Exhibit 10.1
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STOCK PURCHASE AGREEMENT
by and between
INTERWORLD CORPORATION
and
J NET ENTERPRISES, INC.
Dated as of January 25, 2001
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
January 25, 2001, by and between InterWorld Corporation, a Delaware corporation,
with headquarters located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇-▇▇▇▇ (the "COMPANY"), and J Net Enterprises, Inc., a Nevada corporation,
with headquarters located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, # ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇ ("J NET").
WHEREAS, J Net owns beneficially and of record 3,200,00 shares of
Series A Convertible Preferred Stock of the Company (the "PREFERRED STOCK") and
a warrant (the "J NET WARRANT" and, together with the Preferred Stock and any
additional shares of Preferred Stock issued to J Net as dividends thereon, the
"SECURITIES") to purchase additional shares of common stock, par value $.01 per
share, of the Company ("COMMON STOCK"); and
WHEREAS, the Company has agreed to offer to its shareholders up to
thirty million seven hundred sixty-nine thousand two hundred thirty-one
(30,769,231) shares of Common Stock (the "RIGHTS OFFERING") at an offering price
of sixty-five cents ($0.65) per share (the "OFFERING PRICE") for an aggregate
offering amount of approximately twenty million dollars ($20,000,000); and
WHEREAS, J Net has agreed to participate in the Rights Offering as a
stand-by purchaser for all of the shares offered in the Rights Offering up to
twenty million dollars ($20,000,000) and the Company has agreed to grant J Net
an option to purchase up to an additional twenty million dollars ($20,000,000)
of Common Stock (the "OVERALLOTMENT OPTION"), each as pursuant to the terms set
forth in the Stand-By Purchase Agreement in the form attached hereto as EXHIBIT
A (the "STAND-BY PURCHASE AGREEMENT");
WHEREAS, the Company desires to purchase the Securities from J Net,
and J Net desires to sell to the Company, the Securities, on the terms and
subject to the conditions contained herein (the "CONVERSION"); and
WHEREAS, the parties hereto intend to treat the Conversion as a
recapitalization within the meaning of Section 368(a)(1)(E) of the Internal
Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the promises and of the
respective representations, warranties, covenants, agreements and conditions
contained herein, each of the parties hereto agrees as follows:
ARTICLE I
PURCHASE AND SALE OF THE SECURITIES
Section 1.1 PURCHASE AND SALE. At the Closing on the Closing Date
(each as defined in SECTION 1.3) and in accordance with the provisions of this
Agreement, the Company shall
purchase from J Net, and J Net shall sell to the Company, all, but not less than
all, of the Securities, against receipt by J Net of the consideration set forth
in SECTION 1.2 below.
Section 1.2 PAYMENT OF CONSIDERATION; DELIVERY OF SECURITIES. At the
Closing on the Closing Date, (i) the Company shall issue to J Net forty-six
million one hundred fifty-three thousand eight hundred forty-six (46,153,846)
shares of Common Stock (the "CONVERSION SHARES") as consideration for the
Conversion, and (ii) J Net shall deliver to the Company, against receipt of the
certificate(s) evidencing the Conversion Shares, certificate(s) representing all
of the Securities, duly endorsed for transfer, or accompanied by duly executed
stock powers, with the signatures of each of the record owners appropriately
witnessed and notarized in a manner acceptable to the Company. Upon surrender of
the Securities to the Company in connection with the Conversion contemplated
herein, all rights and interests relating to the Securities, including any
accrued and unpaid dividends, shall be cancelled. The issuance and resale of
such Conversion Shares shall be registered under the Securities Act of 1933, as
amended (the "SECURITIES ACT") pursuant to the provisions set forth in SECTION
4.13.
Section 1.3 CLOSING. The closing of the Conversion (the "CLOSING")
shall take place at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 10:00 A.M. New York City time on (a) the earlier to
occur of (i) the closing of the Rights Offering or (ii) July 31, 2001 or, at J
Net's option, (b) such earlier time and date as J Net shall decide in its sole
discretion; PROVIDED, in each instance, that all conditions set forth in SECTION
5.1(A) through (D), SECTION 5.1(E)(I), SECTION 5.2 and SECTION 5.3 shall have
been fulfilled or waived (other than conditions that by their nature are
required to be performed or satisfied on the Closing Date, but subject to the
satisfaction of such conditions) (such date as the Closing occurs, the "CLOSING
DATE").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections or subsections of
the Company Disclosure Schedule, dated as of the date hereof, delivered by the
Company to J Net (the "COMPANY DISCLOSURE SCHEDULE") or in the Company SEC
Reports (as defined in SECTION 2.5), the Company represents and warrants to J
Net as follows:
Section 2.1 ORGANIZATION AND QUALIFICATION. The Company and each of
its subsidiaries (as defined below) is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of existence, has all requisite corporate power and authority, and
has been duly authorized by all necessary approvals and orders, to own, lease
and operate its assets and properties to the extent owned, leased and operated
and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction in which the nature of
its business or the ownership or leasing of its assets and properties makes such
qualification necessary, other than in such jurisdictions where the failure to
be so qualified and in good standing would not, when taken together with all
other such failures, reasonably be expected to have a material adverse effect on
the business, properties, condition (financial or otherwise), prospects (other
than effects that are the result of general economic changes or
industry-specific risks) or results of operations of the Company and its
subsidiaries taken as a whole or to prevent or materially delay the
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consummation of the transactions contemplated by this Agreement (any such
material adverse effect being hereafter referred to as a "COMPANY MATERIAL
ADVERSE EFFECT"). As used in this Agreement, the term "SUBSIDIARY" of a person
shall mean any corporation or other entity (including partnerships and other
business associations) of which a majority of the outstanding capital stock or
other voting securities having voting power under ordinary circumstances to
elect directors or similar members of the governing body of such corporation or
entity shall at the time be held, directly or indirectly, by such person. True,
accurate and complete copies of the articles of incorporation, as amended, and
by-laws of the Company as in effect on the date hereof, have been made available
to J Net.
Section 2.2 SUBSIDIARIES. Section 2.2 of the Company Disclosure
Schedule sets forth a description as of the date hereof, of all material
subsidiaries and joint ventures (as defined below) of the Company, including the
name of each such entity, the state or jurisdiction of its incorporation or
organization, the Company's interest therein and a brief description of the
principal line or lines of business conducted by each such entity. All of the
issued and outstanding shares of capital stock of, or other equity interests in,
each subsidiary of the Company are validly issued, fully paid, non-assessable
and free of preemptive rights, and are owned, directly or indirectly, by the
Company free and clear of any pledges, liens, claims, encumbrances, security
interests, equities, charges and options of any nature whatsoever (collectively,
"LIENS"). There are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement,
obligating any subsidiary of the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating the Company or any of any of its subsidiaries to grant, extend or
enter into any such agreement or commitment, except for any of the foregoing
that could not reasonably be expected to have a Company Material Adverse Effect.
As used in this Agreement, the term "JOINT VENTURE" of a person shall mean any
corporation or other entity (including partnerships and other business
associations) that is not a subsidiary of such person, in which such person or
one or more of its subsidiaries owns an equity interest, other than equity
interests held for passive investment purposes which are less than ten percent
(10%) of any class of the outstanding voting securities or equity of any such
entity.
Section 2.3 CAPITALIZATION. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock and 15,000,000 shares of
preferred stock, par value $.01 per share. As of the date hereof, there were
issued and outstanding 29,335,993 shares of Common Stock and 3,200,000 shares of
Preferred Stock. In addition, 7,626,937 shares of Common Stock were reserved for
issuance pursuant to the Company's stock option plans, 968,850 shares of Common
Stock were reserved for issuance pursuant to the Company's employee stock
purchase plan, 150,158 shares of Common Stock were reserved for issuance
pursuant to securities (other than the Securities) exercisable for, or
convertible into or exchangeable for shares of Common Stock and 20,000,000
shares of Common Stock (subject to adjustment) were reserved for issuance upon
conversion of the Securities. Except as set forth in Section 2.3 of the Company
Disclosure Schedule, this Agreement and the Stand-By Purchase Agreement, and the
transactions contemplated hereby and thereby, will not cause a mandatory
redemption, liquidation, acceleration or vesting of any other right under any
outstanding subscriptions, options, calls, contracts, voting trusts, proxies,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement.
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All of the issued and outstanding shares of capital stock of the Company are
validly issued, fully paid, nonassessable and, except as it relates to the
Preferred Stock, free of preemptive rights. Except for the Securities or as set
forth on Section 2.3 of the Company Disclosure Schedule, there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating the Company or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company, or
obligating the Company to grant, extend or enter into any such agreement or
commitment.
Section 2.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS;
COMPLIANCE.
(a) AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to obtaining the Company
Shareholders' Approval (as defined in SECTION 2.13) and the Company Required
Statutory Approvals (as defined in SECTION 2.4(C)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company subject to obtaining the Company Shareholders' Approval (as defined in
SECTION 2.13) with respect to the Conversion and the transactions contemplated
herein. This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by the other
signatories hereto, constitutes a legal, valid and binding obligation of the
Company enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether such enforceability is
considered in a proceeding in equity or at law).
(b) NON-CONTRAVENTION. The execution and delivery of this Agreement
by the Company does not, and the consummation of the transactions contemplated
hereby will not, violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse of time or both)
under, or result in a right of termination, cancellation, or acceleration of any
obligation under, result in the creation of any Lien, charge, "put" or "call"
right or other encumbrance on, or the loss of, any of the properties or assets,
including Intellectual Property (as defined in SECTION 2.16), of the Company or
any of its subsidiaries (any such violation, conflict, breach, default, right of
termination, cancellation or acceleration, loss or creation, a "VIOLATION" with
respect to the Company (such term when used in ARTICLE III having a correlative
meaning with respect to J Net)) or any of its subsidiaries or, to the knowledge
of the Company, any of its joint ventures pursuant to any provisions of (i)
subject to obtaining the Company Shareholders' Approval (as defined in SECTION
2.13), the articles of incorporation or by-laws of the Company or any of its
subsidiaries, (ii) subject to obtaining the Company Required Statutory Approvals
(as defined below) and the Company Shareholders' Approval (as defined in SECTION
2.13), any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority (as defined in
SECTION 2.4(C)) applicable to the Company or any of its subsidiaries or, to the
knowledge of the Company, any of its joint ventures, or any of their respective
properties or assets, or (iii) subject to obtaining the third-party consents or
other approvals set forth in Section 2.4(b) of the Company Disclosure Schedule
(the "COMPANY REQUIRED CONSENTS"), any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or
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agreement of any kind to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of their respective
properties or assets may be bound or affected, excluding from the foregoing
clauses (ii) and (iii) such Violations as would not reasonably be expected to
have, in the aggregate, a Company Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration
with, or notice to or authorization, consent or approval of, any federal, state,
local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority or regulatory body
(including a stock exchange or other self-regulatory body) or any other
authority (each, a "GOVERNMENTAL AUTHORITY") is necessary for the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except for those required under or in
relation to (A) the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), (B) state securities or "blue sky" laws (the "BLUE SKY
LAWS"), (C) the Securities Act, (D) the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), (E) the Delaware General Corporation Law (the
"DGCL") with respect to amending the articles of incorporation of the Company,
(F) the rules and regulations of the NASDAQ National Market ("NASDAQ") or NASDAQ
Small Cap Market, (G) antitrust or other competition laws of other jurisdictions
and (H) such consents, approvals, order, authorizations, registrations,
declarations and filings the failure to obtain, make or give which would
reasonably be expected to have, in the aggregate, a Company Material Adverse
Effect (collectively, the "COMPANY REQUIRED STATUTORY APPROVALS"), it being
understood that references in this Agreement to "obtaining" such Company
Required Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notice; obtaining such consents or approvals; and
having such waiting periods expire as are necessary to avoid a violation of law.
(d) COMPLIANCE. Except as specifically disclosed in the Company SEC
Reports (as defined in SECTION 2.5) filed prior to the date hereof or as
specifically set forth in Section 2.4(d) of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries or, to the knowledge of the
Company, any of its joint ventures is in violation of, or under investigation
with respect thereto, or has been given notice of any purported violation of,
any law, statute, order, rule, regulation or judgment (including, without
limitation, any applicable Environmental Law, as defined in SECTION 2.11) of any
Governmental Authority except for violations that, in the aggregate, are not
reasonably expected to have a Company Material Adverse Effect. Except as
disclosed in the Company SEC Reports filed prior to the date hereof, the Company
and its subsidiaries and, to the knowledge of the Company, its joint ventures
have all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their respective businesses as
currently conducted in all respects (collectively, "PERMITS"), except those
which the failure to obtain would, in the aggregate, not reasonably be expected
to have a Company Material Adverse Effect. The Company and each of its
subsidiaries and, to the knowledge of the Company, each of its joint ventures
are not in breach or violation of or in default in the performance or observance
of any term or provision of, and no event has occurred which, with lapse of time
or action by a third party, could result in a default under, (i) its articles of
incorporation or by-laws or (ii) any material contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which it is a party or by which it is bound or to which any
of its property is subject,
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except for breaches, violations or defaults that, in the aggregate, are not
reasonably expected to have a Company Material Adverse Effect.
Section 2.5 REPORTS AND FINANCIAL STATEMENTS. The filings required
to be made by the Company or any of its subsidiaries since September 1, 1999
under the Exchange Act and applicable state laws and regulations have been filed
with the Securities and Exchange Commission (the "SEC") and the Secretary of
State of the State of Delaware, as the case may be, including all forms,
statements, reports, agreements (oral or written) and all documents, exhibits,
amendments and supplements appertaining thereto, including, but not limited to,
all franchises, services agreements and related documents, and all such filings
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate statutes and the rules and
regulations thereunder. The Company has made available to J Net a true and
complete copy of each form, report, schedule, registration statement,
registration exemption, if applicable, definitive proxy statement and other
document (together with all amendments thereof and supplements thereto) filed by
the Company or any of its subsidiaries with the SEC since September 1, 1999 (as
such documents have since the time of their filing been amended, the "COMPANY
SEC REPORTS" (the term "J Net SEC Reports," when used in ARTICLE III, having a
correlative meaning with respect to J Net)), which are all the documents (other
than preliminary materials) that the Company and its subsidiaries were required
to file with the SEC under the Exchange Act since such date. As of their
respective dates, the Company SEC Reports, including, without limitation, any
financial statements or schedules included therein, at the time filed (i)
complied as to form in all material respects with the requirements of the
Exchange Act, and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent such documents may have been amended by a subsequent Company SEC
Report. Each of the audited consolidated financial statements and unaudited
interim financial statements (including, in each case, the notes, if any,
thereto) included in the Company SEC Reports (collectively, the "COMPANY
FINANCIAL STATEMENTS") complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in
the case of the unaudited interim financial statements, to normal, recurring
year-end audit adjustments (which are not expected to be, individually or in the
aggregate, materially adverse to the Company and its subsidiaries, taken as a
whole)) the consolidated financial position of the Company as of the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended. Each subsidiary of the Company is treated as a consolidated
subsidiary of the Company in the Company Financial Statements for all periods
covered thereby.
Section 2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in Section 2.6 of the Company Disclosure Schedule or in the Company
SEC Reports filed prior to the date hereof, since September 30, 2000, there has
not been:
(i) any material adverse change in the assets,
liabilities, financial condition or operating results of the Company
except changes in the ordinary course of
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business, that have not been and are not expected to be, individually or
in the aggregate, materially adverse;
(ii) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, or financial condition of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(iii) any waiver or compromise by the Company of a
valuable right or of a material debt owed to it;
(iv) any satisfaction or discharge of any lien, claim,
or encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that is not material to the business,
properties, or financial condition of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(v) any material change to a material contract or
arrangement by which the Company or any of its assets is bound or subject;
(vi) any material change in any compensation arrangement
or agreement with any employee, officer, director or holder of Common
Stock, other than pursuant to the any employment agreements;
(vii) any sale, assignment or transfer of any material
patents, trademarks, copyrights, trade secrets or other intangible assets;
(viii) any resignation or termination of employment of
any officer or key employee of the Company; and the Company does not know
of any impending resignation or termination of employment of any such
officer or key employee;
(ix) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(x) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not yet due or
payable;
(xi) any material loans or guarantees made by the
Company to or for the benefit of its employees, holders of Common Stock,
officers, or directors, or any members of their immediate families, other
than travel advances and other advances made in the ordinary course of its
business;
(xii) any declaration, setting aside, or payment of any
dividend or other distribution of the Company's assets in respect of any
preferred stock (including the Preferred Stock) or Common Stock, or any
direct or indirect redemption, purchase, or other acquisition of any
preferred stock (including the Preferred Stock) or Common Stock by the
Company;
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(xiii) to the best of the Company's knowledge, any other
event or condition of any character that is reasonably likely to
materially and adversely affect the business, properties, prospects, or
financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted), excluding events or
conditions having general effect on businesses in the general economy or
the Internet industry; or
(xiv) any arrangement or commitment by the Company to do
any of the things described in this SECTION 2.6.
Section 2.7 LITIGATION. Except as disclosed in the Company SEC
Reports filed prior to the date hereof or as set forth in Section 2.7 of the
Company Disclosure Schedule, (i) there are no claims, suits, actions or
proceedings, pending or, to the knowledge of the Company, threatened, nor are
there any investigations or reviews pending or threatened against, relating to
or affecting the Company or any of its subsidiaries or, to the knowledge of the
Company, any of its joint ventures, (ii) there have not been any developments
since September 30, 2000 with respect to any such disclosed claims, suits,
actions, proceedings, investigations or reviews, and (iii) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to the Company or any of its subsidiaries, except for any of the
foregoing under clauses (i), (ii) and (iii) that individually or in the
aggregate would not reasonably be expected to have a Company Material Adverse
Effect.
Section 2.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in (a) the registration statement on
Form S-3 to be filed with the SEC by the Company in connection with the issuance
and resale of shares of Common Stock in the transactions contemplated hereby,
including the Conversion, Rights Offering and Overallotment Option (the
"REGISTRATION STATEMENT") will, at the time the Registration Statement becomes
effective under the Securities Act, and as the same may be amended, at the
effective time of such amendment, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (b) the proxy
statement in definitive form, relating to the special meeting (the "COMPANY
MEETING") of the shareholders of the Company (the "COMPANY SHAREHOLDERS") to be
held in connection with the approval of (i) the issuance to J Net of shares of
Conversion Shares issuable in connection with the Conversion, (ii) the amendment
to the articles of incorporation of the Company to increase the number of
authorized shares of Common Stock to account for the shares of Common Stock to
be issued in connection with the Rights Offering and Overallotment Option ,
(iii) the Rights Offering and the Overallotment Option and (iv) the amendment of
the Company Employee Benefit Plans, as contemplated in SECTION 4.16 (the "PROXY
STATEMENT") will, at the date such Proxy Statement is mailed to such
shareholders, and, as the same may be amended or supplemented, at the time of
such meeting, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Registration
Statement, the Proxy Statement and any other documents to be filed with the SEC
or any other Governmental Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
applicable provisions of the Securities Act and the
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Exchange Act and the rules and regulations thereunder.
Section 2.9 TAX MATTERS. "TAXES," as used in this Agreement, means
any federal, state, county, local or foreign taxes, charges, fees, levies or
other assessments, including, without limitation, all net income, gross income,
sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipts, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes. "TAX Return," as used in this Agreement, means a
report, return or other written information required to be supplied to a
governmental entity with respect to Taxes.
Except as set forth on Section 2.9 of the Company Disclosure
Schedule:
(a) FILING OF TIMELY TAX RETURNS. The Company and each of its
subsidiaries have duly filed (or there has been filed on its behalf) within the
time prescribed by law all material Tax Returns required to be filed by each of
them under applicable law. All such Tax Returns were and are in all material
respects complete and, to the knowledge of the Company, correct.
(b) PAYMENT OF TAXES. The Company and each of its subsidiaries have,
within the time and in the manner prescribed by law, paid all material Taxes
that are currently due and payable except for those contested in good faith and
for which adequate reserves have been taken.
(c) TAX RESERVES. The Company and each of its subsidiaries have
established on their books and records adequate reserves for all Taxes and for
any liability for deferred income taxes in accordance with United States
generally accepted accounting principles.
(d) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither the Company
nor any of its subsidiaries have requested any extension of time within which to
file any material Tax Return, which Tax Return has not since been filed.
(e) WAIVERS OF STATUTE OF LIMITATIONS. Neither the Company nor any
of its subsidiaries has in effect any extension, outstanding waivers or
comparable consents regarding the application of the statute of limitations with
respect to any material Taxes or material Tax Returns.
(f) EXPIRATION OF STATUTE OF LIMITATIONS. The Tax Returns of the
Company and each of its subsidiaries either have been examined and settled with
the appropriate Tax authority or closed by virtue of the expiration of the
applicable statute of limitations for all years through and including 1991.
(g) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No material audits
or other administrative proceedings are presently pending or threatened with
regard to any Taxes or Tax Returns of the Company or any of its subsidiaries
(other than those being contested in good faith and for which adequate reserves
have been established) and no issues have been raised in writing
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by any taxing authority in connection with any Tax or Tax Return.
(h) TAX LIENS. There are no Tax liens upon any asset of the Company
or any of its subsidiaries except liens for Taxes not yet due.
(i) TAX RULINGS. Neither the Company nor any of its subsidiaries has
received a Tax Ruling (as defined below) or entered into a Closing Agreement (as
defined below) with any taxing authority that would have a continuing adverse
effect after the Closing Date. "TAX RULING," as used in this Agreement, shall
mean a written ruling of a taxing authority relating to Taxes. "CLOSING
AGREEMENT," as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes.
(j) AVAILABILITY OF TAX RETURNS. The Company has provided or made
available to J Net complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by the Company or any of its subsidiaries covering all
years ending on or after ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) all audit reports received from
any taxing authority relating to any Tax Return filed by the Company or any of
its subsidiaries covering all years ending on or after April 27, 1996 and (iii)
all powers of attorney currently in force granted by the Company or any of its
subsidiaries concerning any material Tax matter.
(k) TAX SHARING AGREEMENTS. Neither the Company nor any of its
subsidiaries is a party to any agreement relating to allocating or sharing of
Taxes.
(l) LIABILITY FOR OTHERS. Neither the Company nor any of its
subsidiaries has any liability for any material Taxes of any person other than
the Company and its subsidiaries (i) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(m) CODE SECTION 355(E). Neither the Company nor any of its
subsidiaries has constituted a "distributing corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code in the
past 24-month period.
(n) CODE SECTION 897. Neither the Company nor any of its
subsidiaries is or has been a United States real property holding company (as
defined in Section 897(c)(2) of the Code) during the applicable period specified
in Section 897(c)(1)(ii) of the Code.
(o) CODE SECTION 338 ELECTIONS. No election under Section 338 of the
Code (or any predecessor provisions) has been made by or with respect to the
Company or any of its subsidiaries or any of their respective assets or
properties.
(p) CODE SECTION 481 ADJUSTMENTS. Neither the Company nor any of its
subsidiaries is required to include in income any adjustment pursuant to Section
481(a) of the Code by reason of a voluntary change in accounting method
initiated by the Company or any of its subsidiaries and the Company has no
knowledge that the Internal Revenue Service (the "IRS") has proposed any such
adjustment or change in accounting method.
(q) FILING JURISDICTIONS. No jurisdiction in which the Company or
any of its
10
subsidiaries does not file a Tax Return has made a claim that the Company or any
of its subsidiaries is responsible to file a Tax Return in such jurisdiction.
(r) SECTION 341(F). Neither the Company nor any of its subsidiaries
has filed a consent to the application of Section 341(f) of the Code.
(s) SECTION 168(H). No property of the Company or any of its
subsidiaries is "tax-exempt use property" within the meaning of Section 168(h)
of the Code or property that the Company or any of its subsidiaries will be
required to treat as being owned by another person pursuant to Section 168(f)(8)
of the Internal Revenue Code of 1954, as amended, in effect immediately prior to
the enactment of the Tax Reform Act of 1986.
Section 2.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section
2.10 of the Company Disclosure Schedule:
(a) Each "employee benefit plan" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), bonus,
deferred compensation, severance, change of control, share option or other plan,
policy, arrangement or agreement relating to employment, compensation or fringe
benefits for employees, former employees, officers, trustees or directors of the
Company or any of its subsidiaries effective as of the date hereof or providing
benefits as of the date hereof to current employees, former employees, officers,
trustees or directors of the Company or pursuant to which the Company or any of
its subsidiaries has or could reasonably be expected to have any liability
(collectively, the "COMPANY EMPLOYEE BENEFIT PLANS") that is material is listed
in Section 2.10(a) of the Company Disclosure Schedule, is in material compliance
with applicable law, including without limitation ERISA and the Code, and has
been administered and operated in all material respects in accordance with its
terms and all applicable statutes, orders or governmental rules or regulations
currently in effect, including but not limited to, ERISA and the Code except as
listed in Section 2.10(a) of the Company Disclosure Schedule (relating to
untimely filings of Forms 5500). Each Company Employee Benefit Plan which is
intended to be qualified within the meaning of Sections 401(a) and 501(a) of the
Code has received a favorable determination letter from the IRS as to such
qualification and, to the knowledge of the Company, no event has occurred and no
condition exists which could reasonably be expected to result in the revocation
of, or have any adverse effect on, any such determination.
(b) Complete and correct copies of the following documents have been
made available to J Net as of the date of this Agreement: (i) all material
Company Employee Benefit Plans and any related trust agreements or insurance
contracts, all plan amendments, service provider contracts, investment
management and investment advisory agreements, (ii) the most current summary
descriptions and summaries of material modifications and all other employee
communications relating to each Company Employee Benefit Plan subject to ERISA,
(iii) the three most recent Form 5500s and Schedules thereto for each material
Company Employee Benefit Plan subject to such reporting, (iv) the most recent
determination of the IRS and the most recent application for determination filed
with the IRS with respect to the qualified status of each Company Employee
Benefit Plan that is intended to qualify under Sections 401(a) and 501(a) of the
Code, (v) the most recent accountings with respect to each Company Employee
Benefit Plan funded through a trust, (vi) the most recent actuarial report of
the qualified actuary of each
11
Company Employee Benefit Plan with respect to which actuarial valuations are
conducted (vii) all closing agreements under the Employee Plans Closing
Agreement Program issued by the IRS and compliance statements under the
Voluntary Compliance Resolution program issued by the IRS, and (viii) in the
case of stock options or stock appreciation rights issued under any Company
Employee Benefit Plans, a list of holders, date of grant, number of shares,
exercise price per share and dates exercisable.
(c) Each Company Employee Benefit Plan subject to the requirements
of Section 601 of ERISA has been operated in material compliance therewith.
(d) Neither the Company, any subsidiary, any ERISA Affiliate nor any
other corporation or organization controlled by or under common control with any
of the foregoing within the meaning of Section 4001 of ERISA has, within the
five-year period preceding the date of this Agreement, at any time contributed
to or had an obligation to contribute to any "multiemployer plan," as that term
is defined in Section 4001 of ERISA. Neither the Company, any subsidiary, any
ERISA Affiliate nor any other corporation or organization controlled by or under
common control with any of the foregoing within the meaning of Section 4001 of
ERISA has, at any time during the last five-year period preceding the date
hereof, withdrawn from any multiemployer plan or multiple employer plan or
incurred any withdrawal liability that has not been satisfied in full. For
purposes of this Agreement, "ERISA Affiliate" means any person under common
control with the Company within the meaning of Section 414 of the Code;
PROVIDED, HOWEVER, that J Net and any person that would not be an ERISA
Affiliate if such person were not under common control with J Net within the
meaning of Section 414 of the Code shall not be an ERISA Affiliate and shall not
be deemed to be under common control with the Company, any subsidiary or any
ERISA Affiliate for purposes of Section 4001 of ERISA.
(e) No event has occurred, and there exists no condition or set of
circumstances in connection with any Company Employee Benefit Plan, under which
the Company or any subsidiary, directly or indirectly (through any
indemnification agreement or otherwise), could be subject to any liability under
Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975
of the Code.
(f) No proceeding by the Pension Benefit Guaranty Corporation (the
"PBGC") to terminate any Company Employee Benefit Plans pursuant to Title IV of
ERISA has been instituted or threatened, there is no pending or threatened legal
action or investigation against or involving any Company Employee Benefit Plans
and there is no basis for any such legal action, proceeding or investigation. No
amendment has been adopted which would require the Company, any subsidiary or
ERISA Affiliate to provide security pursuant to Section 307 of ERISA or Section
401(a)(29) of the Code.
(g) Neither the Company nor any ERISA Affiliate has incurred any
liability to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of
ERISA, or otherwise that has not been satisfied in full and no event or
condition exists or has existed which could reasonably be expected to result in
any such material liability. As of the date of this Agreement, no "reportable
event" within the meaning of Section 4043 of ERISA has occurred with respect to
any Company Employee Benefit Plan that is a defined benefit plan under Section
3(35) of ERISA other than a reportable event with respect to which the 30-day
notice requirement has been
12
waived by the PBGC.
(h) No employer securities, employer real property or other employer
property is included in the assets of any Company Employee Benefit Plan.
(i) All required contributions for all periods ending on or prior to
the Closing Date (excluding any amounts not yet due) have been made in full.
Subject only to normal retrospective adjustments in the ordinary course, all
insurance premiums, including, but not limited to, premiums to the PBGC have
been paid in full with respect to each applicable Company Employee Benefit Plan
for all periods ending on or prior to the Closing Date. As of the Closing Date,
none of the Company Employee Benefit Plans has underfunded benefit liabilities
as defined in Section 4001 of ERISA. Neither the Company nor any ERISA Affiliate
has an accumulated funding deficiency within the meaning of Section 412 of the
Code or Section 302 of ERISA, or any liability under Section 4971 of the Code.
No waivers of the minimum funding requirements of Section 412 of the Code or
Section 302 of ERISA have been requested or obtained by the Company or any ERISA
Affiliate.
(j) No amounts payable under any Company Employee Benefit Plan or
other agreement, contract, or arrangement will fail to be deductible for federal
income tax purposes by virtue of Section 280G or Section 162(m) of the Code.
(k) No action, suit, grievance, arbitration or other manner of
litigation or claim with respect to the assets of any Company Employee Benefit
Plan (other than routine claims for benefits made in the ordinary course of plan
administration for which plan administrative review procedures have not been
exhausted) is pending, threatened or imminent with respect to any Company
Employee Benefit Plan against such Company Employee Benefit Plan, the Company,
any ERISA Affiliate or any fiduciary as such term is defined in Section 3(21) of
ERISA, including but not limited to, any action, suit, grievance, arbitration or
other manner of litigation or claim regarding conduct that allegedly interferes
with the attainment of rights under the Company Employee Benefit Plans and none
of the shareholders, owners, the Company or any fiduciary has knowledge of any
facts which would give rise or could give rise to any such actions, suits,
grievances, arbitration or other manner of litigation or claims with respect to
any Company Employee Benefit Plan. To the best of its knowledge, the Company,
its directors, officers, employees, or any fiduciary do not have any liability
for the failure to comply with ERISA or the Code for any action or failure to
act in connection with the administration or investment of such plans.
(l) The Company and its subsidiaries are parties to the collective
bargaining agreements described in Section 2.10(l) of the Company Disclosure
Schedule. No labor organization or group of employees of the Company or any of
its subsidiaries has made a pending demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the knowledge of the Company,
threatened to be brought or filed, with the National Labor Relations Board or
any other labor relations tribunal or authority. There are no organizing
activities, strikes, work stoppages, slowdowns, lockouts or other labor disputes
pending or, to the knowledge of the Company, threatened against or involving the
Company or any of its subsidiaries. Except as set forth in Section 2.10(l) of
the Company Disclosure Schedule, there
13
are no grievances pending or, to the knowledge of the Company, threatened. Each
of the Company and its subsidiaries is in material compliance with all
applicable laws and collective bargaining agreements respecting employment and
employment practices, terms and conditions of employment, wages and hours and
occupational safety and health. There are no arbitration proceedings arising out
of or under any collective bargaining agreement pending or, to the knowledge of
the Company, threatened, against the Company or any of its subsidiaries, and
there are no administrative charges or court complaints against the Company or
any of its subsidiaries concerning alleged employment discrimination or other
employment related matters pending or, to the knowledge of the Company,
threatened before the U.S. Equal Employment Opportunity Commission or any other
Governmental Authority. Neither the Company nor any of its subsidiaries are in
violation of the Federal Worker Adjustment and Retraining Notification Act of
1988.
Section 2.11 ENVIRONMENTAL PROTECTION.
(a) Except as set forth in Section 2.11 of the Company Disclosure
Schedule, there are, to the Company's knowledge, with respect to the Company or
any of its subsidiaries or any predecessor of the Company, no past or present
material violations of Environmental Laws (as defined below), releases of any
Hazardous Materials (as defined below) into the environment or actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any material common law environmental
liability or any material liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar federal, state,
local or foreign laws and neither the Company nor any of its subsidiaries has
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company's knowledge, threatened in connection with any of the
foregoing. The term "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(b) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about
any real property currently owned, or to the best of the Company's knowledge
leased or used, by the Company or any of its subsidiaries, and no Hazardous
Materials were released on or about any real property previously owned, or to
the Company's knowledge leased or used, by the Company or any of its
subsidiaries during the period the property was owned, leased or used by the
Company or any of its subsidiaries, except in the normal course of the Company's
or any of its subsidiaries' business.
(c) Except as set forth in Section 2.11 of the Company Disclosure
Schedule, there are no underground storage tanks on or under any real property
owned, or to the Company's knowledge leased or used, by the Company or any of
its subsidiaries that are not in compliance with applicable law.
14
Section 2.12 BOARD APPROVAL. The Company's board of directors,
following the recommendation of the special committee appointed on December 7,
2000 to evaluate a possible transaction with J Net and by resolutions duly
adopted by unanimous vote of those voting (but with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ abstaining
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ not present ) at a meeting duly called
and held and not subsequently rescinded or modified in any way (the "COMPANY
BOARD APPROVAL"), has duly (i) determined that this Agreement and the Stand-By
Purchase Agreement and the transactions contemplated hereby and thereby are fair
to and in the best interests of the Company and its shareholders (other than J
Net) and declared the transactions contemplated hereby and thereby to be
advisable, (ii) approved this Agreement and the Stand-By Purchase Agreement and
the transactions contemplated hereby and thereby and (iii) recommended that the
Company Shareholders (other than J Net) adopt this Agreement and the Stand-By
Purchase Agreement and directed that such matters be submitted for consideration
by the Company Shareholders at the Company Meeting. In connection with the
Securities Purchase Agreement dated as of October 12, 2000 (the "SERIES A
AGREEMENT"), the Company's board of directors approved the transactions
contemplated by the Series A Agreement pursuant to which J Net became an
"interested stockholder" under Section 203 of the DGCL, rendering the
prohibitions in such section inapplicable to J Net in connection with this
Agreement and the Stand-By Purchase Agreement and the transactions contemplated
hereby and thereby. Notwithstanding anything contained herein to the contrary,
the Company's board of directors shall not be required to recommend to the
Company Shareholders whether or not any Company Shareholder should exercise any
rights granted in connection with the Rights Offering.
Section 2.13 VOTE REQUIRED. In connection with this Agreement and
the Stand-By Purchase Agreement and the transactions contemplated hereby and
thereby, the Company must obtain the following shareholder approvals at the
Company Meeting: (i) a majority of the votes represented at the Company Meeting
in favor of the issuance to J Net of the Conversion Shares, (ii) a majority of
the outstanding shares of capital stock in favor of the amendment to the
articles of incorporation of the Company to increase the number of authorized
shares of Common Stock to account for the shares of Common Stock to be issued in
connection with the Rights Offering, (iii) a majority of the votes represented
at the Company Meeting in favor of the Rights Offering and Overallotment Option
and (iv) a majority of the outstanding shares of capital stock in favor of the
amendment of the Company Employee Benefit Plans, as contemplated in SECTION 4.16
(collectively, the "COMPANY SHAREHOLDERS' APPROVAL"). The foregoing represent
the only votes of the holders of any class or series of the capital stock of the
Company or any of its subsidiaries required to approve this Agreement and the
Stand-By Purchase Agreement and the transactions contemplated hereby and thereby
Section 2.14 INSURANCE. Section 2.14 of the Company Disclosure
Schedule sets forth a description as of the date hereof, of all material
insurance policies currently maintained by the Company. The Company and each of
its subsidiaries and, to the knowledge of the Company, each of its joint
ventures is, insured in such amounts and against such risks and losses as are
customary for companies conducting the respective businesses conducted by the
Company and its subsidiaries and joint ventures. Neither the Company nor any of
its subsidiaries, nor, to the knowledge of the Company, any of the Company's
joint ventures has received any written notice of cancellation or termination
with respect to any material insurance policy. All material insurance policies
of the Company and its subsidiaries and, to the knowledge of the Company, its
15
joint ventures are valid and enforceable policies in all material respects.
Section 2.15 INTELLECTUAL PROPERTY. To the best of the Company's
knowledge, the Company or its subsidiaries owns or possesses sufficient legal
rights to all patents, patent applications, trademarks, service marks, trade
names, copyrights, trade secrets, inventions and technology (whether or not
patentable), confidential and proprietary information, domain names, licenses,
know-how, concepts, computer programs, software, databases and other collections
and compilations of data, other technical data, proprietary rights, proprietary
processes, and other information and/or intellectual property necessary for
their businesses as now conducted and as proposed to be conducted (each such
item "COMPANY INTELLECTUAL PROPERTY") without any conflict with or infringement
of the rights of others, and has the right to bring actions for the
infringement, dilution, misappropriation or other violation of such Company
Intellectual Property, except to the extent that any such conflict or
infringement, or the absence of any such right, would not individually or in the
aggregate, have a Material Adverse Effect. Section 2.15 of the Company
Disclosure Schedule contains a complete list of patents, patent applications,
trademarks, service marks, trade names, copyrights and domain names used or held
for use by the Company and its subsidiaries throughout the world and pending
applications therefor and registrations, renewals, extensions and the like
thereof, specifying as to each such item, as applicable: (i) the owner of the
item, (ii) the jurisdictions in which the item is issued or registered or in
which any application for issuance or registration has been filed, (iii) the
respective issuance, registration, or application number of the item and (iv)
the date of application and issuance or registration of the item. Except for
agreements with their own employees or consultants regarding confidentiality and
proprietary information, and with the exception of standard end-user license
agreements, there are no outstanding options, licenses or agreements of any kind
relating to the Company Intellectual Property, nor is the Company or any of its
subsidiaries bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, patent applications, trademarks, service
marks, trade names, copyrights, trade secrets, inventions and technology
(whether or not patentable), confidential and proprietary information, domain
names, licenses, know-how, concepts, computer programs, software, databases and
other collections and compilations of data, other technical data, proprietary
rights, proprietary processes and other information and/or intellectual property
of any other person or entity. Section 2.15 of the Company Disclosure Schedule
hereto contains a complete and accurate list of all software owned by the
Company and/or any of its subsidiaries as of the date hereof or at any time
within the 36-month period prior to the date hereof (the "OWNED SOFTWARE"). The
Company and/or the applicable subsidiaries own(s) exclusively all right, title
and interest in and to the Owned Software and any and all enhancements,
modifications, and other additions and/or improvements of or to the Owned
Software, free and clear of all liens, including claims or rights of any joint
owners or employees, agents, consultants or other persons involved in the
development, creation, marketing, maintenance or enhancement of such computer
software. All software used by the Company and/or any of its subsidiaries is
either Owned Software or licensed software and is not otherwise owned by any
other person (except the ownership by the named licensors of the licensed
software). Neither the Company nor any of its subsidiaries has received any
communications alleging infringement, dilution, misappropriation, breach or
other violation of, nor does the Company or any of its subsidiaries have reason
to believe that the Company or any of its subsidiaries has infringed, diluted,
misappropriated, breached or otherwise violated or, by conducting their
businesses as proposed, would infringe, dilute, misappropriate, breach or
otherwise violate, any of the patents, patent applications,
16
trademarks, service marks, trade names, copyrights, trade secrets, inventions
and technology (whether or not patentable), confidential and proprietary
information, domain names, licenses, know-how, concepts, computer programs,
software, databases and other collections and compilations of data, technical
data, proprietary rights, proprietary processes and other information and/or
intellectual property ("INTELLECTUAL PROPERTY") of any other person or entity;
neither the Company nor any of its subsidiaries is aware, based on reasonable
investigation, of any reasonable basis therefor or threat thereof. To the extent
that any works of authorship, materials, products, technology or software have
been developed or created independently or jointly by any person other than the
Company or any of its subsidiaries for which the Company or any of its
subsidiaries has, directly or indirectly, paid, the Company or the applicable
subsidiary has a written agreement with such person with respect thereto, and
the Company or the applicable subsidiary thereby has obtained ownership of, and
is the exclusive owner of, all Intellectual Property therein or thereto by
operation of law or by valid assignment. In each case in which either the
Company or any of its subsidiaries has acquired any Intellectual Property from
any person, the Company or the applicable subsidiary has obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights in such
Intellectual Property (including the right to seek past and future damages with
respect thereto) to the Company or the applicable subsidiary and, to the maximum
extent provided for by, and in accordance with, any applicable laws and
regulations, the Company has recorded each such assignment with the relevant
governmental authorities, including the U.S. Patent and Trademark Office, the
U.S. Copyright Office or their respective equivalents in any relevant foreign
jurisdiction. Neither the Company nor any of its subsidiaries is aware that any
of its respective employees, agents, consultants or contractors is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such person's or
entity's best efforts to promote the interests of the Company and its
subsidiaries, or that would conflict with the Company's or any of its
subsidiaries' business as proposed to be conducted. Neither the Company nor any
of its subsidiaries is aware of any current or past infringement, dilution,
misappropriation, breach or other violation by a third party of any of the
Company Intellectual Property. Neither the Company nor any of its subsidiaries
has a plan to utilize, and does not believe it is or will be necessary to
utilize, any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment or engagement by the Company or any of
its subsidiaries. Except as set forth in Section 2.15 of the Company Disclosure
Schedule, the source code for the Owned Software has not been disclosed to any
third party and none of the source code for the Owned Software has been placed
in escrow or is otherwise not in the full and exclusive control of the Company
and/or the applicable subsidiaries of the Company. No Intellectual Property
owned or used by the Company or any of its subsidiaries is subject to any
outstanding decree, order, judgment, settlement agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by the Company or
any of its subsidiaries. All of the patents, trademark and service ▇▇▇▇
registrations, copyright registrations and domain name registrations indicated
in Section 2.15 of the Company Disclosure Schedule are valid and in full force,
are held of record in the name of the Company or the applicable subsidiary free
and clear of all liens, encumbrances and other claims, are not the subject of
any cancellation or reexamination proceeding or any other proceeding challenging
their extent or validity, and all necessary registration, maintenance and
renewal fees in connection with such patents and registrations have been paid
and all necessary documents and certificates in connection with such patents and
registrations have been filed with the relevant patent, copyright, trademark or
other
17
authorities in the United States or foreign jurisdictions, as the case may be,
for the purposes of maintaining such patents and registrations. The Company
and/or the applicable subsidiary is the applicant of record in all patent
applications, and applications for trademark, service ▇▇▇▇, and copyright
registration indicated in Section 2.15 of the Company Disclosure Schedule, and
no opposition, extension of time to oppose, interference, final rejection, or
final refusal to register has been received in connection with any such
application. The Company and each of its subsidiaries has taken all reasonable
steps that are required to protect the Company's rights in material trade
secrets, know-how or other confidential or proprietary information (including,
without limitation, source code) of the Company and any of its subsidiaries or
provided by any other person to the Company or any applicable subsidiary.
Section 2.16 CERTAIN CONTRACTS. Except as disclosed in Section 2.16
of the Company Disclosure Schedule, as of the date hereof, neither the Company
nor any of its subsidiaries is a party to or bound by any "material contracts"
(as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) with
respect to the Company or any of its subsidiaries. All contracts described in
this SECTION 2.16 are valid and in full force and effect except to the extent
they have previously expired in accordance with their terms or if the failure to
be in full force and effect, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect. Neither the
Company nor any of its subsidiaries has violated any provision of, or committed
or failed to perform any act which with or without notice, lapse of time or both
would constitute a default under the provisions of any contract described above,
except in each case for those violations and defaults which, individually or in
the aggregate, would not reasonably be expected to result in a Company Material
Adverse Effect.
Section 2.17 PROPERTY AND ASSETS. Except as disclosed in Section
2.17 of the Company Disclosure Schedule, the Company and its subsidiaries have
good and marketable title to, or have valid leasehold interests in or valid
rights under contract to use, all property and assets used in the conduct of the
Company and its subsidiaries, free and clear of all Liens other than (i) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (ii) Liens for
Taxes not delinquent or being contested in good faith, (iii) deposits or pledges
for goods or services made in the ordinary course of business, (iv) customary
Liens in favor of mechanics, materialmen and landlords which arise by operation
of law and which are incurred in the ordinary course of business and (v) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens would not reasonably be expected to have a
Company Material Adverse Effect (collectively, "PERMITTED LIENS"). To the best
knowledge of the Company, the facilities, structures, and equipment of the
Company and its subsidiaries are structurally sound with no known defects and
are in good operating condition and repair and are adequate for the uses to
which they are being put; and none of such facilities, structures, or equipment
is in need of maintenance or repairs except for ordinary, routine maintenance
and repairs.
Section 2.18 AGREEMENTS NOT TO COMPETE. The Company has delivered to
J Net true, complete and accurate copies of all contracts in full force and
effect as of the date hereof between the Company and its subsidiaries and its
respective directors, officers, employees, agents (including sales agents),
dealers or distributors which prevent or restrict any such person from competing
with the Company and its subsidiaries in any manner.
18
Section 2.19 CERTAIN TRANSACTIONS. Except as set forth on Section
2.19 of the Company Disclosure Schedule and except for arm's length transactions
in the ordinary course of business upon terms no less favorable than the Company
or any of its subsidiaries could obtain from third parties and other than the
grant of stock options disclosed on Section 2.19 of the Company Disclosure
Schedule, none of the officers or directors of the Company is presently a party
to any transaction with the Company or any of its subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
Section 2.20 ACKNOWLEDGMENT REGARDING J NET'S PURCHASE OF COMMON
STOCK. The Company acknowledges and agrees that J Net is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that J Net is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and that any statement made by J Net or any of its respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to J Net's purchase of the Common Stock and has not been publicly relied upon by
the Company, its officers or its directors in any way.
Section 2.21 NO INTEGRATED OFFERING. Except for the Securities or
securities offered or sold pursuant to either (i) a registration statement on
Form S-8, (ii) a registration statement on Form S-1 filed on February 7, 2000
that was subsequently withdrawn or (iii) the Registration Statement, neither the
Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would require
registration under the Securities Act of the issuance of the Conversion Shares
to J Net. The issuance of Common Stock to J Net pursuant to this Agreement and
the Stand-By Purchase Agreement and the transactions contemplated hereby and
thereby will not be integrated with any other issuance of the Company's
securities (past, current or future) for purposes of any stockholder approval
provisions applicable to the Company or its securities.
Section 2.22 NO BROKERS. Except as disclosed in Section 2.22 of the
Company Disclosure Schedule, the Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby. Copies of any such agreements or arrangements set forth on Section 2.22
of the Company Disclosure Schedule shall be provided to J Net.
Section 2.23 INTERNAL ACCOUNTING CONTROLS. The Company and each of
its subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability
19
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Section 2.24 FOREIGN CORRUPT PRACTICES. Neither the Company, nor, to
the best knowledge of the Company, any of its subsidiaries, nor any director,
officer, agent, employee or other person acting on behalf of the Company or any
subsidiary has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977 as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
Section 2.25 NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Common Stock as contemplated by this Agreement will not
be, an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by
an Investment Company.
Section 2.26 FORM S-3 ELIGIBILITY. The Company currently meets the
"registrant eligibility" requirements set forth in the general instructions to
Form S-3 under the Securities Act. There exist no facts or circumstances that
would prohibit or delay the preparation and filing of the Registration Statement
in connection with this Agreement and the Stand-By Purchase Agreement and the
transactions contemplated hereby and thereby.
Section 2.27 SIGNIFICANT CUSTOMERS AND SUPPLIERS. To the knowledge
of the Company, no major customer or supplier has materially reduced or
threatened to terminate or materially reduce its purchases from or provision of
products or services to the Company or any of its subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF J NET
Except as set forth in the corresponding sections or subsections of
the J Net Disclosure Schedule, dated as of the date hereof, delivered by J Net
to the Company to (the "J NET DISCLOSURE SCHEDULE") or in the J Net SEC Reports,
J Net represents and warrants to the Company as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION. J Net and each of its
subsidiaries is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of existence,
has all requisite corporate power and authority, and has been duly authorized by
all necessary approvals and orders, to own, lease and operate its assets and
properties to the extent owned, leased and operated and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
and in good standing
20
would not, when taken together with all other such failures, reasonably be
expected to have a material adverse effect on the business, properties,
condition (financial or otherwise), prospects (other than effects that are the
result of general economic changes or industry-specific risks) or results of
operations of J Net and its subsidiaries taken as a whole or to prevent or
materially delay the consummation of the transactions contemplated by this
Agreement (any such material adverse effect being hereafter referred to as a "J
NET MATERIAL ADVERSE EFFECT"). True, accurate and complete copies of the
articles of incorporation, as amended, and by-laws of J Net as in effect on the
date hereof, have been made available to the Company.
Section 3.2 AUTHORITY; NON-CONTRAVENTION AND STATUTORY APPROVALS.
(a) AUTHORITY. J Net has all requisite corporate power and authority
to enter into this Agreement and, subject to obtaining the J Net Required
Statutory Approvals (as defined in SECTION 3.2(C)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by J Net and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of J Net. This
Agreement has been duly and validly executed and delivered by J Net and,
assuming the due authorization, execution and delivery by the other signatories
hereto, constitutes a legal, valid and binding obligation of J Net enforceable
against J Net in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles (whether such enforceability is considered in a proceeding
in equity or at law.
(b) NON-CONTRAVENTION. The execution and delivery of this Agreement
by J Net does not, and the consummation of the transactions contemplated hereby
will not, result in a Violation by J Net or any of its subsidiaries or, to the
knowledge of J Net , any of its joint ventures pursuant to any provisions of (i)
the articles of incorporation or by-laws of J Net or any of its subsidiaries,
(ii) subject to obtaining the J Net Required Statutory Approvals, any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority) applicable to J Net or any of
its subsidiaries or, to the knowledge of J Net , any of its joint ventures, or
any of their respective properties or assets, or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which J Net or
any of its subsidiaries is a party or by which J Net or any of its subsidiaries
or any of their respective properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations as would not
reasonably be expected to have, in the aggregate, a J Net Material Adverse
Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration
with, or notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by J Net
or the consummation by J Net of the transactions contemplated hereby, except for
those required under or in relation to (A) the HSR Act, (B) Blue Sky Laws, (C)
the Securities Act, (D) the Exchange Act, (E) antitrust or other competition
laws of other jurisdictions and (F) such consents, approvals, order,
authorizations, registrations, declarations and filings the failure to obtain,
make or give which would reasonably be expected to have, in the aggregate, a J
Net Material Adverse Effect (the "J NET REQUIRED STATUTORY APPROVALS"), it being
understood that references in this Agreement to "obtaining" such J Net Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notice; obtaining such
21
consents or approvals; and having such waiting periods expire as are necessary
to avoid a violation of law.
Section 3.3 INVESTMENT PURPOSE. As of the date hereof, J Net is
purchasing the Conversion Shares and the shares of Common Stock issuable in
connection with the Stand-By Purchase Agreement for its own account and not with
a present view towards the public sale or distribution thereof, except pursuant
to sales registered or exempted from registration under the Securities Act.
Section 3.4 ACCREDITED INVESTOR STATUS. J Net is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D ("REGULATION
D") as promulgated by the SEC under the Securities Act (an "ACCREDITED
INVESTOR").
Section 3.5 INFORMATION. J Net and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of Common Stock
which have been requested by J Net or its advisors. J Net and its advisors, if
any, have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigation conducted by J Net or
any of its advisors or representatives shall modify, amend or affect J Net's
right to rely on the Company's representations and warranties contained in
ARTICLE II. J Net understands that its investment in Common Stock involves a
significant degree of risk.
Section 3.6 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of J Net for inclusion or
incorporation by reference in (a) the Registration Statement will, at the time
the Registration Statement becomes effective under the Securities Act, and as
the same may be amended, at the effective time of such amendment, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (b) the Proxy Statement will, at the date such Proxy Statement is mailed to
such shareholders, and, as the same may be amended or supplemented, at the times
of such meetings, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Section 3.7 NO BROKERS. Except as disclosed in Section 3.7 of the J
Net Disclosure Schedule, J Net has taken no action which would give rise to any
claim against the Company by any person for brokerage commissions, finder's fees
or similar payments relating to this Agreement or the transactions contemplated
hereby. Copies of any such agreements or arrangements set forth on Section 3.7
of the J Net Disclosure Schedule shall be provided to the Company.
Section 3.8 FINANCIAL RESOURCES. J Net has the financial resources
to perform its obligations under the Stand-By Purchase Agreement, including,
without limitation, its obligation to purchase the Stand-By Shares (as defined
therein) and on the terms and conditions set forth in the Stand-By Purchase
Agreement.
ARTICLE IV
22
COVENANTS
Section 4.1 BEST EFFORTS. The parties shall use their reasonable
best efforts to satisfy timely each of the conditions described in ARTICLE V.
Section 4.2 BLUE SKY LAWS. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares and the Common Stock issuable
pursuant to the Stand-By Purchase Agreement for sale to J Net at the Closing
pursuant to this Agreement under applicable securities or Blue Sky Laws (or to
obtain an exemption from such qualification), and shall provide evidence of any
such action so taken to J Net on or prior to the Closing.
Section 4.3 REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The
Common Stock is registered under Section 12(g) of the Exchange Act. So long as J
Net beneficially owns any Common Stock or the Preferred Stock, the Company shall
timely file all reports required to be filed with the SEC pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination. The Company
currently meets, and will take all necessary action to continue to meet, the
"registrant eligibility" requirements set forth in the general instructions to
Form S-3.
Section 4.4 EXPENSES. Notwithstanding anything to the contrary
contained in SECTION 6.3, the Company shall reimburse J Net for all documented
and reasonable Out-of-Pocket Expenses (as defined in SECTION 6.3) incurred by it
in connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith, including, without limitation, legal and due diligence
costs.
Section 4.5 FINANCIAL INFORMATION. So long as J Net owns any shares
of Common Stock or Preferred Stock, the Company agrees to send the following
reports to J Net until J Net transfers, assigns, or sells all of the Common
Stock or Preferred Stock: (i) within ten (10) business days after the filing
with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) business day
after release, copies of all press releases issued by the Company or any of its
subsidiaries; (iii) contemporaneously with the making available or giving to the
stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders; and (iv) any other
financial information as may be reasonably requested by J Net subject to
appropriate confidentiality protections.
Section 4.6 LISTING. The Company shall undertake to ensure that the
Common Stock shall have been authorized for quotation on NASDAQ and trading in
the Common Stock on NASDAQ shall not have been suspended for any prolonged
period of time by the SEC or NASDAQ. The Company shall maintain the listing and
trading of its Common Stock on NASDAQ, NASDAQ Small Cap Market, the New York
Stock Exchange, or the American Stock Exchange and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers and such exchanges, as
applicable. The Company shall promptly provide to J Net copies of any notices it
receives from NASDAQ or NASDAQ Small Cap Market and any other exchanges or
quotation systems on which the Common
23
Stock is then listed regarding the continued eligibility of the Common Stock for
listing on such exchanges and quotation systems.
Section 4.7 BOARD REPRESENTATION. As of the date hereof, J Net shall
have the right to appoint one (1) additional member to the Company's board of
directors. J Net shall receive the right to appoint one (1) additional member to
the Company's board of directors on the Closing Date. From and after the Closing
Date, J Net shall have the right to propose nomination for (i) four (4) persons
to the Company's board of directors so long as J Net beneficially owns
thirty-five percent (35%) or more of the outstanding capital stock of the
Company, (ii) three (3) persons to the Company's board of directors so long as J
Net beneficially owns less than thirty-five percent (35%) and greater than or
equal to twenty percent (20%) of the outstanding capital stock of the Company or
(iii) two (2) persons to the Company's board of directors so long as J Net
beneficially owns less than twenty percent (20%) of the outstanding capital
stock of the Company. In each such case, the proposed directors shall be out of
a total number of no more than nine (9) directors comprising the Company's board
of directors and the Company shall use all reasonable efforts to have such
nominees elected; PROVIDED that such persons shall be reasonably acceptable to
the Company's board of directors.
Section 4.8 HSR APPROVAL. As promptly as practicable after the
execution of this Agreement, each party shall, in cooperation with the other,
file or cause to be filed any reports, notifications or other information that
may be required to comply with the applicable requirements of the HSR Act, shall
in connection with any such filings, if applicable, request early termination of
the relevant waiting period and shall furnish or cause to be furnished to the
other all such information in its possession as may be reasonably necessary for
the completion of the reports, notifications or submissions to be filed by the
other.
Section 4.9 SUPPLEMENTAL SCHEDULES. With respect to facts and
circumstances that arise after the date of this Agreement, the parties shall
supplement the schedules to this Agreement to the extent that such facts and
circumstances would have been required to be set forth on such schedules had
they existed on the date of this Agreement, and such supplements shall be deemed
to be part of the schedules for all purposes hereunder. Notwithstanding the
foregoing sentence, the parties shall be under no obligation to supplement the
schedules after the Closing Date.
Section 4.10 ACCESS TO INFORMATION. Upon reasonable notice, each
party shall, and shall cause its subsidiaries to, afford to the officers,
directors, employees, accountants, counsel, investment banker, financial advisor
and other representatives of the other (collectively, "REPRESENTATIVES")
reasonable access, during normal business hours throughout the period prior to
the Closing Date, to all of its properties, operating facilities, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
to the extent that such party or any of its subsidiaries is not under a legal
obligation not to provide access or to the extent that such access would not
constitute a waiver of the attorney-client privilege and does not unreasonably
interfere with the business and operations of such party; provided that such
right of access shall include reasonable environmental assessment with respect
to any properties of the parties hereto or their respective subsidiaries. During
such period, each party shall, and shall cause its subsidiaries to, furnish
promptly to the other (a) access to each reasonably available report, schedule
and other document filed or received by it or any of its subsidiaries pursuant
to the requirements of federal or state securities laws or filed with the SEC,
the Department of Justice, the Federal Trade Commission,
24
any state authority with jurisdiction over public utilities or any other federal
or any state regulatory agency or commission, and (b) all information concerning
themselves, their subsidiaries, directors, officers and shareholders and such
matters as may be reasonably requested by the other party in connection with any
filings, applications or approvals required or contemplated by this Agreement.
All documents and information furnished pursuant to this SECTION 4.10 shall be
subject to the Confidentiality Agreement, dated October 6, 2000, between J Net
and the Company (the "CONFIDENTIALITY AGREEMENT"). The party requesting copies
of any documents from any other party hereto shall be responsible for all
out-of-pocket expenses incurred by the party to whom such request is made in
complying with such request, including any cost of reproducing and delivering
any required information.
Section 4.11 RIGHTS OFFERING. On the date hereof, the parties hereto
shall enter into a Stand-By Purchase Agreement and undertake to commence a
Rights Offering to be made to the holders of Common Stock (other than J Net with
respect to the Securities) (the "PUBLIC HOLDERS") enabling them to purchase
their pro rata share (as a class) of up to approximately twenty million dollars
($20,000,000) of Common Stock at a price equal to the Offering Price. As set
forth in the Stand-By Purchase Agreement, in the event less than all of the
approximately twenty million dollars ($20,000,000) of Common Stock is purchased
by the Public Holders in the Rights Offering, J Net agrees to purchase, at a
price per share equal to the Offering Price and pursuant to the Stand-By
Purchase Agreement, an amount equal to the number of shares of Common Stock not
purchased by the Public Holders in the Rights Offering. The rights offered to
the Public Holders in connection with the Rights Offering shall be transferable
upon the terms and conditions mutually agreed to by the Company and J Net.
Section 4.12 SHAREHOLDER APPROVAL. The Company shall, as promptly as
reasonably practicable after the date hereof (i) take all steps reasonably
necessary to call, give notice of, convene and hold the Company Meeting for the
purpose of securing the Company Shareholders' Approval, (ii) distribute to the
Company Shareholders the Proxy Statement in accordance with applicable federal
and state law and with its certificate of incorporation and by-laws, (iii)
through its board of directors recommend to the Company Shareholders (other than
J Net) that they give the Company Shareholders' Approval (PROVIDED that nothing
contained in this SECTION 4.12 shall require the Company's board of directors to
take any action or refrain from taking any action that such board determines in
good faith, based upon the advice of counsel and such other matters as such
board deems to be relevant, would, in the good faith judgment of such board,
result in a breach of its fiduciary duties), and (iv) cooperate and consult with
J Net with respect to each of the foregoing matters. Notwithstanding anything
contained herein to the contrary, the Company's board of directors shall not be
required to recommend to the Company Shareholders whether or not any Company
Shareholder should exercise any rights granted in connection with the Rights
Offering.
Section 4.13 REGISTRATION STATEMENT/PROXY STATEMENT. As promptly as
reasonably practicable after the date hereof, the Company shall prepare and file
with the SEC the Registration Statement and the Company shall prepare and file
with the SEC the Proxy Statement. The Company shall take such actions as may be
reasonably required to cause the Registration Statement to be declared effective
under the Securities Act as promptly as practicable after such filing. The
Company shall also take such action as may be reasonably required to cause the
shares of Common Stock issuable in connection with each of the Conversion,
Rights Offering and Overallotment Option to be registered or to obtain an
25
exemption from registration under applicable Blue Sky Laws. Each of the parties
hereto shall furnish all information concerning itself that is required or
customary for inclusion in the Registration Statement and Proxy Statement. No
representation, covenant or agreement contained in this Agreement is made by any
party hereto with respect to information supplied by any other party hereto for
inclusion in the Proxy Statement. The Registration Statement and Proxy Statement
shall comply as to form in all material respects with the Securities Act, the
Exchange Act and the rules and regulations thereunder, as applicable. The
Company shall take such action as may be reasonably required to cause the shares
of Common Stock to be issued in the Conversion, Rights Offering and
Overallotment Option to be approved for listing on the NASDAQ or NASDAQ Small
Cap Market, and any other stock exchanges agreed to by the parties, each upon
official notice of issuance. No filing of, or amendment or supplement to, the
Registration Statement or the Proxy Statement will be made without the approval
of all parties hereto, except, after consultation with the parties, any such
amendment or supplement that is required to prevent a violation of the
Securities Act of the Exchange Act or the rules promulgated thereunder. The
Company will advise J Net, promptly after it receives notice thereof, of the
time when the Registration Statement has been declared effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Common Stock issuable in connection with
the Conversion and Rights Offering for offering or sale in any jurisdiction, or
any request by the SEC for amendment of the Proxy Statement or the Registration
Statement or comments thereon and responses thereto or requests by the SEC for
additional information. If at any time prior to the Effective Time any
information relating to J Net or the Company, or any of their respective
affiliates, trustees, directors or officers, is discovered that should be set
forth in an amendment or supplement to any of the Registration Statement or the
Proxy Statement, so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party that discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by applicable law, disseminated to the Company Shareholders.
Section 4.14 ORDINARY COURSE OF BUSINESS. From the date hereof until
the Closing, except as otherwise required or expressly permitted pursuant to
this Agreement or the Stand-By Purchase Agreement, the Company shall, and shall
cause its subsidiaries to, carry on their respective businesses in the ordinary
course and in substantially the same manner as heretofore conducted. Without
limiting the generality of the foregoing, the Company shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to (i) preserve intact
their present business organizations and goodwill and preserve the goodwill and
relationships with customers, suppliers and others having significant business
dealings with them, (ii) subject to prudent management of workforce needs and
ongoing programs currently in force, keep available the services of its present
officers and employees as a group (provided that voluntary terminations of
employment by officers or employees shall not be deemed a violation of this
subsection), (iii) maintain and keep material properties and assets in as good
repair and condition as at present, subject to ordinary wear and tear, and
maintain supplies and inventories in quantities consistent with past practice,
and (iv) comply in all material respects with all laws and orders of all
Governmental Authorities applicable to it.
Section 4.15 ISSUANCE OF SECURITIES. From the date hereof until the
Closing,
26
without the prior written consent of J Net, the Company shall not, nor shall it
permit any of its subsidiaries to, issue, agree to issue, deliver, sell, pledge,
dispose of or otherwise encumber any shares of their capital stock of any class
or any securities convertible into or exchangeable for, or any rights, warrants
or options to acquire, any such shares or convertible or exchangeable
securities, other than (i) pursuant to outstanding stock options granted under
any employee benefit plans, (ii) stock options to be granted under any employee
benefit plans not to exceed options to acquire two hundred fifty thousand
(250,000) shares of Common Stock, (iii) pursuant to this Agreement and the
Stand-By Purchase Agreement and the transactions contemplated hereby and
thereby, (iv) in the case of subsidiaries, for issuances of capital stock to the
Company or any of its subsidiaries or (v) additional shares of Preferred Stock
issued as dividends to J Net.
Section 4.16 COMPANY EMPLOYEE BENEFIT PLANS. Upon completion of the
Rights Offering and subject to obtaining the Company Shareholders' Approval, the
number of shares of Common Stock issued and available for issuance under any
Company Employee Benefit Plans shall be increased in such manner as deemed
reasonably necessary by the Company's board of directors to account for the
transactions contemplated hereby.
Section 4.17 EMPLOYMENT CONTRACTS/NON-COMPETITION Agreements. The
Company shall use its reasonable best efforts to enter into agreements to retain
key employees of the Company on terms that shall be reasonably acceptable to J
Net and the Company.
Section 4.18 PRIOR AGREEMENTS. From the date hereof until the
earlier of the Closing or the termination of this Agreement in accordance with
its terms, J Net will not sell, convey, convert, transfer or redeem, or cause or
require the redemption of, the Securities, in whole or in part. The parties
hereto agree that the Securities and the Series A Agreement shall be terminated
and of no effect as of the Closing Date; provided, however, that the standstill
provision in Section 4(n) (except Section 4(n)(iii)) to the Series A Agreement
shall be terminated and of no effect as of the date hereof. In the event this
Agreement is terminated pursuant to ARTICLE VI, the Securities shall be
registered under the Securities Act as contemplated in the Registration Rights
Agreement dated November 10, 2000 (the "REGISTRATION RIGHTS AGREEMENT");
PROVIDED, HOWEVER, that the Company shall not be required to file a registration
statement pursuant to such Registration Rights Agreement or the Series A
Agreement until fifteen days following such termination. The parties hereto
agree that the Registration Rights Agreement shall be amended to include the
Conversion Shares, the Stand-By Shares and the Overallotment Option shares as
"Registrable Securities" (as defined therein).
Section 4.19 VOTING. At the Company Meeting, J Net will vote all of
its shares of Preferred Stock in favor of the Company Shareholders' Approval.
Section 4.20 TAX RECAPITALIZATION. The parties hereto intend that
the Conversion be treated as a recapitalization within the meaning of Section
368(a)(1)(E) of the Code. The parties hereto agree not to take a position
inconsistent with such intent, unless so required by a final determination of a
federal, state or local taxing authority.
27
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
CLOSING. The respective obligations of the Company and J Net to consummate the
Closing shall be subject to the satisfaction of the following conditions on or
prior to the Closing Date (unless expressly waived in writing by the Company and
J Net on or prior to the Closing Date):
(a) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any Federal or state court preventing
consummation of the transactions contemplated herein shall have been issued and
continuing in effect, and none of the transactions contemplated herein shall
have been prohibited under any applicable Federal or state law or other
regulation.
(b) STATUTORY APPROVALS. The Company Statutory Approvals and the J
Net Statutory Approvals shall have been obtained at or prior to the Closing
Date, such approvals shall have become Final Orders (as hereinafter defined),
and no Final Order shall impose terms or conditions that would have, or would be
reasonably likely to have, a J Net Material Adverse Effect or a Company Material
Adverse Effect. A "FINAL ORDER" means a determination by the relevant regulatory
authority that has not been reversed, stayed, enjoined, set aside, annulled or
suspended, with respect to which any waiting period prescribed by law before the
transactions contemplated hereby may be consummated has expired, and as to which
all conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(c) RIGHTS OFFERING. The Stand-By Purchase Agreement shall have been
entered into by each of the parties hereto.
(d) HSR ACT. The waiting period (and any extension thereof), if any,
applicable to each of the Conversion, Rights Offering and Overallotment Option
under the HSR Act shall have been terminated or shall have otherwise expired.
(e) COMPANY SHAREHOLDERS' APPROVAL. The Company Shareholders'
Approval with respect to (i) the issuance to J Net of Conversion Shares, (ii)
the amendment to the articles of incorporation of the Company to increase the
number of authorized shares of Common Stock to account for the shares of Common
Stock to be issued in connection with the Rights Offering and Overallotment
Option, (iii) the Rights Offering and (iv) the amendment of the Company Employee
Benefit Plans, as contemplated in SECTION 4.16 shall have been obtained.
Section 5.2 CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY. The
obligation of the Company to consummate the Closing is subject to the
satisfaction of the following conditions on or prior to the Closing Date (unless
expressly waived in writing by the Company on or prior to the Closing Date):
(a) COMPLIANCE BY J NET. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by J Net on or prior to the
Closing Date shall have been complied with and performed by it in all material
respects, and the representations and
28
warranties made by J Net in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date, except that any such representations and warranties that are given
as of a particular date or period and relate solely to a particular date or
period shall be true and correct as of such date or period.
(b) COMPLIANCE CERTIFICATE. J Net shall deliver to the Company a
certificate dated the Closing Date of an executive officer of J Net certifying
that the conditions specified in SECTION 5.2(A) have been satisfied.
Section 5.3 CONDITIONS TO THE OBLIGATION OF J NET. The obligation of
J Net to consummate the Closing is subject to the satisfaction of the following
conditions on or prior to the Closing Date (unless expressly waived in writing
by J Net on or prior to the Closing Date):
(a) LISTING OF SHARES. The Conversion Shares shall have been
approved for listing on the NASDAQ or NASDAQ Small Cap Market upon official
notice of issuance.
(b) COMPLIANCE BY THE COMPANY. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by the Company on
or prior to the Closing Date shall have been complied with and performed by it
in all material respects, and the representations and warranties made by the
Company in this Agreement shall be true and correct in all material respects on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties that are given as of a
particular date or period and relate solely to a particular date or period shall
be true and correct as of such date or period.
(c) COMPLIANCE CERTIFICATE. The Company shall deliver to J Net a
certificate dated the Closing Date of an executive officer of the Company
certifying that the conditions specified in SECTION 5.3(B) have been satisfied.
(d) COMPANY REQUIRED CONSENTS. The Company Required Consents (as
defined in SECTION 2.4(B)), the failure of which to be obtained would have a
Company Material Adverse Effect, shall have been obtained.
(e) OPINION OF COMPANY COUNSEL. An opinion of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
counsel to the Company, dated as of the Closing Date, shall be delivered to J
Net in form, scope and substance reasonably satisfactory to J Net.
ARTICLE VI
TERMINATION
Section 6.1 TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual written consent of the boards of directors (or any
special committee thereof) of J Net and the Company;
29
(b) by J Net or the Company, by written notice to the other party
hereto, if the Closing Date shall not have occurred on or before the date which
is twelve (12) months after the date hereof (the "TERMINATION Date"); PROVIDED,
HOWEVER, that the right to terminate this Agreement under this SECTION 6.1(B)
shall not be available to any party whose failure to fulfill any of its
obligations under this Agreement has been the cause of, or resulted directly or
indirectly in, the failure of the Closing Date to occur on or before such date;
(c) by the Company, by written notice to J Net, if the Company
Shareholders' Approval shall not have been obtained at a duly held Company
Meeting, including any adjournments thereof;
(d) by J Net or the Company, by written notice to the other, if (i)
any state or Federal law, order, rule or regulation is adopted or issued, that
has the effect, as supported by the written, reasoned opinion of outside counsel
for such party, of prohibiting the consummation of the transactions contemplated
hereby and by the Stand-By Purchase Agreement, or if (ii) any court of competent
jurisdiction in the United States or any State shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the consummation of the transactions contemplated hereby and by the Stand-By
Purchase Agreement, and such order, judgment or decree shall have become final
and nonappealable;
(e) prior to the Company Shareholders' Approval, by the Company,
upon ten (10) days' prior written notice to J Net, if, as a result of a tender
or exchange offer by a party other than J Net or any of its affiliates or any
written offer or proposal to acquire, directly or indirectly, fifty percent
(50%) or more of the combined voting power of the shares of Common Stock or all
or substantially all of the assets of the Company and its subsidiaries, taken as
a whole (each, a "COMPANY BUSINESS COMBINATION"), the Company's board of
directors (or any special committee thereof) determines that such tender or
exchange offer or other written offer or proposal be accepted or recommended to
the Company Shareholders; PROVIDED, HOWEVER, that (i) (A) the Company's board of
directors (or any special committee thereof) has reasonably concluded in good
faith (after consultation with its financial advisors) that the person or group
proposing the Company Business Combination will have adequate sources of
financing to consummate the Company Business Combination and that the Business
Combination is more favorable on the whole to the Company Shareholders (other
than J Net and its affiliates) than the transactions contemplated hereby and by
the Stand-By Purchase Agreement and (B) the Company's board of directors (or any
special committee thereof) shall have determined in good faith, after
consultation with outside counsel with respect to the board's fiduciary duties
under applicable law with respect to the proposed Company Business Combination
and such other matters as the Company's board of directors (or any special
committee thereof) deem to be relevant, that, notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement entered
into in the proper exercise of their applicable fiduciary duties, and
notwithstanding all concessions that may be offered by J Net in negotiations
entered into pursuant to clause (ii) below, such fiduciary duties would also
require the directors to reconsider such commitment as a result of such tender
or exchange offer or such proposed Company Business Combination and (ii) prior
to any such termination, the Company shall, and shall cause its respective
financial and legal advisors to, negotiate with J Net to make such adjustments
in the terms and conditions of this Agreement as would enable the Company to
proceed with the
30
transactions contemplated herein; PROVIDED FURTHER, that J Net and the Company
acknowledge and affirm that, notwithstanding anything in this SECTION 6.1(E) to
the contrary, J Net and the Company intend this Agreement to be an exclusive
agreement and, accordingly, nothing in this Agreement is intended to constitute
a solicitation of an offer or proposal from a third party for a Company Business
Combination;
(f) by the Company, by written notice to J Net, if (i) there exist
breaches of the representations and warranties of J Net made herein as of the
date hereof which breaches, individually or in the aggregate, would or would
reasonably be expected to result in a J Net Material Adverse Effect, and such
breaches shall not have been remedied within twenty (20) days after receipt by J
Net of notice in writing from the Company, specifying the nature of such
breaches and requesting that they be remedied, or (ii) there shall have been a
material breach of any agreement or covenant of J Net hereunder, and such breach
shall not have been remedied within twenty (20) days after receipt by J Net of
notice in writing from the Company, specifying the nature of such failure and
requesting that it be remedied;
(g) by J Net, by written notice to the Company, if (i) there exist
breaches of the representations and warranties of the Company made herein as of
the date hereof which breaches, individually or in the aggregate, would or would
reasonably be expected to result in a Company Material Adverse Effect, and such
breaches shall not have been remedied within twenty (20) days after receipt by
the Company of notice in writing from J Net, specifying the nature of such
breaches and requesting that they be remedied, (ii) there shall have been a
material breach of any agreement or covenant of the Company hereunder, and such
failure to perform or comply shall not have been remedied within twenty (20)
days after receipt by the Company of notice in writing from J Net, specifying
the nature of such failure and requesting that it be remedied, or (iii) the
Company's board of directors or any committee thereof (A) shall withdraw or
modify in any manner adverse to J Net its approval or recommendation of this
Agreement or the Stand-By Purchase Agreement, (B) shall fail to reaffirm such
approval or recommendation within fifteen (15) days of J Net's request, (C)
shall approve or recommend any Company Business Combination by a party other
than J Net or any of its affiliates or (D) shall resolve to take any of the
actions specified in clause (A), (B) or (C).
Section 6.2 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to SECTION 6.1, this Agreement shall become void and of no effect with
no liability on the part any party hereto, except with respect to SECTION 4.4
and SECTION 6.3 and the confidentiality provisions set forth in SECTION 4.10 and
except that nothing herein will relieve any party from any liability for any
prior breach of this Agreement.
Section 6.3 TERMINATION FEES; EXPENSES.
(a) EXPENSES PAYABLE UPON BREACH. If this Agreement is terminated
pursuant to (1) SECTION 6.1(F) or (2) SECTION 6.1(G), then the breaching party
(the "NONTERMINATING PARTY") shall promptly (but not later than five (5)
business days after receipt of notice of the amount due from the other party)
pay to the terminating party an amount equal to all documented out-of-pocket
expenses and fees incurred by such terminating party (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors arising out of, in connection
with or related to the Conversion or the
31
transactions contemplated by this Agreement) ("OUT-OF-POCKET EXPENSES");
PROVIDED, HOWEVER, that, if this Agreement is terminated under the circumstances
described above by a party as a result of a willful breach or failure to perform
or comply with agreements and covenants by the Nonterminating Party, the
terminating party may pursue any remedies available to it at law or in equity
and such party's remedies shall not be limited to its Out-of-Pocket Expenses.
(b) TERMINATION FEE PAYABLE UPON TERMINATION PURSUANT TO SECTION
6.1(E). If Company terminates this Agreement pursuant to SECTION 6.1(E),
simultaneously with such termination it shall pay to J Net a fee equal to two
million five hundred thousand dollars ($2,500,000) (the "TERMINATION FEE") plus
Out-of-Pocket Expenses.
(c) TERMINATION FEE IN CERTAIN OTHER EVENTS. If this Agreement is
terminated (A) pursuant to SECTION 6.1(B), (B) pursuant to SECTION 6.1(C)
following a failure to obtain the Company Shareholders' Approvals (a "COMPANY
SHAREHOLDER DISAPPROVAL"), or (C) pursuant to SECTION 6.1(G) as a result of a
material breach by the Company of SECTION 4.12, and, in the case of (A), (B) or
(C) above, (1) at the time of such termination (or, in the case of any
termination following a Company Shareholder Disapproval, at the time of the
Company Meeting at which such Company Shareholder Disapproval occurred), there
shall have been a tender or exchange offer or Company Business Combination
involving the Company which, at the time of such termination (or of the Company
Meeting) shall not have been (y) rejected by the Company and its board of
directors and (z) withdrawn by the third party, or (2) within eighteen months of
such termination the Company shall have entered into a definitive agreement with
respect to a Company Business Combination, then promptly (but not later than
five (5) business days after receipt of notice of the amount due from J Net) the
Company shall pay to J Net a termination fee equal to the Termination Fee plus
Out-of-Pocket Expenses; PROVIDED, HOWEVER, that no such amounts shall be payable
if and to the extent the Company already shall have paid any such amounts
pursuant to SECTION 6.3.
(d) EXPENSES. The parties agree that the agreements contained in
this SECTION 6.3 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fees due hereunder, such defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Citibank, N. A. in New York,
New York in effect from time to time from the date such fee was required to be
paid
32
ARTICLE VII
GOVERNING LAW; MISCELLANEOUS
Section 7.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in the State of New York (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States Federal courts and the state courts located in
New York with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
Section 7.2 COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement
may be executed in one or more counterparts, all of which shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
Section 7.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
Section 7.4 SEVERABILITY. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
Section 7.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the
schedules and exhibits hereto and the instruments referenced herein contain the
entire understanding of the parties with respect to the matters covered herein
and therein and, except as specifically set forth herein or therein, neither the
Company nor J Net makes any representation, warranty, covenant or undertaking
with respect to such matters. This Agreement supercedes Article 8 of the
Confidentiality Agreement dated October 6, 2000 between the Company and J Net.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
Section 7.6 NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon
33
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
InterWorld Corporation
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chairman of the Board
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to J Net: To the address set forth immediately below J Net's name
on the signature pages hereto.
J Net Enterprises Inc.
c/o J Net Venture Partners LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇▇▇▇▇▇ Traurig, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Annex, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Each party shall provide notice to the other party of any change in
address.
Section 7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor J Net shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, J Net may assign its rights hereunder to (i) any
of its "affiliates," as that term is defined under the Exchange Act and (ii) any
person that purchases Securities in a private transaction from J Net, without
the consent of the Company.
34
Section 7.8 THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 SURVIVAL; INDEMNIFICATION. The representations and
warranties and the agreements and covenants set forth in ARTICLES II, III, IV, V
and VII shall survive the Closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of J Net or the Company. The Company
agrees to indemnify and hold harmless J Net and all its officers, directors,
employees and agents for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its representations,
warranties and covenants set forth in ARTICLES II and IV hereof or any of its
covenants and obligations under this Agreement, including any expenses incurred
therewith. J Net agrees to indemnify and hold harmless the Company and all its
officers, directors, employees and agents for loss or damage arising as a result
of or related to any breach or alleged breach by J Net of any of its
representations, warranties and covenants set forth in ARTICLES III and IV
hereof or any of its covenants and obligations under this Agreement, including
any expenses incurred therewith.
Section 7.10 PUBLICITY. The Company and J Net shall have the right
to review a reasonable period of time before issuance of any press releases,
filings with the SEC, the NASDAQ or any stock exchange or interdealer quotation
system, or any other public statements with respect to the transactions
contemplated hereby; PROVIDED, HOWEVER, that the Company shall be entitled,
without the prior approval of J Net, to make any press release or public filings
with respect to such transactions as is required by applicable law and
regulations (although J Net shall be consulted by the Company in connection with
any such press release prior to its release and shall be provided with a copy
thereof and be given an opportunity to comment thereon).
Section 7.11 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 7.12 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 7.13 REMEDIES. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to J Net by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that J Net
shall be entitled, in addition to all other available remedies in law or in
equity, to an injunction or injunctions to prevent or cure any breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.
35
IN WITNESS WHEREOF, the undersigned J Net and the Company have
caused this Agreement to be duly executed as of the date first above written.
INTERWORLD CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chairman, President & CEO
J NET ENTERPRISES, INC
By: /s/ ▇▇▇▇ ▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: President & COO
36