EXHIBIT 10.1
UNIT PURCHASE AGREEMENT
DATED JUNE 11, 1997
BETWEEN
REAL EDUCATION, INC.
AND
THE PERSONS LISTED ON THE ATTACHED SCHEDULE OF PURCHASERS
TABLE OF CONTENTS
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PAGE
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1. DEFINITIONS............................................................................................. 1
2 AUTHORIZATION AND CLOSING............................................................................... 4
A. AUTHORIZATION OF THE UNITS......................................................................... 4
B. PURCHASE AND SALE OF THE UNITS..................................................................... 4
C. THE CLOSING........................................................................................ 4
3. CONDITIONS OF EACH PURCHASER'S OBLIGATION AT THE CLOSING................................................ 5
A. REPRESENTATIONS AND WARRANTIES: COVENANTS.......................................................... 5
B. NO MATERIAL ADVERSE CHANGE......................................................................... 5
C. CHARTER AMENDMENT.................................................................................. 5
D. COMPANY'S BYLAWS................................................................................... 5
E. REGISTRATION AGREEMENT............................................................................. 5
F. STOCKHOLDERS AGREEMENT............................................................................. 5
G. CONSULTING AGREEMENT............................................................................... 6
H. EMPLOYMENT AGREEMENTS.............................................................................. 6
I. BOARD OF DIRECTORS................................................................................. 6
J. BLUE SKY CLEARANCE................................................................................. 6
K. OPINION OF THE COMPANY'S COUNSEL................................................................... 6
L. PROCEEDINGS........................................................................................ 6
M. WAIVER............................................................................................. 7
N. CLOSING DOCUMENTS.................................................................................. 7
4. COVENANTS............................................................................................... 7
A. FINANCIAL STATEMENTS AND OTHER INFORMATION......................................................... 8
B. INSPECTION OF PROPERTY............................................................................. 9
C. DIRECTORS' MEETINGS; EXPENSES AND INDEMNIFICATION.................................................. 9
D. ATTENDANCE AT BOARD MEETINGS....................................................................... 9
E. BOARD APPROVALS.................................................................................... 10
F. RESTRICTIONS....................................................................................... 10
G. AFFIRMATIVE COVENANTS.............................................................................. 13
H. COMPLIANCE WITH AGREEMENTS......................................................................... 14
I. CURRENT PUBLIC INFORMATION......................................................................... 14
J. RESERVATION OF COMMON STOCK........................................................................ 15
K. PROPRIETARY RIGHTS................................................................................. 15
L. FIRST REFUSAL RIGHTS............................................................................... 15
M. MANAGEMENT STOCK POOL.............................................................................. 16
N. USE OF PROCEEDS.................................................................................... 16
5. TRANSFER OF RESTRICTED SECURITIES....................................................................... 17
6. REPRESENTATIONS AND WARRANTIES OF COMPANY............................................................... 18
A. ORGANIZATION AND CORPORATE POWER................................................................... 18
B. CAPITAL STOCK AND RELATED MATTER................................................................... 18
C. SUBSIDIARIES; INVESTMENTS.......................................................................... 19
D. AUTHORIZATION; NO BREACH........................................................................... 19
E. FINANCIAL STATEMENTS............................................................................... 20
F. ABSENCE OF UNDISCLOSED LIABILITIES................................................................. 20
G. NO MATERIAL ADVERSE CHANGE......................................................................... 20
H. ABSENCE OF CERTAIN DEVELOPMENTS.................................................................... 20
I. ASSETS............................................................................................. 22
J. TAX MATTERS........................................................................................ 22
K. CONTRACTS AND COMMITMENTS.......................................................................... 22
L. PROPRIETARY RIGHTS................................................................................. 24
M. LITIGATION, ETC.................................................................................... 24
N. BROKERAGE.......................................................................................... 25
O. GOVERNMENTAL CONSENT. ETC.......................................................................... 25
P. INSURANCE.......................................................................................... 25
Q. EMPLOYEES.......................................................................................... 25
R. ERISA.............................................................................................. 25
S. COMPLIANCE WITH LAWS............................................................................... 26
T. AFFILIATED TRANSACTION............................................................................. 26
U. DISCLOSURE......................................................................................... 26
V. CLOSING DATE....................................................................................... 27
7. MISCELLANEOUS........................................................................................... 27
A. EXPENSES........................................................................................... 27
B. PURCHASER'S INVESTMENT REPRESENTATIONS............................................................. 28
C. CONSENT TO AMENDMENTS.............................................................................. 29
D. SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................................................... 29
E. SUCCESSORS AND ASSIGNS............................................................................. 29
F. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES........................................................... 30
G. SEVERABILITY....................................................................................... 30
H. COUNTERPARTS....................................................................................... 30
I. DESCRIPTIVE HEADINGS; INTERPRETATION............................................................... 30
J. NOTICES............................................................................................ 30
UNIT PURCHASE AGREEMENT
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THIS AGREEMENT is made as of June 11, 1997, between REAL EDUCATION, INC.,
a Colorado corporation (the "COMPANY"), and the Persons listed on the Schedule
of Purchasers attached hereto (collectively referred to herein as the
"PURCHASERS" and individually as a "PURCHASER"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 1 hereof.
The parties hereto agree as follows:
1. Definitions. For the purposes of this Agreement, the following
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terms have the meanings set forth below:
"AFFILIATE" of any particular person or entity means any other person
or entity controlling, controlled by or under common control with such
particular person or entity.
"AWE" and "AWE NOTE" shall have the meanings set in Section 3.N.
"CHARTER AMENDMENT" shall have the meaning set in Section 2.A.
"CLOSING" and "CLOSING DATE" shall have the respective meanings set
in Section 2.C.
"COMMON STOCK" shall mean the Company's Common Stock, no par value per
share.
"COMPENSATORY STOCK" means Common Stock (or options to purchase Common
Stock) issued for compensatory or incentive purposes to directors, officers,
employees and consultants of the Company, issuances of which are from time to
time approved by the Company's Board of Directors.
"EBITDA" for a particular accounting period shall mean the sum of the
Company's net income (or loss) plus net interest expense, tax expense and
amortization and depreciation expense, as all such amounts are reported in the
Company's financial statements for such period.
"EMPLOYMENT AGREEMENT" shall have the meaning set in Section 3.H.
"INDEBTEDNESS" shall mean at a particular time, without duplication,
(i) indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which any Person is liable, contingently or
otherwise, as obligor or otherwise (other than trade payables and other current
liabilities incurred in the ordinary course of business) or any commitment by
which any Person assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit, (ii) indebtedness
guaranteed in any manner by any Person, including guarantees in the form of an
agreement to repurchase or reimburse and (iii) obligations under capitalized
leases in respect of which obligations any
Person is liable, contingently or otherwise, as obligor, guarantor or otherwise,
or in respect of which obligations any Person assures a creditor against loss.
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"KEY EMPLOYEES" shall mean those senior management and other employees
whose service is deemed significant to the continued growth and prosperity of
the Company, as specified in a schedule to be jointly developed by Company
management and representatives of the Purchasers.
"LATEST BALANCE SHEET DATE" shall mean May 31, 1997.
"NWE" shall mean New World Equities, Inc., one of the Purchasers.
"OFFICER'S CERTIFICATE" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate does not misstate any material fact and does not omit to state any
fact necessary to make the certificate not misleading.
"OPTION PLAN" shall have the meaning set in Section 4.M.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization and a governmental entity or
any department, agency or political subdivision thereof.
"PROPRIETARY RIGHTS" means all (i) patents, patent applications,
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names and corporate names and registrations and applications for
registration thereof, (iii) copyrights and registrations and applications for
registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software, data and documentation, (vi) trade
secret and other confidential information (including ideas, formulas, patentable
or unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, financial and marketing
plans and customer and supplier lists and information), (vii) other
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intellectual property rights and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"REPRESENTATIVES" shall have the meaning set in Section 4.B.
"RESTRICTED SECURITIES" means (i) the Series A Preferred issued
hereunder, (ii) the Common Stock issued upon either conversion of Series A
Preferred or upon exercise of the Warrants and (iii) any securities issued with
respect to the securities referred to in clauses (i) or (ii) above by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(b) become eligible for sale pursuant to Rule 144(k) (or any similar provision
then in force) under the Securities Act or (c) been otherwise transferred and
new certificates for them not bearing the Securities Act legend of the character
set forth in Section 7.D have been delivered by the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SERIES A PREFERRED" shall mean the Company's Series A Convertible
Preferred Stock, no par value per share.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership,
membership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of partnership, association or other business entity gains
or losses or shall be or control the managing director or general partner of
such partnership, association or other business entity.
"TREASURY REGULATIONS" means the United States Treasury Regulations
promulgated under the IRC and any reference to any particular Treasury
Regulation section shall
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be interpreted to include any final or temporary revision of or successor to
that section regardless of how numbered or classified.
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or
issuable upon either conversion of the Series A Preferred or exercise of the
Warrants and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person who holds Series A Preferred shall be deemed to be the holder of the
Underlying Common Stock obtainable upon conversion of the Series A Preferred in
connection with the transfer thereof or otherwise regardless of any restriction
or limitation on the conversion of the Series A Preferred. As to any particular
shares of Underlying Common Stock, such shares shall cease to be Underlying
Common Stock when they have been (a) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them
or (b) distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 under the Securities Act (or any similar provision then in
force).
"UNITS" shall mean the investment units of the Company's securities,
each Unit consisting of one share of Series A Preferred and one Warrant.
"WARRANT" shall mean a warrant to purchase one share of the Company's
Common Stock, exerciseable at a price of $7.58 per share, for a period of three
years from the Closing.
2. Authorization and Closing .
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A. Authorization of the Units. The Company shall authorize the issuance
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and sale to the Purchasers of 132,000 investment units ("UNITS"), each Unit
consisting of one share of its Series A Preferred, having the rights and
preferences set forth in Article II of the Company's Restated Articles of
Incorporation, the form of which is attached hereto as Exhibit A (the "CHARTER
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AMENDMENT"), and one Warrant. The Series A Preferred is convertible into shares
of the Company's Common Stock.
B. Purchase and Sale of the Units. At the Closing, the Company shall
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sell to each Purchaser and, subject to the terms and conditions set forth
herein, each Purchaser shall severally purchase from the Company, the number of
Units set forth opposite such Purchaser's name on the Schedule of Purchasers
attached hereto, at a price of $7.58 per Unit. The aggregate purchase price to
be paid by each Purchaser is set forth on the Schedule of Purchasers. The sale
of Units to each Purchaser shall constitute a separate sale hereunder.
C. The Closing. The closing of the separate purchases and sales of the
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Units (the "CLOSING") shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Ltd.
at 10:00 a.m. on June 11, 1997 (the "CLOSING DATE"), or at such other place or
on such other date as may be mutually agreeable to the Company and each
Purchaser. At the Closing, the Company shall deliver to each Purchaser stock
certificates evidencing the Series A Preferred to be purchased by such
4
Purchaser and Warrant Certificates, in the form attached hereto as Exhibit B,
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evidencing the Warrants to be purchased by such Purchaser, both registered in
such Purchaser's or its nominee's name, upon payment of the purchase price
thereof by certified or cashier's check, or wire transfer of immediately
available funds to a Company bank account designated by the Company in the
amount set forth opposite such Purchaser's name on the Schedule of Purchasers.
3. Conditions of Each Purchaser's Obligation at the Closing.
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The obligation of each Purchaser to purchase and pay for the Series A
Preferred at the Closing is subject to the satisfaction as of the Closing of the
following conditions:
A. Representations and Warranties: Covenants. The representations and
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warranties contained in Section 6 hereof shall be true and correct at and as of
the Closing as though then made, except to the extent of changes caused by the
transactions expressly contemplated herein, and the Company shall have performed
in all material respects all of the covenants required to be performed by it
hereunder prior to the Closing.
B. No Material Adverse Change. Since the Latest Balance Sheet Date,
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there shall have been no material adverse change in the business, financial
condition, operating results, assets, employee relations, customer or supplier
relations, product development efforts, research and development efforts or
business prospects of the Company and there shall have been no material casualty
loss or damage to the Company's assets (whether or not covered by insurance).
C. Charter Amendment. The Charter Amendment shall have been duly filed
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with the Colorado Secretary of State and shall be in full force and effect, and
the Company's Articles of Incorporation shall not have been further amended in
any way.
D. Company's Bylaws. The Company's bylaws shall be in the form
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attached hereto as Exhibit C.
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E. Registration Agreement. The Company and the Purchasers shall have
----------------------
entered into a registration agreement in form and substance as set forth in
Exhibit D attached hereto (the "REGISTRATION AGREEMENT") and the Registration
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Agreement shall be in full force and effect as of the Closing. All other
agreements providing for registration rights shall have been canceled (and
consolidated into the Registration Agreement) without cost or liability to the
Company.
F. Shareholders Agreement. The Company, the Purchasers and all of the
----------------------
Company's current Shareholders shall have entered into a voting agreement in
form and substance as set forth in Exhibit E attached hereto (the "SHAREHOLDERS
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AGREEMENT") and the Shareholders Agreement shall be in full force and effect at
the Closing. All other agreements relating to the voting of the Company's
capital stock shall have been canceled (and consolidated into the Shareholders
Agreement) without cost or liability to the Company.
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G. Consulting Agreement. The Company and NWE shall have entered into a
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consulting agreement in form and substance as set forth in Exhibit F attached
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hereto (the "CONSULTING AGREEMENT") and the Consulting Agreement shall be in
full force and effect as of the Closing.
H. Employment Agreements. The Company shall have entered into an
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Employment Agreement containing confidentiality and intellectual property rights
assignment provisions, in the form reviewed by the Purchasers' counsel and
satisfactory to the Purchasers (each, an "EMPLOYMENT AGREEMENT"), with each Key
Employee of, and significant consultant to, the Company, including ▇▇▇▇▇▇
▇▇▇▇▇▇▇, its President ("▇. ▇▇▇▇▇▇▇"), and each such Employment Agreement shall
not have been amended or modified and shall be in full force and effect as of
the Closing. ▇. ▇▇▇▇▇▇▇ shall have executed the Company's standard form of
"Securities: Buy-Sell" agreement, and such agreement shall remain in full force
and effect.
I. Board of Directors. The size of the Board of Directors shall be set
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at seven, Messrs. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have been
appointed as directors and Audit and Compensation Committees of the Board of
Directors shall have been appointed pursuant to the terms of the Shareholders
Agreement.
J. Blue Sky Clearance. The Company shall have made all filings under
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applicable state securities laws necessary to consummate the issuance of the
Series A Preferred pursuant to this Agreement in compliance with such laws.
K. Opinion of the Company's Counsel. Each Purchaser shall have received
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from ▇▇▇▇▇▇▇ & Associates, L.L.C., counsel for the Company, an opinion with
respect to the matters set forth in Exhibit G attached hereto, which shall be
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addressed to each Purchaser, dated the Closing Date and in form and substance
reasonably satisfactory to each Purchaser.
L. Proceedings. All corporate and other proceedings taken or required
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to be taken by the Company in connection with the transactions contemplated
hereby to be consummated at or prior to the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to Purchasers'
counsel.
M. AWE Note. The Company shall not owe principal, interest, fees,
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deferred compensation or other amounts to any Shareholders or Affiliates of the
Company, other than Advanced Worldwide Education, L.C., an Iowa limited
liability company ("AWE"). All amounts owed to AWE shall be reflected in a
single promissory note payable by the Company to AWE in the principal amount of
$443,276.96 (the "AWE NOTE"). The AWE Note shall provide that it accrues
interest at 8% per year, shall be payable as to interest only for the first year
following the Closing Date, and shall thereafter be payable in 16 equal,
quarterly payments of principal and interest. The Affiliated Transactions
Schedule shall include a brief description of the circumstances giving rise to
the original obligations to AWE.
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▇. ▇▇▇▇▇▇▇▇ Release Undertaking. ▇. ▇▇▇▇▇▇▇ shall have executed an
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undertaking to obtain a release of the Company by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and AWE, and
to indemnify and defend the Company and certain other persons until such release
is obtained.
O. Waiver. Any condition specified in this Section 3 may be waived if
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consented to by each Purchaser, provided that no such waiver shall be effective
against any Purchaser unless it is set forth in a writing executed by such
Purchaser.
P. Closing Documents. The Company shall have delivered to each
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Purchaser all of the following documents:
(1) an Officer's Certificate, dated the Closing Date, stating that the
conditions specified in Section 2 and Sections 3.A through 3.N, inclusive,
have been fully satisfied;
(2) certified copies of (a) the resolutions duly adopted by the
Company's Board of Directors authorizing the execution, delivery and
performance of this Agreement, the Warrants, the Registration Agreement,
the Shareholders Agreement, the Consulting Agreement and each of the other
agreements contemplated hereby, the filing of the Charter Amendment
referred to in Section 2.A, the adoption of the Company's bylaws referred
to in Section 3.D, the issuance and sale of the Series A Preferred, the
reservation of an aggregate of 132,000 shares of Common Stock for issuance
upon conversion of any of the authorized shares of Series A Preferred, the
reservation for issuance of an aggregate of 132,000 shares of Common Stock
for issuance upon exercise of the Warrants and the consummation of all
other transactions contemplated by this Agreement, (b) the resolutions duly
adopted by the Company's Shareholders approving the Charter Amendment and
(c) the AWE Note;
(3) certified copies of the Restated Articles of Incorporation and the
Company's bylaws, each as in effect at the Closing;
(4) copies of all third party and governmental consents, approvals and
filings required in connection with the consummation of the transactions
hereunder (including, all blue sky law filings and waivers of all
preemptive rights and rights of first refusal); and
(5) such other documents relating to the transactions contemplated by
this Agreement as Purchasers' counsel may reasonably request.
4. Covenants.
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So long as at least 83,000 shares of Series A Preferred remain outstanding
(as appropriately adjusted for any stock dividends payable in shares of Series A
Preferred and any combinations, subdivisions and split-ups of the shares of
Series A Preferred), the Company covenants and agrees to observe the covenants
stated in Sections 4.A, 4.B and 4.F. The
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Company shall comply with the remaining provisions of this Article 4 so long as
any shares of Series A Preferred remain outstanding.
A. Financial Statements and Other Information. The Company shall
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deliver to each Purchaser:
(1) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such monthly period and for the period from the beginning
of the fiscal year to the end of such month and consolidated balance sheets
of the Company and its Subsidiaries as of the end of such monthly period,
setting forth in each case comparisons to the corresponding period in the
preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied;
(2) accompanying the monthly financial statements delivered pursuant
to Section 4.A(1) above, an executive summary which discusses the Company's
results of operations and material developments in the Company's business;
(3) within 90 days after the end of each fiscal year, consolidated
statements of income and cash flows of the Company and its Subsidiaries for
such fiscal year, and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, setting forth in each case
comparisons to the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions of such
statements, an opinion containing no exceptions or qualifications (except
for qualifications regarding specified contingent liabilities) of an
accounting firm of national recognition and (b) a copy of such firm's
annual management letter to the Company's Board of Directors;
(4) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials
provided hereunder);
(5) at least 30 days but not more than 90 days prior to the beginning
of each fiscal year, an annual budget prepared on a monthly basis for the
Company and its Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets) and promptly upon
preparation thereof, any other significant budgets prepared by the Company
and any revisions of such annual or other budgets;
(6) promptly (but in any event within ten business days) after the
discovery or receipt of notice of any default under any material agreement
to which it or any of its Subsidiaries is a party or any other material
adverse event or circumstance affecting the Company or any Subsidiary
(including the filing of any material litigation against the
8
Company or any Subsidiary or the existence of any dispute with any Person
which involves a reasonable likelihood of such litigation being commenced),
an Officer's Certificate specifying the nature and period of existence
thereof and what actions the Company and its Subsidiaries have taken and
propose to take with respect thereto; and
(7) with reasonable promptness, such other information and financial
data concerning the Company and its Subsidiaries as any Purchaser may
reasonably request.
Each of the financial statements referred to in subparagraphs (1) and (3) above
shall be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end audit adjustments (none of
which would, alone or in the aggregate, be materially adverse to the financial
condition, operating results, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole).
B. Inspection of Property. The Company shall permit any
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representatives ("REPRESENTATIVES"), designated by any Purchaser or group of
purchasers holding at least 1% of the outstanding Common Stock equivalents, upon
reasonable notice and during normal business hours and such other times as any
such Representative may reasonably request, to (i) visit and inspect any of the
properties of the Company and its Subsidiaries, (ii) examine the corporate and
financial records of the Company and its Subsidiaries and make copies thereof or
extracts therefrom and (iii) discuss the affairs, finances and accounts of any
such corporations with the directors, officers, employees and independent
accountants of the Company and its Subsidiaries. The presentation of an executed
copy of this Agreement by any Purchaser to the Company's independent accountants
shall constitute the Company's permission to its independent accountants to
participate in discussions with such Persons. The inspection rights provided
under this Section 4.B may be exercised, if at all, not more than once per
calendar quarter by all Purchasers as a group.
C. Directors' Meetings; Expenses and Indemnification. There will be
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at least six meetings of the Company's Board of Directors during each fiscal
year until the first anniversary of the Closing Date; after such date, there
will be at least four meetings during each fiscal year. Upon request of any
director, all reasonable travel and other out-of-pocket expenses of such board
member incurred in connection with attending regular and special Board of
Directors' meetings, attending any meeting of any committee thereof or
conducting any other business on behalf of the Company, will be paid by the
Company. The Company shall give each director written notice of each meeting of
its Board of Directors and each committee thereof, at least ten days prior to
the date of each such meeting. Promptly after the Closing, the Company shall
enter into an indemnification agreement with each of its outside directors
providing for indemnification to the fullest extent permitted by law.
D. Attendance at Board Meetings. The Company shall give each
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Purchaser notice of each meeting of its Board of Directors and each committee
thereof at the same time and in the same manner as notice is given to the
directors (which notice shall be confirmed in writing to each such Purchaser),
and the Company shall permit each such Purchaser or a Representative
9
of such Purchaser to attend as an observer all meetings of its Board of
Directors and all committees thereof. Each Representative shall be entitled to
receive all written materials and other information (including copies of meeting
minutes) given to directors in connection with such meetings at the same time
such materials and information are given to the directors. If the Company
proposes to take any action by written consent in lieu of a meeting of its Board
of Directors or of any committee thereof, the Company shall give written notice
thereof to each such Purchaser or Representative at least five days prior to the
effective date of such consent describing in reasonable detail the nature and
substance of such action. Each Purchaser or Representative shall pay his or her
out-of-pocket expenses incurred in connection with attending such board and
committee meetings.
E. Board Approvals. The affirmative vote of a majority of the
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members of the Board of Directors attending a meeting held following due notice
shall be required to approve the following acts by the Company listed below in
this Section 4.E. The Company covenants and agrees not to enter into any such
action without the required Board of Directors consent:
(1) the authorization, execution or delivery of significant
distribution, licensing or other arrangements entered into outside the
ordinary course of business;
(2) the authorization or incurrence of any new Indebtedness (other than
Indebtedness subject to Section 4.F(14), as to which the Shareholder
approval specified by such Section shall be necessary and sufficient);
(3) all executive compensation arrangements (as to which, the Board of
Directors shall act only following an affirmative recommendation of
the Compensation Committee);
(4) approval of the Company's annual operating plan and capital budget;
(5) undertaking capital expenditures in excess of the agreed-upon
capital budget; and
(6) commencing any executive searches.
F. Restrictions. The Company shall not, without the prior written
------------
consent of the holders of at least 66 2/3% of the shares of Underlying Common
Stock, voting together as a single class:
(1) directly or indirectly redeem, purchase or otherwise acquire, or
permit any Subsidiary to redeem, purchase or otherwise acquire, any of the
Company's equity securities (including warrants, options and other rights
to acquire equity securities) other than (a) the Series A Preferred
pursuant to the terms of the Articles of Incorporation as amended by the
Charter Amendment or (b) the redemption of shares of Common Stock from
employees or consultants at a price equal to the original purchase price
paid by such consultants or employees, pursuant to "Securities Buy-Sell
Agreements" approved by the
10
Board of Directors and entered into at or prior to the time such Common
Stock was originally issued to such employees or consultants;
(2) authorize, issue or enter into any agreement providing for the
issuance (contingent or otherwise) of, or the appointment of any
underwriter in connection with the sale of (a) any notes or debt securities
containing equity features (including any notes or debt securities
convertible into or exchangeable for equity securities, issued in
connection with the issuance of equity securities or containing profit
participation features) (b) any equity securities (or any securities
convertible into or exchangeable for any equity securities) which equity
features or equity securities are in either case senior to or on a parity
with the Series A Preferred with respect to voting, the payment of
dividends, redemptions or distributions upon liquidation or otherwise or
(c) any equity securities or securities containing equity features at a
price per equivalent share of Common Stock less than $7.58, other than
securities issued upon exercise of stock options under the Option Plan;
(3) make, or permit any Subsidiary to make, any loans or advances to,
guarantees for the benefit of, or, except as otherwise permitted by Section
4.F(8) below, Investments in, any Person (other than a wholly-owned
Subsidiary), except for (a) reasonable advances to employees in the
ordinary course of business, (b) acquisitions permitted pursuant to Section
4.F(8) below, (c) advances against anticipated future license fees or
royalties in connection with acquisitions of software products or licensing
rights with respect to software products and (d) Investments having a
stated maturity no greater than one year from the date the Company makes
such Investment in (i) obligations of the United States government or any
agency thereof or obligations guaranteed by the United States government,
(ii) certificates of deposit of commercial banks having combined capital
and surplus of at least $50 million, (iii) commercial paper with a rating
of at least "Prime-l" by ▇▇▇▇▇'▇ Investors Service, Inc. or (iv) public
mutual funds which invest primarily in the instruments described in items
(i) and (iii) above;
(4) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including any reorganization
into partnership form);
(5) merge or consolidate with any Person or, except as permitted by
Section 4.F(8) below, permit any Subsidiary to merge or consolidate with
any Person (other than a wholly-owned Subsidiary);
(6) sell, lease or otherwise dispose of, or permit any Subsidiary to
sell, lease or otherwise dispose of, more than 25% of the consolidated
assets of the Company and its Subsidiaries (computed on the basis of book
value, determined in accordance with generally accepted accounting
principles, consistently applied, or fair market value, determined by the
Company's Board of Directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course
11
of business) or sell or permanently dispose of any of its or any
Subsidiary's Proprietary Rights;
(7) engage an underwriter or file with the Securities and Exchange
Commission any registration statement in either case relating to a proposed
public offering of the Company's securities, other than a Qualified IPO (as
defined in the Charter Amendment);
(8) acquire, or permit any Subsidiary to acquire, any interest in any
business (whether by a purchase of assets, purchase of stock, merger or
otherwise), or enter into any joint venture, involving an aggregate
consideration (including the assumption of liabilities whether direct or
indirect) exceeding $100,000 in any one transaction or exceeding $100,000
in the aggregate in any twelve-month period;
(9) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than those
owned, managed or operated as of the Closing;
(10) become subject to, or permit any of its Subsidiaries to become
subject to, any agreement or instrument which by its terms would (under any
circumstances) restrict the Company's right to perform the provisions of
this Agreement, the Registration Agreement, the Articles of Incorporation
or the Company's bylaws (including provisions relating to payment of
dividends on and making redemptions and conversions of the Series A
Preferred);
(11) except as expressly contemplated by this Agreement, make any
amendment to the Articles of Incorporation, or the Company's bylaws, or
file any resolution of the Board of Directors with the Colorado Secretary
of State containing any provisions, which would increase or decrease (other
than by redemption or conversion) the number of authorized shares of the
Series A Preferred or adversely affect the rights or relative priority of
the holders of the Series A Preferred or the Underlying Common Stock under
this Agreement, the Articles of Incorporation, the Company's bylaws or the
Registration Agreement;
(12) (a) enter into, or permit any Subsidiary to enter into, any
transaction with any of its or any Subsidiary's officers, directors,
employees or Affiliates (or any individual related by blood or marriage to
any such Person or any entity in which any such Person or individual owns a
beneficial interest), except (i) for normal employment arrangements and
benefit programs on reasonable terms and except as otherwise expressly
contemplated by this Agreement and (ii) in the ordinary course of and
pursuant to the reasonable requirements of its business and upon fair and
reasonable terms no less favorable to it than it would obtain in a
comparable arm's length transaction with a Person who is not an officer,
director, employee or Affiliate or (b) hire or employ any individual, other
than ▇▇▇▇ ▇▇▇▇▇▇▇, the Company's outside general counsel, related to an
officer of the Company or any Subsidiary by blood or marriage;
12
(13) establish or acquire any Subsidiaries;
(14) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, Indebtedness to any
banks or other financial institutions exceeding in the aggregate the
greater of (a) $1,000,000 or (b) four (4) times total EBITDA over the four
most recent fiscal quarters; outstanding at any time on a consolidated
basis;
(15) make any capital expenditures (including payments with respect to
capitalized leases, as determined in accordance with generally accepted
accounting principles, consistently applied but excluding any amounts of
product development expenditures which are capitalized in conformity with
generally accepted accounting principles, consistently applied) more than
35% greater than the amount authorized for such expenditures in the
applicable line item of the Company's latest annual budget, as approved
pursuant to (S)4.E(4) of this Agreement;
(16) amend the Articles of Incorporation or bylaws to set the size of
the Company's Board of Directors at any number greater than seven;
(17) issue any Common Stock, unless the purchaser or subscriber is or
becomes a party to the Shareholders Agreement; or
(18) grant any options under the Option Plan if, after giving affect
to such grant, the sum of (i) all shares of Common Stock subject to then-
outstanding options issued under the Option Plan plus (ii) all shares of
Common Stock previously issued upon the exercise of options under the
Option Plan, would exceed 90,000 shares.
G. Affirmative Covenants. The Company shall, and shall cause each
---------------------
Subsidiary to:
(1) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses;
(2) maintain and keep its properties in good repair, working order
and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly
and advantageously conducted at all times;
(3) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all claims for labor, materials or
supplies which if unpaid would reasonably be expected to have a material
adverse effect upon the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries taken
as a whole, unless and to
13
the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance
with generally accepted accounting principles, consistently applied) have
been established on its books with respect thereto;
(4) comply with all other obligations which it incurs pursuant to any
contract or agreement, whether oral or written, express or implied, as such
obligations become due, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its books with
respect thereto;
(5) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and its Subsidiaries;
(6) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for well-insured corporations of similar size
engaged in similar lines of business;
(7) maintain proper books of record and account which fairly present
its financial condition and results of operations and make provisions on
its financial statements for all such proper reserves as in each case are
required in accordance with generally accepted accounting principles,
consistently applied; and
(8) enter into and maintain Employment Agreements containing
confidentiality covenants and intellectual property rights assignments
provisions with all Key Employees of the Company and each consultant to the
Company.
H. Compliance with Agreements. The Company shall perform and observe
--------------------------
(i) all of its obligations to each holder of the Series A Preferred and all of
its obligations to each holder of the Underlying Common Stock set forth in the
Articles of Incorporation and the Company's bylaws and (ii) all of its
obligations to each holder of Registrable Securities set forth in the
Registration Agreement.
I. Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted
14
by the Securities and Exchange Commission or (ii) a registration statement on
Form S-2 or S-3 or any similar registration form hereafter adopted by the
Securities and Exchange Commission. Upon request, the Company shall deliver to
any holder of Restricted Securities a written statement as to whether it has
complied with such requirements.
J. Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the Series A
Preferred or the exercise of the Warrants, such number of shares of Common Stock
as are issuable upon the conversion of all outstanding Series A Preferred and
upon the exercise of all Warrants. The Company represents and covenants that all
shares of Common Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed (except for
official notice of issuance which shall be immediately transmitted by the
Company upon issuance).
K. Proprietary Rights. The Company shall, and shall cause each
------------------
Subsidiary to, possess and maintain all material Proprietary Rights necessary to
the conduct of their respective businesses and shall own all right, title and
interest in and to, or have a valid license for, all material Proprietary Rights
used by the Company and each Subsidiary in the conduct of their respective
businesses. Neither the Company nor any Subsidiary shall take any action, or
fail to take any action, which would result in the invalidity, abuse, misuse or
unenforceability of such Proprietary Rights or which would infringe upon any
rights of other Persons, provided that the foregoing shall not obligate the
Company to undertake litigation or other enforcement actions which the Company's
Board of Directors in its discretion determines to be not economically
justified.
L. First Refusal Rights.
--------------------
(1) Except for the issuance of (a) Compensatory Stock, (b) Common
Stock upon the conversion of the Series A Preferred, (c) Common Stock upon
exercise of the Warrants, (d) Common Stock or other equity securities in
connection with the acquisition of another business as contemplated by
Section 4.F(8) or in a transaction approved by the holders of 66 2/3% of
the Underlying Common Stock and (e) Common Stock pursuant to a public
offering registered under the Securities Act, if the Company authorizes the
issuance or sale of any shares of Common Stock or any securities containing
options or rights to acquire any shares of Common Stock (other than as a
dividend on the outstanding Common Stock), the Company shall first offer to
sell to each holder of Underlying Common Stock a portion of such stock or
securities equal to the quotient determined by dividing (1) the number of
shares of Underlying Common Stock held by such holder by (2) the sum of the
total number of shares of Underlying Common Stock and the number of shares
of Common Stock outstanding which are not shares of Underlying Common
Stock. Each holder of Underlying Common Stock shall be entitled
15
to purchase such stock or securities at the most favorable price and on the
most favorable terms as such stock or securities are to be offered to any
other Persons.
(2) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock must, within 21 days after receipt of written
notice from the Company describing in reasonable detail the stock or
securities being offered, the purchase price thereof, the payment terms and
such holder's percentage allotment, deliver a written notice to the Company
describing its election hereunder. If not all of the stock and securities
offered to the holders of Underlying Common Stock are fully subscribed by
such holders, the remaining stock and securities shall be reoffered by the
Company to the holders purchasing their full allotment upon the terms set
forth in this Section 4.L, except that such holders must exercise their
purchase rights within five days after receipt of such reoffer.
(3) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such stock or securities which the
holders of Underlying Common Stock have not elected to purchase during the
90 days following such expiration on terms and conditions no more favorable
to the purchasers thereof than those offered to such holders. Any stock or
securities offered or sold by the Company after such 90-day period must be
reoffered to the holders of Underlying Common Stock pursuant to the terms
of this Section 4.L.
(4) The rights under this Section 4.L shall terminate upon the
closing of a Qualified IPO, as such term is defined in the Charter
Amendment.
M. Management Stock Pool. The Company shall maintain its incentive
---------------------
stock option plan (the "OPTION PLAN") in the form adopted on March 24, 1997, for
which 150,000 shares of the Common Stock have been reserved, and for which no
additional shares will be reserved. The Option Plan provides for the grant of
options to the Company's employees, which options shall vest over a two year
period from the date of issuance, with 50% of the options vesting on the first
anniversary of the date of issuance and 50% on the second anniversary of the
date of issuance. The Option Plan provides, and it shall continue to be the
case, that the Compensation Committee of the Company's Board of Directors shall
determine the recipients and size of all option grants.
N. Use of Proceeds. The Company shall use no more than 25% of its
---------------
net proceeds from the sale of Units hereunder to repay principal owed by the
Company under the AWE Note. The Company covenants and agrees that, except as
provided in the prior sentence and except as required by any agreements
governing any existing debt obligations of the Company, as such agreements
existed immediately prior to the Closing Date, it shall not apply any of the
proceeds from the sale of the Units to pay, repay, discharge, or secure any
amounts of principal, interest or other amounts owing under any secured or
unsecured debt of the Company existing immediately prior to or as of the Closing
Date. The remaining proceeds shall be added to the Company's working capital and
used for general corporate purposes. Pending their
16
disposition as provided in the prior sentence, the Company covenants and agrees
to invest such proceeds in short-term, investment grade, interest-bearing
securities.
O. Insurance. Within 90 days after the Closing Date, the Company
---------
shall undertake an investigation of the availability and affordability of a
directors' and officers' liability insurance policy and report to the Board of
Directors on the results of such investigation. Further, within such time, the
Company shall obtain "key man" insurance on the life of ▇. ▇▇▇▇▇▇▇ in a minimum
amount of $1,000,000. The Company further covenants and agrees that any proceeds
received under such policy shall immediately be placed in a segregated account
and thereafter disbursed solely to fund the Company's obligations to redeem the
Series A Preferred, on the terms, and subject to the conditions, of the Charter
Amendment.
5. Transfer of Restricted Securities.
----------------------------------
Each Purchaser acknowledges that Restricted Securities are
transferable only pursuant to (i) public offerings registered under the
Securities Act, (ii) Rule 144 or Rule 144A of the Securities and Exchange
Commission (or any similar rule or rules then in force) if such rule is
available or (iii) subject to the conditions specified in subsection (A) below,
any other legally available means of transfer.
(A) In connection with the transfer of any Restricted Securities,
the holder thereof shall deliver written notice to the Company describing
in reasonable detail the transfer or proposed transfer, together with an
opinion of counsel which (to the Company's reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be effected without registration of such
Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to the Company an opinion of such
counsel that no subsequent transfer of such Restricted Securities shall
require registration under the Securities Act, the Company shall promptly
upon such contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth
in Section 7.D. If the Company is not required to deliver new certificates
for such Restricted Securities not bearing such legend, the holder thereof
shall not transfer the same until the prospective transferee has confirmed
to the Company in writing its agreement to be bound by the conditions
contained in this Section 5.A and Section 7.D.
(B) Upon the request of any Purchaser, the Company shall promptly
supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
(C) Upon the request of any holder of Restricted Securities, the
Company shall remove the foregoing legend from the certificates for such
holder's Restricted Securities; provided that such Restricted Securities
are eligible for sale pursuant to Rule 144(k). Whenever any particular
securities cease to be Restricted Securities, the holder thereof shall be
entitled to receive from the Company, without expense, new certificates
17
representing such securities but of not bearing a Securities Act legend of
the character set forth in Section 7.D.
6. Representations and Warranties of Company. As a material inducement
-----------------------------------------
to the Purchasers to enter into this Agreement and purchase the Units, the
Company hereby represents and warrants that:
A. Organization and Corporate Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of Colorado and
is qualified to do business in Colorado and in every other jurisdiction in which
its ownership of property or conduct of business requires it to qualify. The
Company has all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's charter documents and bylaws which have
been furnished to the Purchasers' counsel reflect all amendments made thereto at
any time prior to the date of this Agreement and are correct and complete.
B. Capital Stock and Related Matters.
---------------------------------
(1) As of the Closing and immediately thereafter, the authorized capital
stock of the Company shall consist of (a) 132,000 shares of Series A
Preferred, of which 132,000 shares shall be issued and outstanding, (b)
10,000,000 shares of Common Stock, of which 1,050,000 shares shall be
issued and outstanding, 132,000 shares shall be reserved for issuance upon
conversion of the Series A Preferred sold at the Closing, 132,000 shall be
reserved for issuance upon exercise of the Warrants, 13,000 shall be
reserved for issuance upon exercise of options granted to members of the
Board of Directors and 150,000 shall be reserved for issuance pursuant to
the terms of the Option Plan. As of the Closing, the Company shall not have
outstanding any stock or securities convertible or exchangeable for any
shares of its capital stock or containing any profit participation
features, nor shall it have outstanding any rights or options to subscribe
for or to purchase its capital stock or any stock or securities convertible
into or exchangeable for its capital stock or any stock appreciation rights
or phantom stock plans, except for the Series A Preferred and the Warrants
and except as set forth on the attached "CAPITALIZATION SCHEDULE." The
Capitalization Schedule accurately sets forth the following with respect to
all outstanding options and rights to acquire the Company's capital stock:
the holder, the number of shares covered, the exercise price, the grant
date and the expiration date. As of the Closing, the Company shall not be
subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock, except as
set forth on the Capitalization Schedule and except pursuant to the
Articles of Incorporation. As of the Closing, all of the outstanding shares
of the Company's capital stock shall be validly issued, fully paid and
nonassessable.
18
(2) There are no statutory or, to the best of the Company's knowledge,
contractual Shareholders' preemptive rights or rights of refusal with
respect to the issuance of the Series A Preferred hereunder or the issuance
of the Common Stock upon conversion of the Series A Preferred or the
exercise of the Warrants. The Company has not violated any applicable
federal or state securities laws in connection with the offer, sale or
issuance of any of its capital stock, and, assuming the truth of the
Purchasers' representations in Section 7.D hereof, the offer, sale and
issuance of the Units hereunder does not require registration under the
Securities Act or any applicable state securities laws. Except as described
on the Affiliate Transactions Schedule (as defined in Section 6.T), there
are no agreements between the Company and any of its Shareholders or, to
the Company's knowledge between the Company's Shareholders with respect to
the voting or transfer of the Company's capital stock or with respect to
any other aspect of the Company's affairs, except for the Registration
Agreement, the Shareholders Agreement and this Agreement.
C. Subsidiaries; Investments. The Company does not own or hold any
-------------------------
rights to acquire any shares of stock or any other security or interest in any
other Person and the Company does not have any Subsidiary. The Company formerly
owned all of the stock of Brecknet Internet Service, Inc., a Colorado
corporation ("BREKNET"). The Company sold the assets of Breknet to Vailnet, Inc.
pursuant to an Asset Purchase Agreement dated May 30, 1997. The Company
subsequently sold the stock of Breknet for a nominal consideration
D. Authorization; No Breach. The execution, delivery and performance of
------------------------
this Agreement, the Registration Agreement, the Shareholders Agreement, the
Warrants and all other agreements contemplated hereby to which the Company is a
party have been duly authorized by the Company. This Agreement, the Registration
Agreement, the Shareholders Agreement, the Warrants and all other agreements
contemplated hereby each constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms. The execution and delivery by
the Company of this Agreement, the Registration Agreement, the Shareholders
Agreement, the Warrants and all other agreements contemplated hereby to which
the Company is a party, the offering, sale and issuance of the Units hereunder,
the issuance of the Common Stock upon conversion of the Series A Preferred or
upon exercise of the Warrants and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company, do not and shall not (i)
conflict with or result in a material breach of the terms, conditions or
provisions of, (ii) constitute a material default under, (iii) result in the
creation of any lien, security interest, charge or encumbrance upon the
Company's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
material violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative or
governmental body pursuant to, the Articles of Incorporation or bylaws of the
Company, or any law, statute, rule or regulation to which the Company is
subject, or any agreement, instrument, order, Judgment or decree to which the
Company is subject.
19
E. Financial Statements. Attached hereto as the "FINANCIAL STATEMENTS
--------------------
SCHEDULE" are the unaudited balance sheets of the Company as of May 31, 1997
(the "LATEST BALANCE SHEET"), and December 31, 1996, and the related statements
of income and cash flows (or the equivalent) for the periods then ended. Each of
such financial statements (including in all cases the notes thereto, if any) is
accurate and complete in all material respects, is consistent with the books and
records of the Company (which, in turn, are accurate and complete in all
material respects) and has been prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the lack of footnote
disclosure (none of which disclosures would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries taken as a
whole).
F. Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached "LIABILITIES SCHEDULE," the Company does not have any material
obligation or liability (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to the Company, whether due or to become due and
regardless of when asserted) arising out of transactions entered into at or
prior to the Closing, any action or inaction at or prior to the Closing or any
state of facts existing at or prior to the Closing, other than: (i) liabilities
set forth on the Latest Balance Sheet (including any notes thereto), (ii)
liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a liability
resulting from breach of contract, breach of warranty, tort, infringement, claim
or lawsuit and all of which in the aggregate are not material to the Company)
and (iii) other liabilities and obligations expressly disclosed in the other
Schedules to this Agreement.
G. No Material Adverse Change. Since the date of the Latest Balance
--------------------------
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, business prospects, employee relations or
customer or supplier relations of the Company.
H. Absence of Certain Developments.
-------------------------------
(1) Except as expressly contemplated by this Agreement or as set forth on
the attached "DEVELOPMENTS SCHEDULE," since the date of the Latest Balance
Sheet, the Company has not:
a) issued any notes, bonds or other debt securities (other than
the AWE Note) or any equity securities or any securities
convertible, exchangeable or exercisable into any equity
securities;
b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into
in the ordinary course of business;
20
c) discharged or satisfied any lien or encumbrance or paid any
obligation or liability, other than current liabilities paid in
the ordinary course of business;
d) declared or made any payment or distribution of cash or other
property to its Shareholders with respect to its stock or
purchased or redeemed any shares of its stock or any warrants,
options or other rights to acquire its stock;
e) mortgaged or pledged any of its properties or assets or
subjected them to any lien, security interest, charge or other
encumbrance, except liens for current property taxes not yet due
and payable;
f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any debts
or claims;
g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate
names, copyrights or copyright registrations, trade secrets or
other intangible assets, or disclosed any proprietary
confidential information to any Person;
h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business
or consistent with past practice;
i) made capital expenditures or commitments therefor that
aggregate in excess of $25,000 (excluding any amounts of product
development expenditures which are capitalized in conformity with
generally accepted accounting principles, consistently applied);
j) entered into any other transaction other than in the ordinary
course of business or entered into any other material
transaction, whether or not in the ordinary course of business;
k) made any loans or advances to, guarantees for the benefit of,
or any Investments in, any Persons;
l) suffered any damage, destruction or casualty loss exceeding
in the aggregate $25,000, whether or not covered by insurance; or
m) made any Investment in or taken steps to incorporate any
Subsidiary.
(2) The Company has not at any time made any payments for political
contributions or made any bribes, kickback payments or other illegal
payments.
21
I. Assets. Except as set forth on the attached "ASSETS SCHEDULE," the
------
Company has good and marketable title to, or a valid leasehold interest in, the
properties and assets used by it, located on its premises or shown on the Latest
Balance Sheet or acquired thereafter, free and clear of all liens, security
interests, charges and encumbrances, except for properties and assets disposed
of in the ordinary course of business since the date of the Latest Balance Sheet
and except for liens disclosed on the Latest Balance Sheet (including any notes
thereto) and liens for current property taxes not yet due and payable. The
Company's buildings, equipment and other tangible assets are in good operating
condition in all material respects and are fit for use in the ordinary course of
business. The Company owns, or has a valid leasehold interest in, all assets
necessary for the conduct of its business as presently conducted.
J. Tax Matters. The Company has filed all tax returns which it is
-----------
required to file (taking into account all extensions of due dates) under
applicable laws and regulations; all such returns are true and correct in all
material respects; the Company has paid, or has made sufficient provision for,
all taxes due and owing by it and has withheld and paid over all taxes which it
is obligated to withhold from amounts paid or owing to any employee,
Shareholder, creditor or other third party; the Company has not waived any
statute of limitations with respect to taxes or agreed to any extension of time
with respect to a tax assessment or deficiency; the assessment of any additional
taxes for periods for which returns have been filed is not expected; no foreign,
federal, state or local tax audits are pending or being conducted with respect
to the Company, no information related to tax matters has been requested by any
foreign, federal, state or local taxing authority and no notice indicating an
intent to open an audit or other review has been received by the Company from
any foreign, federal, state or local taxing authority; and there are no material
unresolved questions or claims concerning the Company's tax liability. The
Company has not made an election under Section 341(f) of the IRC.
K. Contracts and Commitments.
-------------------------
(1) Except as expressly contemplated by this Agreement or as set forth on
the attached "CONTRACTS SCHEDULE," as of the Closing, the Company is not a
party to any written or oral:
a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or
other compensation to employees or any other employee benefit
plan or arrangement, or any contract with any labor union, or any
severance agreements;
b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or
other basis, other than the Employment Agreements, or contract
relating to loans to officers, directors or affiliates;
c) contract under which the Company has advanced or loaned any
other Person any amounts;
22
d) agreement or indenture relating to the borrowing of money or
the mortgaging, pledging or otherwise placing a lien on any
material asset or material group of assets of the Company;
e) guarantee of any obligation;
f) lease or agreement under which the Company is lessee of or
holds or operates any property, real or personal, owned by any
other party, except for any lease of real or personal property
under which the aggregate annual rental payments do not exceed
$20,000;
g) lease or agreement under which the Company is lessor of or
permits any third party to hold or operate any property, real or
personal, owned or controlled by the Company;
h) contract or group of related contracts with the same party or
group of affiliated parties the performance of which involves a
consideration in excess of $20,000;
i) assignment, license, indemnification or agreement with
respect to any intangible property (including any patent,
trademark, trade name, copyright, know-how, trade secret or
confidential information);
j) warranty agreement with respect to its services rendered or
its products sold or leased;
k) agreement under which it has granted any Person any
registration rights (including piggyback rights);
l) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
m) any other contractor agreement which is material to its
operations and business prospects.
(2) All of the contracts, agreements and instruments set forth on the
Contracts Schedule are valid, binding and enforceable in accordance with
their respective terms. The Company has performed all material obligations
required to be performed by it and is not in default under or in breach of
nor in receipt of any claim of default or breach under any contract,
agreement or instrument to which it is subject; no event has occurred which
with the passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance under any contract, agreement or
instrument to which it is subject; and the Company has no knowledge of any
breach or anticipated breach by the other parties to any contract or
commitment to which it is a party.
23
(3) The Purchasers' counsel has been supplied with a true and correct
copy of each of the written contracts and an accurate description of the
oral contracts which are referred to on the Contracts Schedule, together
with all amendments, waivers or other changes thereto.
L. Proprietary Rights. The attached "PROPRIETARY RIGHTS SCHEDULE"
------------------
contains a complete and accurate list of (i) all patented and registered
Proprietary Rights owned by the Company, specifically identified, (ii) all
pending patent applications and applications for registrations of other
Proprietary Rights filed by the Company, specifically identified, (iii) all
unregistered trade names and corporate names owned or used by the Company,
specifically identified and (iv) all unregistered trademarks, service marks and
copyrights and computer software which are material to the financial condition,
operating results, assets, operations or business prospects of the Company,
either specifically identified or described by category. The Proprietary Rights
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company to any third party with respect to any Proprietary
Rights and all licenses and other rights granted by any third party to the
Company with respect to any Proprietary Rights. The Company owns or has the
right to use pursuant to a valid license all Proprietary Rights necessary for
the operation of the businesses of the Company as presently conducted and as
presently proposed to be conducted. Except as set forth on the Proprietary
Rights Schedule, the loss or expiration of any Proprietary Right or related
group of Proprietary Rights would not have a material adverse effect on the
conduct of the Company's business, and no such loss or expiration is threatened,
pending or reasonably foreseeable. The Company has taken all necessary and
desirable actions to maintain and protect the Proprietary Rights which it owns
and uses. To the best of the Company's knowledge, the owners of any Proprietary
Rights licensed to the Company have taken all necessary and desirable actions to
maintain and protect the Proprietary Rights which are subject to such licenses.
Except as indicated on the Proprietary Rights Schedule, (i) the Company owns all
right, title and interest in and to all of the Proprietary Rights listed on such
schedule and all other Proprietary Rights material to the operation of the
business of the Company, (ii) there have been no claims made against the Company
asserting the invalidity, misuse or unenforceability of any of such rights and
there are no grounds for the same, (iii) the Company has not received a notice
of conflict with the asserted rights of others within the last five years and
(iv) the conduct of the Company's business has not infringed or misappropriated
and does not infringe or misappropriate any Proprietary Rights of other Persons,
nor would any future conduct as presently contemplated infringe any Proprietary
Rights of other Persons and, to the best of the Company's knowledge, the
Proprietary Rights owned by the Company have not been infringed or
misappropriated by other Persons.
M. Litigation, etc.. Except as set forth on the attached "LITIGATION
----------------
SCHEDULE," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company (or to the best of the Company's knowledge, pending or
threatened against or affecting any of the officers, directors or employees of
the Company with respect to their businesses or proposed business activities) at
law or in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality (including any actions, suit,
proceedings or investigations with respect
24
to the transactions contemplated by this Agreement), the Company is not subject
to any arbitration proceedings or, to the best of the Company's knowledge, any
governmental investigations or inquiries (including inquiries as to the
qualification to hold or receive any license or permit) and, to the best of the
Company's knowledge, there is no basis for any of the foregoing. The Company is
not subject to any judgment, order or decree of any court or other governmental
agency.
N. Brokerage. There are no claims for brokerage commissions, finders'
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon the Company.
The Company shall pay, and hold each Purchaser harmless against, any liability,
loss or expense (including reasonable attorneys' fees and out-of-pocket
expenses) arising in connection with any such claim.
O. Governmental Consent. etc.. No permit, consent, approval or
--------------------------
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby.
P. Insurance. The attached "INSURANCE SCHEDULE" contains a description
---------
of each insurance policy maintained by the Company with respect to its
properties, assets and businesses, and each such policy is in full force and
effect as of the Closing. The Company is not in default with respect to its
obligations under any insurance policy maintained by it.
Q. Employees. The Company is not aware that any executive or key
---------
employee of the Company or any group of employees of the Company has any current
or immediate plans to terminate employment with the Company. The Company has
complied in all material respects with all laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes, and
the Company is not aware that it has any material labor relations problems
(including any union organization activities, threatened or actual strikes or
work stoppages or material grievances). Neither the Company nor, to the best of
the Company's knowledge after due inquiry, any of its employees is subject to
any noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreements relating to, affecting or in conflict with the present or
proposed business activities of the Company, except for agreements between the
Company and its present and former employees.
R. ERISA.
-----
(1) Multiemployer Plans. The Company does not have any obligation to
-------------------
contribute to (or any other liability, including current or potential
withdrawal liability, with respect to) any "MULTIEMPLOYER PLAN" (as defined
in Section 3(37) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")).
25
(2) Retiree Welfare Plans. The Company does not maintain or have any
---------------------
obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical,
health, life insurance or other welfare-type benefits for current or future
retired or terminated employees (except for limited continued medical
benefit coverage required to be provided under Section 4980B of the IRC or
as required under applicable state law).
(3) Defined Benefit Plans. The Company does not maintain, contribute
---------------------
to or have any liability under (or with respect to) any employee plan which
is a tax-qualified "DEFINED BENEFIT PLAN" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(4) Defined Contribution Plans. The Company does not maintain,
--------------------------
contribute to or have any liability under (or with respect to) any employee
plan which is a tax-qualified "DEFINED CONTRIBUTION PLAN" (as defined in
Section 3(34) of ERISA), whether or not terminated.
(5) Other Plans. Except as explicitly set forth in the Contracts
-----------
Schedule, the Company does not maintain, contribute to or have any
liability under (or with respect to) any plan or arrangement providing
benefits to current or former employees, including any bonus plan, plan for
deferred compensation, employee health or other welfare benefit plan or
other arrangement, whether or not terminated.
S. Compliance with Laws. To the best of the Company's knowledge, the
--------------------
Company is not in material violation of any law, regulation or requirement and
has not received notice of any such violation. The Company is not subject to
any clean up liability, or has any reason to believe it may become subject to
any clean up under any federal, state or local environmental law, rule or
regulation.
T. Affiliated Transaction. Except as set forth on the attached
----------------------
"AFFILIATED TRANSACTIONS SCHEDULE," no officer, director, Shareholder or
Affiliate of the Company or any individual related by blood or marriage to any
such Person or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or has any interest in any property, real, personal
or mixed, tangible or intangible, used in or pertaining to the business of the
Company. The Affiliated Transactions Schedule contains all information required
to be stated by Section 3.N, above.
U. Disclosure. Neither this Agreement, nor any of the schedules,
----------
attachments, written statements, documents, certificates or other items prepared
or supplied to any Purchaser by or on behalf of the Company with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading. There is no fact which the Company has not disclosed to
the Purchasers in writing and of which any of its officers, directors or
executive employees is aware and which has had or would reasonably be
anticipated to have a material
26
adverse effect upon the existing or expected financial condition, operating
results, assets, customer or supplier relations, employee relations or business
prospects of the Company and its Subsidiaries taken as a whole.
V. Closing Date. The representations and warranties of the Company
------------
contained in this Section 6 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any writing
delivered by, or on behalf of, the Company to any Purchaser shall be true and
correct in all material respects on the Closing Date as though then made, except
as affected by the transactions expressly contemplated by this Agreement .
7. Miscellaneous.
-------------
A. Expenses. The Company agrees to pay, and hold each Purchaser and
--------
all holders of Series A Preferred and Underlying Common Stock harmless against
liability for the payment of, (i) the Purchasers' fees and expenses (not to
exceed $35,000) arising in connection with their legal review of the Company,
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement, including fees and disbursements of
their legal counsel, (ii) the fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement, the agreements contemplated hereby or the Articles of
Incorporation and (iii) stamp and other transfer taxes which may be payable in
respect of the execution and delivery of this Agreement or the issuance,
delivery or acquisition of any shares of Series A Preferred, the Warrants or any
shares of Common Stock issuable upon conversion of the Series A Preferred or
upon exercise of the Warrants.
(1) Remedies, Enforcement, Governing Law, Venue. (1) Each holder of
-------------------------------------------
Units and Underlying Common Stock shall have all rights and remedies set
forth in this Agreement, the Articles of Incorporation and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under
any law. Any Person having rights under any provision of this Agreement
will be entitled to enforce such rights specifically to recover damages
caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and
for other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
27
(2) (2) All questions concerning the relative rights of the Company and
its shareholders and the construction, validity and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by and
construed in accordance with the domestic laws of the State of Colorado, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Colorado or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Colorado.
(3) (3) Any controversy or claim arising out of or relating to this
Agreement, including, without limitation, the making, performance, or
interpretation of this Agreement, may be heard and resolved by any state or
federal court located in Denver or Arapahoe Counties, Colorado.
(4) (4) The parties agree that they will not seek from the court hearing
any claim under this Agreement any award or judgment for punitive damages (or
any other amount awarded for the purpose of imposing a penalty), and that if any
such award or judgment is granted, the parties agree not to seek to satisfy such
award or judgment.
(5) (5) The court hearing any claim under this Agreement shall award all
costs of the proceeding, including court costs, filing fees, travel costs of
witnesses, costs of depositions and reasonable attorney fees, to the
substantially prevailing party.
B. Purchasers' Investment Representations.
--------------------------------------
(1) Each Purchaser hereby represents that it is acquiring the Restricted
Securities purchased hereunder or acquired pursuant hereto for its own account
with the present intention of holding such securities for purposes of investment
and that it has no intention of selling such securities in a public distribution
in violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained herein shall prevent any Purchaser and
subsequent holders of Restricted Securities from transferring such securities in
compliance with the provisions of Section 5 hereof.
(2) Each Purchaser acknowledges that the Units are being issued and sold
under exemptions from registration provided in the Securities Act and under
applicable state securities laws and, therefore, cannot be sold unless
subsequently registered under the Securities Act or applicable state securities
laws or an exemption from such registrations is available. Accordingly, each
Purchaser represents and warrants that it is able to bear the economic risk of
any investment in the Series A Preferred for an indefinite period of time.
28
(3) Each certificate for Restricted Securities shall be imprinted
with a legend in substantially the following form:
"The securities represented by this certificate were originally issued
on June 11, 1997, and have not been registered under the Securities
Act of 1933, as amended. The transfer of the securities represented by
this certificate is subject to the conditions specified in the Unit
Purchase Agreement and the Shareholders Agreement, both dated as of
June 11, 1997, between the issuer (the "Company") and certain
investors, and the Company reserves the right to refuse the transfer
of such securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions shall be furnished
by the Company to the holder hereof upon written request and without
charge."
(4) Each Purchaser represents that it has had the opportunity to ask
questions and receive answers concerning the Units and to obtain whatever
information concerning the Company as has been requested by the Purchaser
in order to make its investment decision.
(5) Each Purchaser represents that (a) it is an accredited investor
for purposes of the Securities Act and (b) it is sophisticated in financial
matters and is able to evaluate the risks and benefits of any investment in
the Units.
C. Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of 66 2/3 % of the Underlying Common Stock. No other course of dealing
between the Company and the holder of any Series A Preferred, Warrant or
Underlying Common Stock or any delay in exercising any rights hereunder or under
the Articles of Incorporation shall operate as a waiver of any rights of any
such holders. For purposes of this Agreement, shares of Series A Preferred or
Underlying Common Stock held by the Company or any Subsidiaries shall not be
deemed to be outstanding.
D. Survival of Representations and Warranties. All representations and
-------------------------------------------
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and continue until the
Company has delivered to the Purchasers, in the manner specified in Section 4.A,
its audited financial statements as of and for the year ended December 31, 1998,
regardless of any investigation made by any Purchaser or on its behalf.
E. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, and whether or not any
29
express assignment has been made, the provisions of this Agreement which are for
any Purchaser's benefit as a purchaser or holder of Series A Preferred, Warrant
or Underlying Common Stock are also for the benefit of, and enforceable by, any
subsequent holder of such Series A Preferred, Warrant or such Underlying Common
Stock.
F. Generally Accepted Accounting Principles. Where any accounting
----------------------------------------
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied.
G. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
H. Counterparts. This Agreement may be executed in separate
------------
counterparts, anyone of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same agreement.
I. Descriptive Headings; Interpretation. The descriptive headings of
------------------------------------
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement. The use of the word "INCLUDING" in this Agreement shall be by
way of example rather than by limitation. Disclosure of a fact or document on
one disclosure schedule shall be deemed to be disclosure on all schedules to
which such fact or document manifestly applies.
J. Notices. All notices, demands or other commutations to be given or
-------
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable national express courier service
guaranteeing overnight delivery (charges prepaid) or mailed to the recipient by
certified or registered mail, return receipt requested and postage prepaid. Such
notices, demands and other communications shall be sent to each Purchaser at the
address indicated on the Schedule of Purchasers and to the Company at the
address indicated below:
If to the Company, to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
CEO & President
Real Education, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to :
30
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
General Counsel
▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to the Purchasers, to:
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇. Managing Partner
New World Equities, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Ltd.
▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
[Remainder of page intentionally left blank]
31
[Signature Page to Real Education, Inc. Unit Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
REAL EDUCATION, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
Its President
----------------------------
NEW WORLD EQUITIES, INC.
By. /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------
Its Senior Managing Partner
----------------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. Shielddrop
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
32
SCHEDULE OF PURCHASERS
Amount
Name #of Units Purchased ($) Address
---- --------- ------------- -------
NWE 66,000 $ 500,000 ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 19,800 150,000 ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇, #▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 19,800 150,000 ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 13,200 100,000 ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 6,600 50,000 ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ 6,600 50,000 ▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, #▇▇
------- ---------- ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
TOTALS 132,000 $1,000,000
33
LIST OF EXHIBITS
Ex. A Form of Restated Articles of Incorporation ("Charter Amendment")
Ex. B Form of Warrant Certificate
Ex. C Bylaws
Ex. D Registration Agreement
Ex. E Shareholders Agreement
Ex. F Form of Consulting Agreement
Ex. G Form of Opinion of Counsel