges and
assessments arising in the ordinary course of business which are not yet due and
payable, (ii) 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 and (iii) other liens or imperfections on
property which are not material in amount, do not interfere with, and are not
violated by, the consummation of the transactions contemplated by this
Agreement, and do not impair the marketability of, or materially detract from
the value of or materially impair the existing use of, the property affected by
such lien or imperfection.
"Permitted Transferee" shall mean: (i) any officer, director, partner or member
of, or person controlling, the Purchaser or (ii) any other person that is (x) an
Affiliate of a general partner, investment manager or investment advisor of the
Purchaser, (y) an Affiliate of the Purchaser or a Permitted Transferee of an
Affiliate of the Purchaser, or (z) an investment fund, investment account or
investment entity whose investment manager, investment advisor or general
partner thereof is a Purchaser or a Permitted Transferee of the Purchaser.
"person" shall mean any individual, partnership, corporation, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity.
"Preferred Stock" shall mean the preferred stock, par value $.001 per share, of
the Company.
"Purchase Agreement" shall mean this Agreement.
"Purchaser" shall have the meaning set forth in the Preamble.
"Recapitalization" shall have the meaning set forth in Section 5.19.
"Right of First Refusal Agreement" shall mean that certain Right of First
Refusal Agreement dated as of September 7, 2000 by and between the Purchaser and
KL.
"SEC Documents" shall have the meaning set forth in Section 3.7.
"Securities" shall mean the Shares and the Common Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock
of the Company as described in the Certificate of Designations.
"Shares" shall mean the shares of Series A Preferred Stock to be issued and sold
by the Company to the Purchaser under Section 2.1(b) hereof and issuable upon
exercise of the Warrants.
"Stockholders Agreement" shall mean that certain stockholders agreement dated
September 7, 2000 by and among the Company, the Purchaser and KL, whereby the
parties thereto agree to vote to their shares of Common Stock or Series A
Preferred Stock, as the case may be, and use their respective best efforts to
effect certain actions and rights contemplated in the Certificate of
Designations.
"subsidiary" shall mean, with respect to any person, (a) a corporation a
majority of whose capital stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such person,
by a subsidiary of such person, or by such person and one or more subsidiaries
of such person, (b) a partnership in which such person or a subsidiary of such
person is, at the date of determination, a general partner of such partnership,
or (c) any other person (other than a corporation) in which such person, a
subsidiary of such person or such person and one or more subsidiaries of such
person, directly or indirectly, at the date of determination thereof, has (i) at
least a majority ownership interest, (ii) the power to elect or direct the
election of the directors or other governing body of such person, or (iii) the
power to direct or cause the direction of the affairs or management of such
person. For purposes of this definition, a person is deemed to own any capital
stock or other ownership interest if such person has the right to acquire such
capital stock or other ownership interest, whether through the exercise of any
purchase option, conversion privilege or similar right.
"Subsidiary" shall mean a subsidiary of the Company.
"Taxes" shall mean all foreign, Federal, State and local taxes, including any
interest, penalties or additions to tax that may become payable in respect
thereof, imposed by any Governmental Authority, which taxes shall include,
without limiting the generality of the foregoing, all income taxes, payroll and
employee withholding taxes, unemployment insurance, social security, sales and
use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation
taxes, real and personal property taxes, stamp taxes, transfer taxes, workmen's
compensation taxes and other obligations of the same or a similar nature,
whether arising before, on or after the Closing Date.
"Tax Returns" shall mean all returns, declarations, statements, schedules,
forms, reports, information returns or other documents (including any related or
supporting information), and any amendments thereto, filed or required to be
filed with any Governmental Authority in connection with the determination,
assessment, collection or administration of any Taxes.
"Trust Advocacy Business" shall mean any activity involving the provision of
information online between the parties (whether consumer or business) to a
transaction for the purpose of enabling the consummation of such transaction.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification Act of
1988, as amended, and any applicable state or local law with regard to "plant
closings" or "mass layoffs" as such terms are defined in the WARN Act or
applicable state or local law.
"Warrant" shall mean that certain Warrant dated September 7, 2000 by the Company
issued to the Purchaser to purchase up to seventy-five thousand (75,000) shares
of Series A Preferred Stock.
ARTICLE II.
SALE AND PURCHASE
Section 2.1 Sale and Issuance of Shares.
(a) On or before the First Closing, the Company shall adopt and file
with the Secretary of State of Delaware the Amended Certificate of Designations
relating to the Series A Preferred Stock (the "Certificate of Designations"),
substantially in the form attached as Exhibit B hereto.
(b) On the First Closing Date, and upon the terms and subject to the
conditions set forth in this Agreement, the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase and accept from the Company, for the
purchase price set forth on the Purchaser's signature page attached hereto,
payable in immediately available funds (i) one hundred thousand (100,000) shares
of Series A Preferred Stock as are indicated on the Purchaser's signature page
attached hereto and (ii) the Warrants to purchase up to seventy-five thousand
(75,000) shares of Series A Preferred Stock pursuant to the Warrant executed and
delivered herewith.
(c) On the Second Closing Date, if any, and upon the terms and subject to
the conditions set forth in this Agreement, the Company shall issue and sell to
the Purchaser, and the Purchaser shall purchase and accept from the Company such
number of shares of Series A Preferred Stock as are indicated on a schedule to
be provided by the Purchaser and agreed to by the Company but, in any event, to
provide for the purchase and sale of one hundred thousand (100,000) shares of
Series A Preferred Stock for ten million dollars ($10,000,000).
Section 2.2 Closings.
(a) The first closing of the purchase and sale of the Series A
Preferred Stock (the "First Closing") shall take place at 9:00 a.m., local time,
on September 7, 2000, or such other date as promptly thereafter as of which all
of the conditions relating to the First Closing set forth in Article VII hereof
shall have been satisfied or duly waived or at such other time and date as the
parties hereto shall agree in writing (the "First Closing Date"), at the offices
of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ or
at such other place as the parties hereto shall agree in writing.
(b) If necessary, a second closing of the purchase and sale of the Series A
Preferred Stock (the "Second Closing") shall take place at such date and time to
be agreed upon by the parties hereto as promptly as practicable after as of
which all of the conditions set forth in Article VII hereof shall have been
satisfied or duly waived as the parties hereto shall agree in writing (the
"Second Closing Date"), at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ or at such other place as the parties
hereto shall agree in writing.
On each Closing Date (i) the Purchaser shall deposit into a bank account
designated by the Company on such Closing Date, by wire transfer of immediately
available funds, an amount equal to the aggregate purchase price of the Shares
being purchased from the Company pursuant to Section 2.1(b) or (c), as the case
may be, and (ii) the Company shall deliver to the Purchaser, against payment of
the purchase price therefor, certificates representing the Shares, being
purchased by Purchaser pursuant to Section 2.1(b) or (c). The Shares shall be
in definitive form and registered in the name of the Purchaser or its nominee or
designee and in such denominations (including fractional shares) as the
Purchaser shall request not later than one business day prior to the Closing
Date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
Section 3.1 Organization and Standing
. The Company is duly incorporated, validly existing and in good standing
as a domestic corporation under the laws of the State of Delaware and has all
requisite corporate power and authority to own its properties and assets and to
carry on its business as it is now being conducted and as proposed to be
conducted. The Company is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the character
of the properties owned or leased by it or the nature of its business makes such
qualification necessary, except where the failure to so qualify or be in good
standing could not, individually or in the aggregate, or together with such
failure of its Subsidiary referred to in Section 3.3(b) below reasonably be
expected to have a Material Adverse Effect.
Section 3.2 Capital Stock
. Immediately following the First Closing, the authorized capital stock of
the Company will consist solely of (a) forty million (40,000,000) shares of
Common Stock, of which (i) seventeen million nine hundred thirty eight thousand
two hundred forty four (17,938,244) shares will be issued and outstanding and
(ii) thirteen million sixty three thousand fifty eight (13,063,058) shares will
be reserved for issuance upon the conversion of the Series A Preferred Stock
(including the Series A Preferred Stock issuable upon exercise of the Warrants
and as dividends as provided in the Certificate of Designations but excluding
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
to be issued at the Second Closing) and (b) one million (1,000,000) shares of
Preferred Stock, of which (i) one hundred thousand (100,000) shares of Series A
Preferred Stock will be issued and outstanding and (ii) two hundred fifty
thousand (250,000) shares of Series A Preferred Stock will be reserved for
issuance at the Second Closing, in connection with the exercise of the Warrants
and as dividends as provided in the Certificate of Designations. Immediately
following the First Closing, each share of capital stock of the Company that is
issued and outstanding will be duly authorized, validly issued, fully paid and
nonassessable. Any shares of Series A Preferred Stock issued in the Second
Closing, in connection with the exercise of the Warrants, or as a dividend on
any outstanding shares of Series A Preferred Stock, are duly authorized, and,
when issued and paid for in connection with the Second Closing, will be validly
issued, fully paid and nonassessable. Upon conversion of any shares of Series A
Preferred Stock in accordance with their terms, all of the Common Stock issued
upon such conversion will be duly authorized, validly issued, fully paid and
nonassessable (giving effect to and assuming, with respect to the shares of
Series A Preferred Stock issuable in connection with the Second Closing only,
the Recapitalization). Schedule 3.2(a) sets forth a true and complete table of
(i) the capitalization of the Company immediately prior to the First Closing,
(ii) a pro forma capitalization of the Company immediately following the
transactions contemplated by the Documents and (iii) assuming the exercise of
all of the Warrants. Except as set forth on Schedule 3.2(b) or as contemplated
by this Agreement, at the date hereof there are, and immediately following the
First Closing there will be (a) no outstanding options, warrants, agreements,
conversion rights, preemptive rights or other rights to subscribe for, purchase
or acquire any issued or unissued shares of capital stock of the Company and (b)
no restrictions upon the voting or transfer of any shares of capital stock of
the Company pursuant to its Charter, Amended and Restated Bylaws or other
governing documents or any agreement or other instruments to which it is a party
or by which it is bound. The holders of the Series A Preferred Stock will, upon
issuance thereof, have the rights set forth in the Certificate of Designation.
Section 3.3 Subsidiary.
(a) Schedule 3.3 sets forth the one Subsidiary, including the
percentage of the fully diluted capital stock of such Subsidiary owned, directly
or indirectly, by the Company.
(b) The Subsidiary is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own its properties and assets and to
conduct its business as now conducted and as proposed to be conducted. The
Subsidiary is duly qualified to do business as a foreign corporation in every
jurisdiction in which the character of the properties owned or leased by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to so qualify could not, individually or in the
aggregate, or together with such failure of the Company referred to in Section
3.1 above, reasonably be expected to have a Material Adverse Effect.
(c) The outstanding shares of capital stock of the Subsidiary has been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth on Schedule 3.3, (i) all of the shares of the Subsidiary are owned of
record and beneficially, directly or indirectly, by the Company, free and clear
of all Liens and (ii) there are no outstanding options, warrants, agreements,
conversion rights, preemptive rights or other rights to subscribe for, purchase
or otherwise acquire any issued or unissued shares of capital stock of the
Subsidiary.
Section 3.4 Authorization; Enforceability
. The Company has the corporate power to execute, deliver and perform its
obligations under each of the Documents and has taken all necessary corporate
action to authorize the execution, delivery and performance by it of each of the
Documents and to consummate the transactions contemplated hereby and thereby
except, with respect to the Second Closing. No other corporate proceedings on
the part of the Company are necessary therefor. The Company has duly executed
and delivered this Agreement. This Agreement constitutes, and each of the other
Documents, when executed and delivered by the Company and, assuming due
execution by the other parties hereto and thereto, will constitute legal, valid
and binding obligations of the Company enforceable against it in accordance with
their terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
Section 3.5 No Violation; Consents.
(a) The execution, delivery and performance by the Company of each of
the Documents and the consummation of the transactions contemplated hereby and
thereby does not and will not contravene any Applicable Law. The execution,
delivery and performance by the Company of each of the Documents and the
consummation of the transactions contemplated hereby and thereby (i) will not
(after giving effect to all amendments or waivers obtained on or prior to the
First Closing Date) (x) violate, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contract, lease, loan
agreement, Benefit Plan, mortgage, security agreement, trust indenture or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which any of them is bound or to which any of their properties or
assets is subject or (y) result in the creation or imposition of any Lien (other
than a Permitted Lien) upon any of the properties or assets of any of them, or
(z) permit or cause the acceleration of the maturity of any debt or obligation
of the Company or its Subsidiary in an amount exceeding, in the aggregate,
$500,000, and (ii) will not violate any provision of the Charter or the Amended
and Restated Bylaws of the Company or its Subsidiary.
(b) Except as set forth on Schedule 3.5(b), no consent, authorization or
order of, or filing or registration with, any Governmental Authority or other
person is required to be obtained or made by the Company or its Subsidiary for
the execution, delivery and performance of any of the Documents, or the
consummation of any of the transactions contemplated hereby or thereby, except
(i) for those consents or authorizations required for the First Closing that
will have been obtained or made on or prior to the First Closing Date, (ii) for
those consents or authorizations required for the Second Closing, if any, that
will have been obtained or made on or prior to the Second Closing Date or (iii)
where the failure to obtain such consents, authorizations or orders, or make
such filings or registrations, could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 3.6 Litigation
. Except as set forth on Schedule 3.6, there are no pending or, to the
best knowledge of the Company, threatened claims, actions, suits, labor
disputes, grievances, administrative or arbitration or other proceedings or, to
the best knowledge of the Company, investigations against the Company, its
Subsidiary or their respective assets or properties before or by any
Governmental Authority or before any arbitrator that could, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect. None
of the transactions contemplated by any of the Documents is restrained or
enjoined (either temporarily, preliminarily or permanently), and no material
adverse conditions have been imposed thereon by any Governmental Authority or
arbitrator. None of the Company, its Subsidiary or any of their respective
assets or properties, is subject to any order, writ, judgment, award, injunction
or decree of any Governmental Authority or arbitrator, that could, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.7 SEC Documents; Financial Statements.
(a) Since June 24, 1999, (i) the Company has filed all forms, reports
and documents with the Commission (including all exhibits thereto) required
under the Securities Act or the Exchange Act or the rules and regulations
promulgated thereunder (collectively, the "SEC Documents"), each of which
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act as in effect on the dates so filed and (ii)
no event of which the Company has knowledge has occurred which the Company
reasonably believes requires the filing of a Form 8-K with the Commission and
which has not been filedNone of the SEC Documents (as of their respective
filing dates) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The Company has heretofore made available to the
Purchasers copies of each of the SEC Documents (other than exhibits or schedules
to the SEC Documents).
(b) The financial statements contained in the SEC Documents: (i) comply as
to form in all material respects with the published rules and regulations of the
Commission applicable thereto; (ii) were prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered, except as may be
indicated in the notes to such financial statements and (in the case of
unaudited statements) as permitted by Form 10-Q of the Commission, and except
that unaudited financial statements may not contain footnotes and are subject to
normal and recurring year-end audit adjustments (which will not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect); and
(iii) fairly present the consolidated financial position of the Company as of
the respective dates thereof and the consolidated results of operations and cash
flows of the Company for the periods covered thereby.
(c) The unaudited financial statements dated as of July 31, 2000, which have
been furnished to the Purchaser: (i) were prepared in accordance with GAAP
applied on a consistent basis with prior periods, except as indicated in the
notes, if any, to such financial statements (which are subject to normal and
recurring year-end audit adjustments (which will not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect)) and (ii)
fairly present the consolidated financial position of the Company and its
Subsidiary as of the date thereof and the consolidated results of operations of
the Company and its Subsidiary for the period covered therein.
(d) No representation or warranty of the Company contained in any document,
certificate or written statement furnished or made available to the Purchasers
by or at the direction of the Company for use in connection with the
transactions contemplated by this Agreement, contains any untrue statement of a
material fact or omits to state any material fact (known to the Company, in the
case of information not furnished by them) necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. There are no facts known to the
Company (other than matters of a nature affecting the general economy) that
could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect and that have not been disclosed in the SEC Documents,
this Agreement or in such other documents, certificates and statements furnished
to the Purchasers for use in connection with the transactions contemplated by
this Agreement.
(e) As of December 31, 1999, the Company had no assets or liabilities that
would have been required to reflect in consolidated financial statements of the
Company prepared in accordance with GAAP, including notes thereto, that are not
reflected in the financial statements contained in the SEC Documents.
Section 3.8 Change in Condition.
(a) Since December 31, 1999, there has been no material adverse change
in the business, operations, properties, prospects or condition (financial or
other) of the Company or its Subsidiary, whether or not arising in the ordinary
course of business.
(b) To the best knowledge of the Company, there is no event, condition,
circumstance or development which could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 3.9 Employee Benefit Plans and Labor Matters.
(a) For purposes of this Agreement:
(i) "Benefit Plan" means any employee benefit plan, arrangement, policy
or commitment, including, without limitation, any employment, consulting,
severance or deferred compensation agreement, executive compensation, bonus,
incentive, pension, profit-sharing, savings, retirement, stock option, stock
purchase or severance pay plan, any such date and time to be agreed upon by the
parties hereto as promptly as practicable after life, health, disability or
accidental death and dismemberment insurance plan, any holiday and vacation
practice or any other employee benefit plan, within the meaning of section 3(3)
of ERISA, whether formal or informal, written or oral and whether legally
binding or not, that is maintained, administered or contributed to or was
maintained, administered or contributed to at any time by the Company or any of
its ERISA Affiliates for the benefit of any employee, former employee,
consultant, officer or director of the Company or any ERISA Affiliate;
(ii) "Code" means the Internal Revenue Code of 1986, as amended;
(iii) "Employee" means any individual employed by the Company or any of its
ERISA Affiliates;
(iv) "IRS" means the United States Internal Revenue Service; and
(v) "PBGC" means the Pension Benefit Guaranty Corporation.
(b) Schedule 3.9(b) lists all Benefit Plans. With respect to each such
plan, the Company has delivered or made available to the Purchasers correct and
complete copies of (i) all plan texts and agreements and related trust or other
funding arrangements (including all amendments thereto); (ii) all summary plan
descriptions and material employee communications; (iii) the annual report and
actuarial report (including all schedules thereto) if required under ERISA or
other applicable law, for the last three most recently completed plan years;
(iv) the most recent annual audited financial statement; (v) if the plan is
intended to qualify under Code section 401(a) or 403(a), the most recent
determination letter, if any, received from the IRS; and (vi) all material
communications with any Governmental Authority (including, without limitation,
the PBGC and the IRS).
(c) There are no Benefit Plans that (i) are subject to any liability under
Code section 412, ERISA section 302 or Title IV of ERISA and no condition exists
that presents a material risk to the Company or any ERISA Affiliate of incurring
such liability; (ii) are intended to qualify under Code section 401(a) or
403(a); or (iii) provide benefits to current or former Employees beyond their
retirement or other termination of service (other than coverage mandated by Code
section 4980B and Part 6 of Title I of ERISA), or are self-insured "multiple
employer welfare arrangements," as such term is defined in section 3(40) of
ERISA.
(d) Except as set forth on Schedule 3.9(d), each Benefit Plan conforms in
all material respects to, and its administration is in all material respects in
compliance with, its terms and all Applicable Law, including but not limited to
ERISA and the Code.
(e) The consummation of the transactions contemplated by this Agreement will
not (i) entitle any current or former Employee or officer of the Company or any
ERISA Affiliate to severance pay, unemployment compensation or any similar
payment; or (ii) accelerate the time of payment or vesting of any right or
privilege, or increase the amount of any compensation due to, any current or
former Employee or officer.
(f) No Benefit Plan is a "multiple employer plan" or a "multiemployer plan"
within the meaning of the Code or ERISA.
(g) In the six years preceding the date hereof, (i) no Benefit Plan that is
or was subject to Title IV of ERISA has been terminated; (ii) no reportable
event within the meaning of section 4043 of ERISA has occurred; (iii) no filing
of a notice of intent to terminate such a Benefit Plan has been made; (iv) the
PBGC has not initiated any proceeding to terminate any such Benefit Plan and no
condition exists that presents a material risk that such proceeding will be
initiated; and (v) no prohibited transaction (within the meaning of Section 406
of ERISA or Section 4975 of the Code) has occurred.
(h) Except as set forth on Schedule 3.9(h), neither the Company nor any of
its Subsidiaries has any existing arrangement with any of its Employees
providing for an excise tax gross up in respect of any excise taxes imposed by
section 4999 of the Code.
(i) Except as set forth on Schedule 3.9(i), none of the Company, any
Subsidiary or any ERISA Affiliate has any commitment or formal plan, whether
legally binding or not, to create any additional employee benefit plan or modify
or change any existing Benefit Plan that would affect any Employee or former
Employee.
(j) Except as set forth on Schedule 3.9(j), (i) no amounts payable under the
Benefit Plans will fail to be deductible for federal income tax purposes by
virtue of section 162(a)(1), 162(m) or 280G of the Code and (ii) all
contributions (including all employer contributions and employee salary
reduction contributions) required to be made to any Benefit Plan by applicable
law or regulation or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any
Benefit Plan, have been timely made or paid in full or, to the extent not
required to be made or paid on or before the date hereof, have been fully
reflected on the financial statements. Each Benefit Plan that is an employee
welfare benefit plan under Section 3(1) of ERISA is either (i) funded through an
insurance company contract and is not a "welfare benefit fund" with the meaning
of Section 419 of the Code or (ii) unfunded.
(k) Except as set forth on Schedule 3.9(k):
(i) there is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its Subsidiaries and
during the past five years there has not been any such action;
(ii) to the knowledge of the Company and any of its Subsidiaries, there are
no union claims to represent the employees of the Company or any of its
Subsidiaries;
(iii) the Company is not a party to or bound by any collective bargaining or
similar agreement with any labor organization, or work rules or practices agreed
to with any labor organization or employee association applicable to employees
of the Company;
(iv) the employees of the Company are not represented by any labor
organization and the Company does not have any knowledge of any current union
organizing activities among the employees of the Company, nor does any question
concerning representation exist concerning such employees;
(v) true, correct and complete copies of all written personnel policies,
rules and procedures applicable to employees of the Company have heretofore been
delivered to the Purchaser;
(vi) the Company is, and has at all times been, in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation;
(vii) there is no unfair labor practice charge or complaint against the
Company pending or, to the knowledge of the Company, threatened before the
National Labor Relations Board or any similar state or foreign agency;
(viii) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure relating to the
Company;
(ix) to the knowledge of the Company, no charges with respect to or relating
to the Company are pending before the Equal Employment Opportunity Commission or
any other agency responsible for the prevention of unlawful employment
practices;
(x) to the knowledge of the Company, no federal, state, local or foreign
agency responsible for the enforcement of labor or employment laws intends to
conduct an investigation with respect to or relating to the Company and no such
investigation is in progress; and
(xi) there are no complaints, controversies, lawsuits or other proceedings
pending or, to the knowledge of the Company, any applicant for employment or
classes of the foregoing alleging breach of any express or implied contract or
employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship. Except as set forth in Schedule 3.9(k)(xi), there
are no employment contracts or severance agreements with any employees of the
Company. The execution of this Agreement and the consummation of the
transactions contemplated hereby shall not result in a breach or other violation
of any collective bargaining agreement to which the Company is a party.
(xii) Since the enactment of the WARN Act, the Company has not effectuated
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company, or (ii) a "mass layoff" (as defined in
the WARN Act) affecting any site of employment or facility of the Company; nor
has the Company been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law. Except as set forth in Schedule 3.9(k)(xii), none
of the employees of the Company has suffered an "employment loss" (as defined in
the WARN Act) with regard to their employment with the Company since March 1,
1995.
Section 3.10 Properties
. Except as otherwise stated in the SEC Documents filed and publicly
available prior to the date hereof, the Company and its Subsidiary have good and
marketable title, free and clear of all liens, encumbrances or claims of which
the Company has knowledge to all of its real and personal property, except where
such liens, encumbrances and equities could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect and, except
as otherwise stated in the SEC Documents filed and publicly available prior to
the date hereof, the Company and its Subsidiary have valid and enforceable
leases to all of the real and personal property described in the SEC Documents
as under lease to it except where such invalidity or unenforceability of such
leasehold interests could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 3.11 Compliance with Law
. The operations of the Company have been conducted in accordance with all
Applicable Laws, including, without limitation, all Applicable Laws relating to
consumer protection, currency exchange, employment (including, without
limitation, equal opportunity and wage and hour), safety and health,
environmental protection, conservation, wetlands, architectural barriers to the
handicapped, fire, zoning and building, occupation safety, pension and
securities, except for violations or failures so to comply, if any, that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as disclosed in the SEC Documents filed and publicly
available prior to the date hereof, the Company has not received notice of any
violation of or noncompliance with any Applicable Laws except for notices of
violations or failures so to comply, if any, that could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect. Except
as disclosed in Schedule 3.11, there are no proposed or pending federal privacy
laws or regulations, nor, to the knowledge of the Company, any proposed or
pending state privacy laws or regulations, which if enacted in the form drafted
as of the First Closing or the Second Closing, as the case may be, would prevent
the Company from pursuing their current line of business or the Trust Advocacy
Business, except in such instances which would not individually or in the
aggregate have a Material Adverse Effect.
Section 3.12 Tax Matters
. Except as set forth in Schedule 3.12:
(a) The Company and its Subsidiary have duly and properly filed, or
will duly and properly file, on a timely basis, all material Tax Returns which
were or will be required to be filed by them for all periods ending on or before
any Closing Date. All such Tax Returns of the Company and its Subsidiary were
(or will be) true, correct and complete in all material respects when filed.
The Company and its Subsidiary have paid all material Taxes required to be paid
by them for periods ending on or before any Closing Date, or with respect to any
period that ends after any Closing Date, the portion of such period up to and
including any Closing Date, other than those Taxes being contested in good faith
or those Taxes currently payable without penalty or interest, in each case for
which an adequate reserve or accrual has been established in the Financial
Statements in accordance with GAAP.
(b) All material Taxes that the Company and its Subsidiary are or were
required by law to withhold or collect through any Closing Date have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Authority. There are no Liens with respect to Taxes upon any of
the properties or assets, real or personal, tangible or intangible, of the
Company and its Subsidiary except for statutory liens for Taxes not yet due or
delinquent.
(c) Neither the Company nor its Subsidiary is currently the beneficiary of
any waivers or extensions with respect to any Tax Returns, no Tax Returns of the
Company are currently under audit or examination by any Governmental Authority
and to the best knowledge of the Company and its Subsidiary, no such audit or
examination is threatened. No issue was raised in any audit or examination of
Tax Returns by any Governmental Authority that, if raised with respect to any
period not so audited or examined, could be expected to result in a proposed
deficiency.
(d) Neither the Company nor its Subsidiary is party to, bound by or has an
obligation under, any Tax allocation, Tax indemnity, or Tax sharing agreement or
similar contract arrangement. Neither the Company nor its Subsidiary (i) has
been a member of an affiliated group filing a consolidated Tax Return (other
than a group the common parent of which was the Company) or (ii) has any
liability for the Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract,
agreement to indemnify or otherwise. Neither the Company nor its Subsidiary has
any obligation by contract, agreement, arrangement or otherwise to permit any
person, other than the Company and its Subsidiary, to use the benefit of a
refund, credit or offset of Tax of any of the Company and its Subsidiary.
(e) Neither the Company nor its Subsidiary has been a United States real
property holding corporation within the meaning of section 897(c)(2) of the Code
during the period specified in section 897(c)(1)(A)(ii) of the Code.
(f) Neither the Company nor its Subsidiary has filed (or will file prior to
any Closing) a consent under section 341(f) of the Code.
Section 3.13 Environmental Matters.
(a) The Company and its Subsidiary are in compliance in all material
respects with all applicable federal, state, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment, including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata, and natural resources (together
"Environmental Laws" and including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic or hazardous substances or wastes,
petroleum and petroleum products, asbestos or asbestos-containing materials,
polychlorinated biphenyls, lead or lead-based paints or materials, or radon
("Materials of Environmental Concern")), or otherwise relating to the
manufacture, generation, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern, or the
preservation of the environment or mitigation of adverse effects thereon and
each law and regulation with regard to record keeping, notification, disclosure,
and reporting requirements respecting Materials of Environmental Concern. Each
of the Company and its Subsidiary possess all permits and other governmental
authorizations required under all applicable Environmental Laws, and is in
compliance in all material respects with the terms and conditions thereof. All
permits and other governmental authorizations currently held by the Company and
its Subsidiary pursuant to the Environmental Laws are identified in Schedule
3.13(a).
(b) Neither the Company nor its Subsidiary has received any communication
(written or oral), whether from a Governmental Authority, citizens group,
employee or otherwise, that alleges that the Company or its Subsidiary are not
in full compliance with any Environmental Laws and, to the best knowledge of the
Company, there are no circumstances that may prevent or interfere with such full
compliance in the future.
(c) There is no claim, action, written or oral notice or cause of action
pending or, to the best knowledge of the Company, any investigation or notice of
violation threatened (together, "Environmental Claim") by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, or release into the
environment, of any Material of Environmental Concern at any location, whether
or not owned or operated by the Company or its Subsidiary or (b) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law, that in either case is pending or threatened against the Company or its
Subsidiary or against any person or entity whose liability for any Environmental
Claim the Company or its Subsidiary has retained or assumed either contractually
or by operation of law.
(d) To the best knowledge of the Company, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that could form the basis of any
Environmental Claim against the Company or its Subsidiary or, to the Company's
or its Subsidiary's best knowledge after due inquiry, against any person or
entity whose liability for any Environmental Claim the Company or its Subsidiary
has retained or assumed either contractually or by operation of law.
(e) Without in any way limiting the generality of the foregoing, (i) there
are no on-site or off-site locations where the Company or its Subsidiary has
(previously or currently) stored, disposed or arranged for the disposal of
Materials of Environmental Concern, (ii) there are no underground storage tanks
located on any property owned, leased, operated or controlled by the Company or
its Subsidiary, (iii) there is no asbestos contained in or forming part of any
building, building component, structure or office space owned, leased, operated
or controlled by the Company or its Subsidiary, and (iv) there are no PCBs or
PCB-containing items are used or stored at any property owned, leased, operated
or controlled by the Company or its Subsidiary.
(f) The Company and its Subsidiary has provided to the Purchasers all
assessments, reports, data, results of investigations or audits, and other
information that is in the possession of or reasonably available to the Company
or its Subsidiary regarding environmental matters pertaining to or the
environmental condition of the business of the Company or its Subsidiary, or the
compliance (or noncompliance) by the Company or its Subsidiary with any
Environmental Laws.
(g) Neither the Company nor its Subsidiary is required by virtue of the
transactions set forth herein and contemplated hereby, or as a condition to the
effectiveness of any transactions contemplated hereby, (i) to perform a site
assessment for Materials of Environmental Concern, (ii) to remove or remediate
Materials of Environmental Concern, (iii) to give notice to or receive approval
from any Governmental Authority, or (iv) to record or deliver to any person or
entity any disclosure document or statement pertaining to environmental matters.
Section 3.14 Enforceability of Contracts; Material Contracts
. Except as set forth on Schedule 3.14, there are no other contracts
material, individually or in the aggregate, to the business, operations,
properties, prospects or financial condition of the Company or its Subsidiary
(collectively, the "Commitments"). To the Company's best knowledge, neither the
Company nor its Subsidiary is in default in respect of any Commitment, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a default, except for any such defaults that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. To the best knowledge of the Company, after due inquiry, no
other party to any of the Commitments is in default in respect thereof, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a default, except for any such defaults that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 3.15 Accuracy of Information
. None of the representations, warranties or statements of the Company
contained in this Agreement or in the exhibits hereto contains any untrue
statement of a material fact or, taken as a whole together with the SEC
Documents, omits to state any material fact necessary in order to make any of
such representations, warranties or statements not misleading.
Section 3.16 Brokers
. Neither the Company nor its Subsidiary or their respective agents and
representatives have incurred any obligation or liability, contingent or
otherwise, for brokerage or finders' fees, agents' commissions, investment
banking fees, or other similar payment in connection with this Agreement.
Section 3.17 Outstanding Indebtedness; Liens.
(a) Schedule 3.17(a) sets forth and identifies in reasonable detail all
individual items of outstanding short-term and long-term Indebtedness of the
Company and its Subsidiary in excess of $25,000 incurred or otherwise not listed
on the most recent financial statement received by the Purchasers, including all
notes issued by the Company or its Subsidiary to finance the acquisition of real
or personal property, prior to and after giving effect to the transactions
contemplated by this Agreement.
(b) Except as set forth on Schedule 3.17(b), there are no Liens outstanding
on the date hereof and there will be no Liens outstanding as of the Closing on
any property or asset of the Company or its Subsidiary.
Section 3.18 Related-Party Transactions.
(a) Except as set forth in the Company's filings under the Exchange
Act,
(i) no employee, officer, stockholder, director or consultant of the
Company or member of his or her immediate family (defined as parents, spouse,
siblings or lineal descendents) is indebted to the Company, and the Company is
not indebted (or committed to make any loans or extend or guarantee any credit)
to any of them;
(ii) to the knowledge of the Company, no employee, officer, stockholder,
director or consultant of the Company has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation that
competes with the Company, except stock ownership by employees, officers,
stockholders or directors of the Company and members of their immediate families
in publicly traded companies; and
(iii) no officer, stockholder or director or any member of their immediate
families is, directly or indirectly, interested in any contract (other than the
Documents) with the Company.
(b) Except for the Documents or as set forth on Schedule 3.18(b), the
Company has not entered into any side letters, agreements or other arrangements
with any existing or prospective stockholder.
Section 3.19 Offering Exemption
. Assuming the truth and accuracy of the Purchaser's representations and
warranties contained in Section 4, the offer and sale of the Series A Preferred
Stock as contemplated hereby and the issuance and delivery to the Purchaser of
the Shares and the shares of Common Stock issuable upon the conversion of the
Shares are exempt from registration under the Securities Act of 1933, as amended
(the "Securities Act"), and under applicable state securities and "blue sky"
laws, as currently in effect.
Section 3.20 Company Status
. The Company is not (i) a "public utility holder company" or a "holding
company" as defined in the Public Utility Holding Company Act of 1935, as
amended, (ii) a "public utility" as defined in the Federal Power Act, as
amended, or (iii) an "investment company" as defined in the Investment Company
Act of 1940, as amended.
Section 3.21 Insurance
. Schedule 3.21 sets forth copies of certificates of all insurance
coverage carried by the Company, identifying the carrier and the amount of
coverage.
Section 3.22 Proprietary Rights.
(a) Except as set forth on Schedule 3.22(a): (i) the Company is the
sole owner, free and clear of any lien or encumbrance, of, or has a valid
license, without the payment of any royalty except with respect to off-the-shelf
software and otherwise on commercially reasonable terms, to all U.S. and foreign
trademarks, service marks, logos, designs, trade names, internet domain names
and corporate names, patents, registered designs, copyrights, computer software
and databases, whether or not registered, web sites and web pages and related
items (and all intellectual property and proprietary rights incorporated
therein) and all other trade secrets, research and development, formulae,
know-how, proprietary and intellectual property rights and information,
including all grants, registration and applications relating thereto
(collectively, the "Proprietary Rights") necessary or advisable for the conduct
of its business as now conducted or as presently proposed to be conducted (such
Proprietary Rights owned by or licensed to the Company collectively, the
"Company Rights"); (ii) the Company has taken, and will take all actions which
are necessary or advisable in order to protect the Company Rights, and to
acquire Proprietary Rights, consistent with prudent commercial practices in the
relevant industry; (iii) the Company's rights in the Company Rights are valid
and enforceable; (iv) the Company has received no demand, claim, notice or
inquiry from any Person in respect of the Company Rights which challenges,
threatens to challenge or inquires as to whether there is any basis to
challenge, the validity of, or the rights of the Company in, any such Company
Rights, and the Company knows of no basis for any such challenge; (v) the
Company is not in violation or infringement of, and has not violated or
infringed, any Proprietary Rights of any other Person; (vi) to the knowledge of
the Company, no Person is infringing any Company Rights; and (vii) except on an
arm's-length basis for value and other commercially reasonable terms, the
Company has not granted any license with respect to any Company Rights to any
Person.
(b) Schedule 3.22(b) contains a complete and accurate description of the
Company Rights material, individually or in the aggregate, to the operation of
the Company's business and all of the material licenses and other agreements
relating thereto.
(c) Except as set forth on Schedule 3.22(c), as of the First Closing, all of
the Company's employees at or above the level of vice president, and all
employees involved in the invention, creation and development of Proprietary
Rights, have executed a proprietary rights and inventions agreement in the form
attached to Schedule 3.22(c) hereof.
Section 3.23 Profitability Analysis.
The Consumer Profitability Analysis does not contain any untrue material
statements or elements nor does it omit a statement or element necessary in
order to make the analysis contained therein, in the light of the circumstances,
not misleading, except that the basis, assumptions, projections, expressions of
opinion and predictions made in connection with such Consumer profitability were
made in good faith and the Company believes that there is a reasonable basis
thereof. It is understood that the Consumer Profitability Analysis is not a
guarantee of future results.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchaser hereby represents and warrants to the Company as follows:
Section 4.1 Authorization; Enforceability; No Violations.
(a) The Purchaser is duly organized and validly existing in good
standing as a partnership under the laws of the State of Delaware and has all
requisite limited partnership power and authority to own its properties and
assets and to carry on its business as it is now being conducted. The Purchaser
has the partnership power to execute, deliver and perform the terms and
provisions of the Documents and has taken all necessary partnership action to
authorize the execution, delivery and performance by it of such Documents and to
consummate the transactions contemplated hereby and thereby. No other
partnership proceedings on the part of such Purchaser is necessary therefor.
(b) The Purchaser has duly executed and delivered this Agreement and, at the
First Closing, will have duly executed and delivered the other Documents to
which it is a party. This Agreement constitutes, and the other Documents to
which the Purchaser is a party, when executed and delivered by the Purchaser,
and, assuming the due execution by the other parties hereto and thereto, will
constitute the legal, valid and binding obligations of the Purchaser,
enforceable against it in accordance with their terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
Section 4.2 Consents
. No consent, authorization or order of, or filing or registration with,
any Governmental Authority or other person is required to be obtained or made by
the Purchaser for the execution, delivery and performance by the Purchaser of
this Agreement or any of the other Documents or the consummation by the
Purchaser of any of the transactions contemplated hereby or thereby other than
(a) those required for the First Closing that will have been made or obtained on
or prior to the First Closing Date and (b) those required for the Second Closing
that will have been made or obtained on or prior to the Second Closing Date, as
the case may be.
Section 4.3 Private Placement.
(a) The Purchaser understands that (i) the offering and sale of the
Securities by the Company to the Purchaser is intended to be exempt from
registration under the Securities Act pursuant to section 4(2) thereof, and (ii)
there is no existing public or other market for the Securities.
(b) The Securities to be acquired by the Purchaser pursuant to this
Agreement are being acquired for its own account and without a view to making a
distribution thereof in violation of the Securities Act, without prejudice,
however, to its right to sell or otherwise dispose of all or any part of such
Securities in compliance with the provisions of the Securities Act and
applicable state securities or "blue sky" laws.
(c) The Purchaser has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and the Purchaser is capable of bearing the
economic risks of such investment, including a complete loss of its investment
in the Securities.
(d) The Purchaser is an "accredited investor," as such term is defined in
Regulation D under the Securities Act.
(e) The Purchaser acknowledges that the Company and, for purposes of the
opinions to be delivered to the Purchaser pursuant to Section 7.2(k) hereof,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ will rely, in part, on the accuracy and truth of its
representations in this Section 4.3, and the Purchaser hereby consents to such
reliance.
(f) The Purchaser has had the opportunity to ask questions of, and receive
answers from, representatives of the Company concerning the Company and the
terms and conditions of this transaction, as well as to obtain any information
requested by the Purchaser. Any questions raised by the Purchaser concerning
the transaction have been answered to the satisfaction of the Purchaser. The
Purchaser's decision to enter into the transactions contemplated hereby is based
in part on the answers to such questions as the Purchaser has raised concerning
the transaction and on the Purchaser's own evaluation of the risks and merits of
the purchase and the Company's proposed business activities.
ARTICLE V.
COVENANTS OF THE COMPANY
Section 5.1 Operation of Business.
(a) From the date hereof until the Second Closing Date (or the earlier
termination of this Agreement pursuant to Section 8.4), except as contemplated
hereby or as consented to in writing by the Purchaser, the Company shall, and
shall cause its Subsidiary to: (i) operate its business in the normal course and
use its reasonable best efforts to preserve its present business organization
intact and its present relationships with persons having material business
dealings with it; and (ii) continue to maintain, in all material respects, its
assets and properties and keep its books in accordance with present practices in
a condition suitable for its current use.
(b) From the date hereof until the Second Closing Date (or the earlier
termination of this Agreement pursuant to Section 8.4), except as provided for
herein, or contemplated hereby, and except as consented to or approved by the
Purchaser, the Company shall not, and shall not permit its Subsidiary to take
any action that would reasonably be expected to cause any of the representations
and warranties made by the Company in this Agreement not to remain true and
correct as if made at and as of each Closing Date.
Section 5.2 Access to Books and Records
. Upon reasonable notice, the Company shall afford, and shall cause its
Subsidiary to afford, to the Purchaser and the Purchaser's accountants, counsel
and representatives full access during normal business hours throughout the
period prior to the Second Closing Date (or the earlier termination of this
Agreement pursuant to Section 8.4) to all the Company's and its Subsidiary's
properties, books, contracts, commitments and records (including, but not
limited to, tax returns) and, during such period, shall furnish promptly to the
Purchaser (a) a copy of each report, schedule and other document filed or
received by the Company or its Subsidiary pursuant to the requirements of
federal or state securities laws, and (b) all other information concerning the
Company's and the Subsidiary's business, properties and personnel as the
Purchaser may reasonably request, provided that no investigation or receipt of
information pursuant to this Section 5.2 shall affect any representation or
warranty of the Company or the conditions to the obligations of the Purchaser,
and except as such information may be obtained by Purchaser from the SEC
Documents.
Section 5.3 Agreement to Take Necessary and Desirable Actions
. The Company shall execute and deliver the Documents and such other
documents, certificates, agreements and other writings and take such other
actions as may be necessary, desirable or reasonably requested by the Purchaser
in order to consummate or implement as expeditiously as practicable the
transactions contemplated hereby.
Section 5.4 Compliance with Conditions; Best Efforts
. The Company shall use its best efforts to cause all of the obligations
imposed upon it in this Agreement to be duly complied with and to cause all
conditions precedent to the obligations of the Company and the Purchaser to be
satisfied. Upon the terms and subject to the conditions of this Agreement, the
Company shall use its best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable
consistent with applicable law to consummate and make effective in the most
expeditious manner practicable the transactions contemplated hereby.
Section 5.5 Consents and Approvals
. The Company shall (a) use its best efforts to obtain all necessary
consents, waivers, authorizations and approvals of all Governmental Authorities
and of all other persons, firms or corporations required in connection with the
execution, delivery and performance by them of this Agreement, any other
Document or any of the transactions contemplated hereby or thereby, and (b)
diligently assist and cooperate with the Purchaser in preparing and filing all
documents required to be submitted by the Purchaser to any Governmental
Authority in connection with such transactions and in obtaining any governmental
consents, waivers, authorizations or approvals which may be required to be
obtained by the Purchaser in connection with such transactions (which assistance
and cooperation shall include, without limitation, timely furnishing to the
Purchaser all information concerning the Company and its Subsidiary that counsel
to the Purchaser reasonably determines is required to be included in such
documents or would be helpful in obtaining any such required consent, waiver,
authorization or approval).
Section 5.6 Tax Treatment of Preferred Stock
. The Company covenants and agrees not to take any action inconsistent
with the Series A Preferred Stock being considered common stock for U.S. Federal
income tax purposes.
Section 5.7 HSR Act Filings
. As promptly as practicable after the date hereof but in any event no
later than 10 days thereafter, the Company shall file all reports and documents
as may be necessary to comply with the HSR Act. The Company shall cooperate
with and assist the Purchaser and take such action as may be reasonably required
and as permitted under law in connection with such filings (including
cooperating with additional requests for information, documents and interviews
of officers and personnel by either of the antitrust enforcement agencies).
Section 5.8 RESERVED.
Section 5.9 Use of Proceeds
. The Company shall use the proceeds from the sale of Shares hereunder for
continued product development, growth of its sales organization, working
capital, acquisition of technology assets as appropriate and other general
corporate purposes.
Section 5.10 New Option Plan; Awards
. At its next regularly scheduled annual meeting or at such earlier time
as determined by a majority of the Board of Directors, the Company shall use
reasonable efforts to have its holders of Securities approve (i) amendments to
each of the Amended and Restated 1998 Stock Incentive Plan (the "1998 Plan") and
the 2000 Stock Incentive Plan (the "2000 Plan") that authorize the issuance of
an additional 6,500,000 and 1,000,000 shares of Common Stock under the 1998 Plan
and 2000 Plan, respectively, and (ii) certain other changes necessary to
authorize the awards of new options and the inclusion of competition option claw
backs. The Company shall recommend to the Board of Directors and use reasonable
efforts to facilitate the granting of such awards by the Board of Directors (or
the Compensation Committee thereof) to the persons listed on Schedule 5.10 in
such forms as shall be approved by the Board of Directors. Any additional
awards under the 1998 Plan and 2000 Plan shall be approved by the Board of
Directors, subject to the approval of the members thereof nominated by the
Purchaser.
Section 5.11 Director and Officer Insurance; "Key Man" Life Insurance
. The Company has provided and will maintain, and the Purchaser have
received copies of current and effective liability insurance policies, which
provide coverage for the directors and officers of the Company with respect to
any liabilities reasonably incurred in connection with their services for or on
behalf of the Company. The Company will maintain "key man" life insurance on
the life of ▇▇▇▇▇ ▇. ▇▇▇▇▇ in the amount of five million dollars ($5,000,000),
such policy shall be owned by the Company and shall name the Company as
beneficiary and loss payee and shall not be cancelable by the Company without
prior approval of the Board of Directors, including the approval of the members
thereof nominated by the Purchaser.
Section 5.12 Company Insurance
. Within sixty (60) days after the Closing Date the Company shall procure
and maintain insurance in such amounts (to the extent available in the public
market), including (as applicable) self-insurance, retainage and deductible
arrangements, and of such a character as is reasonable for companies engaged in
the same or similar business similarly situated.
Section 5.13 Agreements with Employees
. The Company shall require the execution of a proprietary information and
assignment of inventions agreement ("Proprietary Rights Agreement"), in the form
attached as Exhibit C hereto by all of the Company's employees at or above the
level of vice president, and other employees involved in the invention, creation
or development of Proprietary Rights, proprietary information and assignment of
inventions agreement.
Section 5.14 Maintenance of Existence
. The Company shall maintain in full force and effect its corporate
existence, rights, governmental approvals and franchises and all licenses and
other rights to use patents, processes, trademarks, trade names or copyrights
owned or possessed by it and deemed by it to be material to the conduct of its
business.
Section 5.15 Books and Records
. The books of account and other financial and corporate records of the
Company shall be maintained in accordance with good business and accounting
practices.
Section 5.16 Reservation of Common Stock
. From and after the Closing Date, the Company shall at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issue or delivery upon conversion of the Series A Preferred Stock,
the maximum number of shares of Common Stock that may be issuable or deliverable
upon such conversion. Such shares of Common Stock are or will be duly
authorized and, when issued or delivered in accordance with the Certificate of
Designation and against payment therefor, shall be validly issued, fully paid
and non-assessable. The Company shall issue such shares of Common Stock in
accordance with the terms of the Certificate of Designation and otherwise comply
with the terms hereof and thereof.
Section 5.17 Compliance with Law
. The operations of the Company will continue to be conducted in
accordance with all Applicable Laws, including, without limitation, all
Applicable Laws relating to consumer protection, currency exchange, employment
(including, without limitation, equal opportunity and wage and hour), safety and
health, environmental protection, conservation, wetlands, architectural barriers
to the handicapped, fire, zoning and building, occupation safety, pension and
securities, except for violations or failures so to comply, if any, that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 5.18 Board Meetings
. A meeting of the Company's Board of Directors shall be held at least
once per month, unless otherwise agreed by a majority of directors who are not
employees of the Company.
Section 5.19 Recapitalization
. The Company will use reasonable efforts to present to its stockholders at or
prior to the next Annual Meeting of Stockholders a proposal to amend the
Certificate of Incorporation of the Company to increase the authorized number of
shares of Common Stock of the Company to a number sufficient to allow fully (i)
the conversion of all authorized shares of Series A Preferred Stock, which may
be issued in connection with the Second Closing (including all dividends which
may accumulate with respect thereto), and (ii) the issuance of all shares of
Common Stock pursuant to then existing option plans of the Company (the
"Recapitalization").
ARTICLE VI.
COVENANTS OF THE PURCHASER
Section 6.1 Agreement to Take Necessary and Desirable Actions
. The Purchaser agrees to execute and deliver each of the Documents and
such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary, desirable or reasonably requested by the
Company in order to consummate or implement as expeditiously as practicable the
transactions contemplated hereby.
Section 6.2 Compliance with Conditions; Commercially Reasonable Efforts
. The Purchaser will use its commercially reasonable efforts to cause all
of the obligations imposed upon it in this Agreement to be duly complied with,
and to cause all conditions precedent to the obligations of the Company and the
Purchaser to be satisfied. Upon the terms and subject to the conditions of this
Agreement, the Purchaser shall use its best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable consistent with Applicable Law to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
Section 6.3 HSR Act Filings
. As promptly as practicable after the date hereof but in any event no
later than ten (10) days thereafter, the Purchaser shall file all reports and
documents as may be necessary to comply with the HSR Act. The Purchaser shall
cooperate with and assist the Company and take such action as may be reasonably
required and as permitted under law in connection with such filings (including
cooperating with additional requests for information, documents and interviews
of officers and personnel by either of the antitrust enforcement agencies).
Section 6.4 Confidential Information
. The Purchaser acknowledges that the information being provided under
Section 5.2 may be material non-public information and the Purchaser hereby
covenants and agrees to keep, and cause its representatives to keep,
confidential any information identified by the Company as confidential, in a
writing delivered to the Purchaser unless (a) such information becomes generally
available to the public (other than as a result of a breach of this provision by
the Purchaser), (b) such information was available to the Purchaser on a
non-confidential basis from a source (other than the Company or its
representatives) that, to the Purchaser's knowledge, is not and was not
prohibited from disclosing such information to the Purchaser by a contractual,
legal or fiduciary obligation or (c) the Purchaser is required by law to
disclose such information; provided, that in an event specified in clause (c),
the Purchaser shall provide the Company with prompt prior written notice of such
required disclosure, the Purchaser shall disclose only that portion of the
confidential information that the Purchaser is advised by counsel is legally
required, and the Purchaser shall exercise reasonable efforts to obtain
assurance that confidential treatment will be accorded such information. The
Purchaser agrees that it will comply, and will cause its representatives to
comply, with all U.S. securities laws applicable to the receipt of material
non-public information and restrictions on trading in securities when in
possession of such information. The Purchaser agrees not to use any
confidential information in violation of any law.
Section 6.5 Purchaser Voting
. If necessary, when stockholder approval is sought, the Purchaser hereby
agrees to vote its Shares in favor of the New Option Plan.
ARTICLE VII.
CONDITIONS PRECEDENT TO CLOSING
Section 7.1 Conditions to the Company's Obligations
. The obligations of the Company hereunder required to be performed on
each Closing Date with respect to the Purchaser shall be subject, at its
election, to the satisfaction or waiver (which waiver, if so requested by the
Purchaser, shall be made in writing), at or prior to the Closing occurring on
such Closing Date, of the following conditions:
(a) The representations and warranties of the Purchaser contained in
this Agreement shall be true and correct in all material respects on and as of
such Closing Date, except with respect to the Second Closing at which time such
representations and warranties may be amended by the Purchaser as set forth in a
schedule to be provided by the Purchaser.
(b) The Purchaser shall have performed in all material respects all
obligations and agreements, and complied in all material respects with all
covenants, contained in this Agreement, to be performed and complied with by the
Purchaser such at or prior to such Closing Date.
(c) All governmental and regulatory approvals and clearances and all
third-party consents necessary for the consummation of the transactions
contemplated at such Closing shall have been obtained and shall be in full force
and effect, excluding, in the case of the First Closing only, expiration of the
applicable waiting period under the HSR Act with respect to Shares to be
purchased at the Second Closing, and the Company shall be reasonably satisfied
that the consummation of such transactions does not and will not contravene any
Applicable Law, except to the extent any contravention or contraventions,
individually or in the aggregate, could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 7.2 Conditions to The Purchaser's Obligations
. The obligations of the Purchaser hereunder required to be performed at
each Closing shall be subject, at its election, to the satisfaction or waiver
(which waiver, if so requested by the Company, shall be made in writing), at or
prior to the Closing, or in the case of the conditions specified in Section
7.2(o) below, prior to the Second Closing, of the following conditions:
(a) The representations and warranties of the Company made herein shall
be true and correct in all material respects (disregarding, for purposes of such
determination of materiality, all qualifications in such representations and
warranties regarding "material") as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except that
representations and warranties made herein that by their terms speak as of the
date of this Agreement or some other date shall be true and correct only as of
such date).
(b) The Company shall have performed in all material respects all
obligations and agreements, and complied in all material respects with all
covenants, contained in this Agreement, to be performed and complied with by it
at or prior to such Closing Date.
(c) Effective immediately prior to the First Closing, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇ will resign as Co-Chairmen of the Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall
resign as a director of the Company. Effective immediately after the First
Closing, the Company's Board of Directors shall consist of not more than seven
(7) directors, who shall be ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇.
(d) All documents, instruments, agreements and arrangements relating to the
transactions contemplated by the Documents shall be satisfactory to the
Purchaser, shall have been executed and delivered by the parties thereto and no
party to any of the foregoing (other than the Purchaser) shall have breached
any of its material obligations thereunder.
(e) (i) Since December 31, 1999, no change, occurrence or development shall
have occurred, been threatened or become known to the Purchaser that could
reasonably be expected to have a Material Adverse Effect on the business,
operations, prospects, properties or condition (financial or other) of the
Company and its Subsidiary, taken as a whole, which, in the reasonable judgment
of the Purchaser, is or may be materially adverse to the Company and its
Subsidiary, taken as a whole, and (ii) the Purchaser shall not have become aware
of any information or other matter relating to the Company (x) of which the
Company (but not the Purchaser) had knowledge on or prior to the date of this
Agreement, (y) that, in the Purchaser's reasonable judgement, is inconsistent
with any information or other matter relating to the Company disclosed to the
Purchaser by the Company or any of its representatives prior to the date of this
Agreement, and (z) would have been viewed by the Purchaser, in its reasonable
judgment, as having materially and adversely altered the total mix of
information made available to the Purchaser prior to the date of this Agreement.
For purposes of this Section 7.2(e), the Company shall be deemed to have
"knowledge" of a particular fact or other matter if (I) any individual who is
serving, or who has at any time served, as a director, officer or
management-level employee of the Company is actually aware of such fact or other
matter; or (II) a prudent individual serving as a director, officer or
management-level employee of the Company could be expected to discover or
otherwise become aware of such fact or other matter in the diligent exercise of
his or her duties in such capacity.
(f) Since December 31, 1999, the business of the Company shall have been
operated in compliance with all Applicable Laws, except where the failure to do
so could not reasonably be expected to have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole.
(g) There shall be no litigation, proceeding or other action seeking an
injunction or other restraining order, damages or other relief from a
Governmental Authority or other Person pending or threatened which, in the
reasonable judgment of such Purchaser, would materially adversely affect the
consummation of the transactions contemplated by the Documents on the terms
contemplated hereby and thereby and there shall be no litigation, proceeding or
other action (including, without limitation, relating to environmental matters
or the Benefit Plans) pending or threatened against the Company or its
Subsidiary which could, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(h) The procurement and maintenance of "key man" life insurance on the life
of ▇▇▇▇▇ ▇▇▇▇▇ in the amount of Five Million Dollars ($5,000,000).
(i) All governmental and regulatory approvals and clearances and all
third-party consents necessary for the consummation of all of the transactions
contemplated at such Closing shall have been obtained and shall be in full force
and effect, excluding, in the case of the First Closing only, expiration of the
applicable waiting period under the HSR Act with respect to Shares to be
purchased at the Second Closing, and the Purchaser shall be reasonably satisfied
that the consummation of such transactions does not and will not contravene any
Applicable Law, except to the extent any contravention or contraventions,
individually or in the aggregate, could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(j) The Company shall have delivered to the Purchaser a certificate,
executed by it or on its behalf by a duly authorized representative, dated as of
such Closing Date, certifying that each of the conditions (other than any
condition the fulfillment of which is subject to the reasonable satisfaction of
such Purchaser) specified in this Section 7.2 has been satisfied.
(k) ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel to the Company, and ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Finger,
special Delaware counsel to the Company, each shall have delivered to the
Purchaser an opinion, dated as of such applicable Closing Date, addressed to the
Purchaser, substantially in the form attached hereto as Exhibit D-1 and Exhibit
D-2, respectively.
(l) Each of the Company, the Purchaser and KL shall have executed and
delivered each of the Documents, as applicable.
(m) The Company shall have filed the Certificate of Designations in
compliance with Section 2.1(a).
(n) The Board of Directors shall have approved, subject to stockholder
approval at the next annual meeting, the amendments to the 1998 Plan and the
2000 Plan described in Section 5.10 hereof.
(o) The Company shall have amended its bylaws to conform with the
Certificate of Designations.
(p) In addition, in the case of the Second Closing only,
(i) The Purchaser shall have purchased the 3,500,000 shares of Common
Stock pursuant to the KL Purchase Agreement.
(ii) The Consumer Business shall have achieved Consumer Profitability.
(iii) The First Closing shall have occurred.
(iv) Since the First Closing, no events described in Sections 7.2(e), 7.2(f)
and 7.2(g) above shall have occurred.
(v) The New Option Plan shall have been approved pursuant to Section 5.10.
(vi) The proposed Recapitalization shall have been approved by the
stockholders of the Company and the Certificate of Incorporation of the Company
shall have been amended to give effect to the Recapitalization.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1 Survival; Indemnification.
(a) All representations, warranties, covenants and agreements (except
covenants and agreements which are expressly required to be performed and are
performed in full on or before a Closing Date) contained in this Agreement shall
be deemed made at each Closing as if made at such time and shall survive such
Closing for two years, except that (i) with respect to claims asserted pursuant
to this Section 8.1 before the expiration of the applicable representation or
warranty, such claims shall survive until the date they are finally liquidated
or otherwise resolved, (ii) Sections 3.9, 3.12 and 3.13 shall survive until the
end of the applicable statute of limitations, and (iii) Section 3.2 and this
Section 8.1 shall survive indefinitely. All statements as to factual matters
contained in any certificate executed and delivered by the parties pursuant
hereto shall be deemed to be representations, warranties and covenants by such
party hereunder. No claim may be commenced under this Section 8.1 (or
otherwise) following expiration of the applicable period of survival, and upon
such expiration the Indemnifying Party shall be released from all liability with
respect to claims under each such section not theretofore made by the
Indemnified Party. No right of indemnity against any claim of a third party
shall arise from any representation, warranty or covenant of an Indemnifying
Party herein contained, unless such third-party claim is filed or lodged against
the Indemnified Party on or prior to the expiration of the applicable period of
survival provided above, and all other conditions hereunder are satisfied. A
claim shall be made or commenced hereunder by the Indemnified Party delivering
to the Indemnifying Party a written notice specifying in reasonable detail the
nature of the claim, the amount claimed (if known or reasonably estimable), and
the factual basis for the claim.
(b) (i) The Company agrees to indemnify and hold harmless the Purchaser and
its partners, Affiliates, officers, directors, employees and duly authorized
agents and each of their affiliates and each other person controlling the
Purchaser or any of their Affiliates within the meaning of either section 15 of
the Securities Act or section 20 of the Exchange Act and any partner of any of
them from and against all losses, claims, damages or liabilities resulting from
any claim, lawsuit or other proceeding by any person to which any party
indemnified under this clause may become subject which is related to or arises
out of (A) the transactions contemplated by this Agreement and the other
Documents, whether or not consummated, (B) any breach of, or failure to perform
any of the representations, warranties, covenants or agreements made in any of
the Documents by the Company or (C) any action or omission of the Company or its
Subsidiary in connection with the transactions contemplated hereby or by the
other Documents, and will reimburse each of the Purchasers and any other party
indemnified under this clause for all reasonable out-of-pocket expenses
(including reasonable counsel fees and disbursements) incurred by the Purchaser
or any such other party indemnified under this clause and further agrees that
the indemnification and reimbursements commitments herein shall apply whether or
not the Purchaser or any such other party indemnified under this clause is a
formal party to any such lawsuits, claims or other proceedings. The foregoing
provisions are expressly intended to cover reimbursement of legal and other
expenses incurred in a deposition or other discovery proceeding. (ii)
Notwithstanding the foregoing clause (i), the Company shall not be liable to any
party otherwise entitled to indemnification pursuant thereto: (A) in respect of
any loss, claim, damage, liability or expense to the extent the same is
determined, in final judgment by a court having jurisdiction, to have resulted
from the gross negligence or willful misconduct of such party or (B) for any
settlement effected by such party without the written consent of the Company,
which consent shall not be unreasonably withheld or delayed.
(c) If a person entitled to indemnity hereunder (an "Indemnified Party")
asserts that any party hereto (the "Indemnifying Party") has become obligated to
the Indemnified Party pursuant to Section 8.1(b), or if any suit, action,
investigation, claim or proceeding is begun, made or instituted as a result of
which the Indemnifying Party may become obligated to the Indemnified Party
hereunder, the Indemnified Party agrees to notify the Indemnifying Party
promptly and to cooperate with the Indemnifying Party, at the Indemnifying
Party's expense, to the extent reasonably necessary for the resolution of such
claim or in the defense of such suit, action or proceeding, including making
available any information, documents and things in the possession of the
Indemnified Party which are reasonably necessary therefor.
Notwithstanding the foregoing notice requirement, the right to
indemnification hereunder shall not be affected by any failure to give, or delay
in giving, notice unless, and only to the extent that, the rights and remedies
of the Indemnifying Party shall have been materially prejudiced as a result of
such failure or delay.
(d) In fulfilling its obligations under this Section 8.1, after
providing each Indemnified Party with a written acknowledgment of any liability
under this Section 8.1 as between such Indemnified Party and the Indemnifying
Party, the Indemnifying Party shall have the right to investigate, defend,
settle or otherwise handle, with the aforesaid cooperation, any claim, suit,
action or proceeding brought by a third party in such manner as the Indemnifying
Party may in its sole discretion deem appropriate; provided, however, that (i)
counsel retained by the Indemnifying Party is reasonably satisfactory to the
Indemnified Party and (ii) the Indemnifying Party will not consent to any
settlement imposing any obligations on any other party hereto, unless such party
has consented in writing to such settlement. Notwithstanding anything to the
contrary contained herein, the Indemnifying Party may retain one firm of counsel
to represent all Indemnified Parties in such claim, action or proceeding;
provided, however, that in the event that the defendants in, or targets of, any
such claim, action or proceeding include more than one Indemnified Party, and
any Indemnified Party shall have reasonably concluded, based on the opinion of
its own counsel, that there may be one or more legal defenses available to it
which are in conflict with those available to any other Indemnified Party, then
such Indemnified Party may employ separate counsel to represent or defend it or
any other person entitled to indemnification and reimbursement hereunder with
respect to any such claim, action or proceeding in which it or such other person
may become involved or is named as defendant and the Indemnifying Party shall
pay the reasonable fees and disbursement of such counsel. Notwithstanding the
Indemnifying Party's election to assume the defense or investigation of such
claim, action or proceeding, the Indemnified Party shall have the right to
employ separate counsel at the expense of the Indemnifying Party and to direct
the defense or investigation of such claim, action or proceeding if (A) in the
written opinion of counsel to the Indemnified Party, use of counsel of the
Indemnifying Party's choice could reasonably be expected to give rise to a
conflict of interest, or (B) the Indemnifying Party shall not have employed
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party within a reasonable time (as determined in the light of the
facts and circumstances surrounding such event), but in no event shall such time
exceed twenty (20) Business Days, after notice of the assertion of any such
claim or institution of any such action or proceeding. In all other situations,
the Indemnified Party shall have the right to participate in the defense or
investigation of such claim, action or proceeding if the Indemnifying Party
shall authorize the Indemnified Party to employ separate counsel at the
Indemnifying Party's expense or if the fees and expenses of counsel for the
Indemnified Party shall be borne by the Indemnified Party.
(e) If for any reason (other than the gross negligence or willful misconduct
referred to in subclause (b)(ii) above) the foregoing indemnification by the
Company is unavailable to any Indemnified Party or is insufficient to hold it
harmless as and to the extent contemplated by subclauses (b), (c) and (d) above,
then the Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative benefits received by the
Company and its Affiliates, on the one hand, and the Purchasers and any other
applicable Indemnified Party, as the case may be, on the other hand, as well as
any other relevant equitable considerations.
Section 8.2 Notices
. All notices, demands, requests, consents, approvals or other
communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and shall be personally served, delivered by a reputable air courier service
with tracking capability, with charges prepaid, or transmitted by hand delivery
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice. Notice shall be
deemed given on the date of service or transmission if personally served or
transmitted by facsimile. Notice otherwise sent as provided herein shall be
deemed given on the next business day following delivery of such notice to a
reputable air courier service.
If to the Company, to it at:
US ▇▇▇▇▇▇.▇▇▇ Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser:
Pequot Private Equity Fund II, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Accounting Officer and
▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 8.3 Governing Law
. This Agreement and the rights and obligations of the parties hereunder
shall be governed by, and construed in accordance with, the laws of the State of
New York, including without limitation, sections 5-1401 and 5-1402 of the New
York General Obligations Law and New York Civil Practice Laws and Rules 327(b),
and each party hereto submits to the non-exclusive jurisdiction of the state and
federal courts within the County of New York in the State of New York.
Section 8.4 Termination
. This Agreement may be terminated (i) by mutual agreement of the parties
at any time prior to the Second Closing Date, or (ii) if the Second Closing
shall not have occurred on or prior to September 7, 2001, by the Company or the
Purchaser (but only with respect to such Purchaser's obligations hereunder),
unless the failure of such occurrence shall be due to the failure of the party
seeking to terminate the Agreement to perform or observe any material covenant
or agreement, or an event which shall cause a material breach of any
representation or warranty of such party set forth herein to occur on or prior
to the Second Closing Date, set forth herein required to be performed or
observed by such party on or before the date of Closing or (iii) by the Company
or the Purchaser (in each case if not in breach of any of its material
obligations, representations or warranties hereunder) in the event of a breach
or failure by the other party that is material in the context of the
transactions contemplated hereby of any representation, warranty, covenant or
agreement by such party contained herein that has not been or cannot be cured or
otherwise corrected within ten (10) Business Days after written notice of such
failure or event has been given. Termination pursuant to the foregoing clauses
(i) or (ii) notwithstanding, Sections 8.1 and 8.10 hereof shall remain in
effect.
Section 8.5 Entire Agreement
. This Agreement (including all agreements entered into pursuant hereto
and all certificates and instruments delivered pursuant hereto and thereto)
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements,
representations, understandings, negotiations and discussions between the
parties or their Affiliates, whether oral or written, with respect to the
subject matter hereof, including, without limitation, the Letter Agreements.
Section 8.6 Modifications and Amendments
. No amendment, modification or termination of this Agreement shall be
binding upon any other party unless executed in writing by the parties hereto
intending to be bound thereby.
Section 8.7 Waivers and Extensions
. Any party to this Agreement may waive any right, breach or default which
such party has the right to waive, provided that such waiver will not be
effective against the waiving party unless it is in writing, is signed by such
party, and specifically refers to this Agreement. Waivers may be made in
advance or after the right waived has arisen or the breach or default waived has
occurred. Any waiver may be conditional. No waiver of any breach of any
agreement or provision herein contained shall be deemed a waiver of any
preceding or succeeding breach thereof nor of any other agreement or provision
herein contained. No waiver or extension of time for performance of any
obligations or acts shall be deemed a waiver or extension of the time for
performance of any other obligations or acts.
Section 8.8 Titles and Headings
. Titles and headings of sections of this Agreement are for convenience
only and shall not affect the construction of any provision of this Agreement.
Section 8.9 Exhibits and Schedules
. Each of the annexes, exhibits and schedules referred to herein and
attached hereto is an integral part of this Agreement and is incorporated herein
by reference.
Section 8.10 Expenses; Brokers
. Provided that the First Closing shall have occurred, the Company shall
pay or cause to be paid, all reasonable and documented out-of-pocket fees and
expenses incurred by the Purchaser and their respective Affiliates for each
Closing, and in connection with the transactions contemplated by this Agreement,
the other Documents and all matters related thereto (including, without
limitation, HSR Act filing fees arising from a transaction contemplated by any
Document, and reasonable fees and disbursements of counsel and consultants).
Notwithstanding the foregoing, the Company shall pay the filing fees (and other
related costs and expenses) relating to the HSR Act filing filed in connection
with KL's sale of Common Stock to the Purchaser. Each of the parties represents
to the others that neither it nor any of its Affiliates has used a broker or
other intermediary, in connection with the transactions contemplated by this
Agreement for whose fees or expenses any other party will be liable and
respectively agrees to indemnify and hold the others harmless from and against
any and all claims, liabilities or obligations with respect to any such fees or
expenses asserted by any person on the basis of any act or statement alleged to
have been made by such party or any of its Affiliates.
Section 8.11 Press Releases and Public Announcements
. All press releases and similar public announcements relating to the
transactions contemplated by the Documents shall be made only if mutually agreed
upon by the Company and the Purchaser, except to the extent that such disclosure
is, in the opinion of counsel, required by law or by stock exchange regulation;
provided that any such required disclosure shall only be made, to the extent
consistent with law, after consultation with the Purchaser.
Section 8.12 Assignment; No Third Party Beneficiaries
. This Agreement and the rights, duties and obligations hereunder may not
be assigned or delegated by either the Company or the Purchaser without the
prior written consent of the other parties hereto; provided that the Purchaser
may assign or delegate its rights, duties and obligations hereunder to a
Permitted Transferee or to such other person as may be reasonably satisfactory
to the Company. Except as provided in the preceding sentence, any assignment or
delegation of rights, duties or obligations hereunder made without the prior
written consent of the other parties hereto shall be void and of no effect.
This Agreement and the provisions hereof shall be binding upon and shall inure
to the benefit of each of the parties and their respective successors and
permitted assigns. This Agreement is not intended to confer any rights or
benefits on any persons that are not party hereto other than as expressly set
forth in Sections 8.1 and 8.12.
Section 8.13 Severability
. This Agreement shall be deemed severable, and the invalidity or
unenforceability of any term or provision hereof shall not affect the validity
or enforceability of this Agreement or of any other term or provision hereof.
Furthermore, in lieu of any such invalid or unenforceable term or provision, the
parties hereto intend that there shall be added as a part of this Agreement a
provision as similar in terms to such invalid or unenforceable provision as may
be possible and be valid and enforceable.
Section 8.14 Counterparts; Facsimile
. This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same instrument. All documents and closing deliveries for the
transactions contemplated by this Agreement and the other Documents may be
delivered by a party at the Closing via facsimile; provided, that, the
originally executed signature pages and original documents are delivered to the
appropriate parties within two (2) business days following the Closing.
Section 8.15 Further Assurances
. Each party hereto, upon the request of any other party hereto, shall do
all such further acts and execute, acknowledge and deliver all such further
instruments and documents as may be necessary or desirable to carry out the
transactions contemplated by this Agreement, including, in the case of the
Company, such acts, instruments and documents as may be necessary or desirable
to convey and transfer to each Purchaser the Shares to be purchased by it
hereunder.
Section 8.16 Remedies Cumulative
. The remedies provided herein shall be cumulative and shall not preclude
the assertion by any party hereto of any other rights or the seeking of any
remedies against the other party hereto.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
US ▇▇▇▇▇▇.▇▇▇ INC.
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
PEQUOT PRIVATE EQUITY FUND II, L.P.
By: Pequot Capital Management, Inc.
its Investment Manager
By: /s/ ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
Title: General Counsel
Address for Notice:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Accounting Officer and
▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Nominee (if different than name of Purchaser):
Shares to be Purchased at First Closing (out of total 100,000)
Price Per Purchase
Share Price
100,000 shares of Series A Preferred Stock $100 $10,000,000
Shares to be Purchased at Second Closing (out of total 100,000)
Price Per Purchase
Share Price
100,000 shares of Series A Preferred Stock $100 $10,000,000
Schedule I
SCHEDULE I
CONSUMER PROFITABILITY ANALYSIS
Exhibit A - 1
EXHIBIT A
FORM OF INVESTORS' RIGHTS AGREEMENT
EXHIBIT B
CERTIFICATE OF DESIGNATIONS