Common Stock Purchase and Sale Agreement - Technology Solutions Co., eLoyalty Corp., Technology Crossover Ventures and Sutter Hill Ventures
COMMON STOCK PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is entered into as of the 13th day of August, 1999 by
and among Technology Solutions Company, a Delaware corporation ("TSC"), eLoyalty
Corporation, a Delaware corporation ("eLoyalty" and, together with TSC, the
"Sellers"), and those persons listed on the signature page as Purchasers (the
"Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. Purchase and Sale of the Shares.
1.1 TSC Shares. Concurrently with the execution and delivery of this
Agreement, TSC shall sell to the Purchasers, and Purchasers shall purchase from
TSC, at the Average TSC Share Price, an aggregate of 500,000 shares of the
common stock, par value $.01 per share, of TSC (the "TSC Shares"). The number of
TSC Shares to be purchased by each Purchaser shall be as set forth opposite each
such Purchaser's name on Exhibit A. The "Average TSC Share Price" means $9.0125,
the average of the last reported closing prices per share of the Common Stock of
TSC on the Nasdaq Stock Market ("NASDAQ") for the 10 consecutive trading days
ending on June 25, 1999.
1.2 eLoyalty Shares. Upon the terms and subject to the conditions of
this Agreement (including Section 8.4), on the Funding Date (as defined below),
eLoyalty shall sell to the Purchasers, and the Purchasers shall purchase from
eLoyalty, at a price of $3.50 per share, an aggregate of 2,400,000 shares of the
common stock, par value $.01 per share, of eLoyalty (the "eLoyalty Shares" and,
together with the TSC Shares, the "Shares"). The number of eLoyalty Shares to be
purchased by each Purchaser shall be as set forth opposite each such Purchaser's
name on Exhibit A.
1.3 Acknowledgment; Commercially Reasonable Efforts. (a) Purchasers
acknowledge that, as of the date hereof, eLoyalty has no business or operations.
Prior to the Funding Date, TSC intends to transfer the eLoyalty Business to
eLoyalty. As part of such transfer, TSC intends to transfer to eLoyalty certain
assets and liabilities related to the eLoyalty Business, to enter into certain
agreements with eLoyalty relating to the provision of certain services by either
TSC or eLoyalty to the other party and to the licensing of certain assets by TSC
or eLoyalty to the other, to transfer to eLoyalty certain TSC employees engaged
in the eLoyalty Business, and to establish employee benefits plans and other
compensation arrangements for the eLoyalty employees. Such transfer is referred
to as the "Business Transfer". The "eLoyalty Business" has the meaning specified
in Exhibit B-1.
(b) Following the receipt of the Revenue Ruling (as defined herein),
Sellers agree to use their commercially reasonable efforts to effect the
Business Transfer as expeditiously as is reasonably practicable. For purposes of
the foregoing, "commercially reasonable efforts" shall include expenditures
which are customary and reasonable in transactions of the kind and nature
contemplated by this Agreement.
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2. Funding; Deliveries.
2.1 Funding Date. The purchase and sale of the eLoyalty Shares shall be
consummated on a date and at a time agreed upon by the Purchasers and eLoyalty,
but in no event later than the third day after the conditions set forth in
Sections 6.1(b) and 6.2 have been satisfied, at the offices of Sidley & Austin,
Chicago, Illinois, or at such other place as shall be agreed upon by the
Purchasers and eLoyalty. The time and date on which the purchase and sale of the
eLoyalty Shares is actually held is referred to herein as the "Funding Date."
2.2 Deliveries.
(1) Concurrently with the execution and delivery of this Agreement:
(1) TSC shall issue and deliver to the Purchasers certificates for the
number of TSC Shares set forth opposite each Purchaser's name on Exhibit A.
(2) Each Purchaser shall pay TSC an amount equal to the product of (x)
the number of TSC Shares being acquired as set forth opposite each Purchaser's
name on Exhibit A and (y) the Average TSC Share Price, by wire transfer of
immediately available funds to the bank account specified by TSC.
(2) Subject to the terms and conditions of this Agreement (including
Section 8.4), on the Funding Date:
(1) eLoyalty shall issue and deliver to the Purchasers certificates for
the number of eLoyalty Shares set forth opposite each Purchaser's name on
Exhibit A.
(2) Each Purchaser shall pay eLoyalty an amount equal to the product of
(x) the number of eLoyalty Shares being acquired as set forth opposite each
Purchaser's name on Exhibit A and (y) $3.50, by wire transfer of
immediately available funds to the bank account specified by eLoyalty.
3. Representations and Warranties of Sellers. Sellers represent and
warrant to and agree with the Purchasers as set forth in this Section 3.
Sellers' representations and warranties to the Purchasers shall be subject to
the exceptions set forth in the disclosure letter from Sellers to Purchasers
dated as of the date hereof and relating to this Agreement (the "Disclosure
Letter"). Absent fraud, the aggregate liability of Sellers for the breach of any
representation or warranty of Sellers in this Section 3 and any certificate
delivered on behalf of eLoyalty pursuant to this Agreement shall be limited to
the gross sales price of the eLoyalty Shares sold to the Purchasers by eLoyalty.
Notwithstanding anything contained herein to the contrary, on and after the
Funding Date, TSC shall have no liability whatsoever for the breach of any
representation and warranty contained in this Section 3 or in connection with
any other claim arising out of this Section 3 (collectively, "Section 3
Claims"), and, on and after the Funding Date, any rights of Purchasers in
connection with or arising out of a Section 3 Claim shall be brought solely and
exclusively against eLoyalty.
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3.1 Organization and Standing; Certificate and By-Laws. eLoyalty is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. eLoyalty
has the requisite corporate power to own and operate and to carry on the
eLoyalty Business as presently conducted. On the Funding Date, eLoyalty will be
qualified, licensed or domesticated as a foreign corporation in all
jurisdictions where the nature of its activities or of its properties owned or
leased makes such qualification, licensing or domestication necessary, other
than those jurisdictions in which the failure to do so would not reasonably be
expected to have a material adverse effect on the eLoyalty Business. eLoyalty
has furnished the Purchasers or their counsel with copies of eLoyalty's
Certificate of Incorporation and By-Laws, including all amendments thereto. Said
copies are true, correct and complete and contain all amendments through the
date of this Agreement.
3.2 Corporate Power. eLoyalty has all requisite corporate power to
enter into this Agreement and to carry out and perform its obligations under the
terms of this Agreement.
3.3 Subsidiaries. eLoyalty does not, and after the Business Transfer
will not, own or control, directly or indirectly, any equity interest in any
other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of eLoyalty consists
of 100,000,000 shares of Common Stock, $0.01 par value, and 10,000,000 shares of
Preferred Stock, $.01 par value. As of the date hereof, there are issued and
outstanding 100 shares of Common Stock and no shares of Preferred Stock. All
such shares are owned beneficially and of record by TSC and are validly issued,
fully paid and nonassessable. Except as otherwise described in this Agreement
and except for the transactions and issuances described in Section 7.5(e), as of
the date hereof, there are no outstanding rights, plans, options, warrants,
conversion rights, preemptive rights or agreements for the purchase or
acquisition from eLoyalty of any shares of its capital stock or any of its other
securities. The total number of shares of Common Stock of eLoyalty initially
available for all grants of awards over the term of the eLoyalty 1999 Stock
Incentive Plan (the "Plan"), other than Substitute Options (as defined in the
Plan), is 5,340,000, subject to adjustment as provided in the Plan. As of the
date hereof, there are 4,899,000 shares of Common Stock of eLoyalty reserved for
issuance upon the exercise of outstanding options issued pursuant to the Plan.
eLoyalty has delivered to Purchasers a copy of the form of Stock Option
Agreement which awards options under the Plan.
3.5 Authorization.
(1) All corporate action on the part of eLoyalty, its officers,
directors and stockholders necessary for the execution, performance and delivery
by eLoyalty of this Agreement have been taken or will be taken prior to the
Funding Date. This Agreement is a valid and binding obligation of eLoyalty
enforceable against it in accordance with its terms except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and rules or laws concerning equitable remedies.
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(2) The eLoyalty Shares to be sold on the Funding Date will be validly
issued, fully paid and nonassessable and free of any liens, encumbrances and/or
rights of first refusal imposed by or otherwise operating in favor of eLoyalty
or its affiliates; provided, however, that such eLoyalty Shares will be subject
to the restrictions set forth in this Agreement.
3.6 Financial Statements. eLoyalty has delivered to each Purchaser
unaudited consolidated financial statements (balance sheet and statement of
income) of eLoyalty at December 31, 1998 and for the transition period then
ended and its unaudited consolidated statement of income for the three-month
period ended March 31, 1999 (the "Financial Statements"). Except as set forth
therein, the Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that the Financial
Statements do not contain footnotes. The Financial Statements fairly present in
all material respects the financial condition and operating results of the
eLoyalty Business as of the dates, and for the periods, indicated therein,
subject in the case of the interim Financial Statements to normal year-end audit
adjustments. Except as set forth in the Financial Statements, eLoyalty has no
liabilities, contingent or otherwise, required under generally accepted
accounting principles to be reflected in the Financial Statements, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1998 and (ii) liabilities which would not reasonably be expected to
have a material adverse effect on the financial condition or results of
operations of the eLoyalty Business. eLoyalty maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
3.7 Absence of Changes. Since March 31, 1999: (a) except in connection
with the transactions contemplated by the Business Transfer, neither Seller has
entered into any transaction with any third party material to the eLoyalty
Business which was not in the ordinary course of business; (b) there has been no
materially adverse change in the financial condition or results of operations of
the eLoyalty Business; (c) there has been no damage to, destruction of or loss
of physical property of the eLoyalty Business (whether or not covered by
insurance) materially adversely affecting the eLoyalty Business; (d) neither
Seller has received notice that there has been a cancellation of an order for
services provided by the eLoyalty Business or a loss of a customer of the
eLoyalty Business, the cancellation or loss of which would reasonably be
expected to materially adversely affect the financial condition or results of
operations of the eLoyalty Business; (e) there has been no labor dispute
involving the eLoyalty Business or its employees, and none is pending or, to
eLoyalty's knowledge, threatened, in each case which would reasonably be
expected to materially adversely affect the financial condition or results of
operations of the eLoyalty Business; and (f) there have been no loans made or
bonuses awarded by the Sellers to employees, officers or directors engaged in
the eLoyalty Business, other than travel advances and other advances made in the
ordinary course of business and bonuses awarded in the ordinary course of
business.
3.8 Tax Returns. The Sellers have, in respect of the eLoyalty Business,
filed all federal and all material state and other tax returns which are
required to be filed by them and have paid all taxes shown on such returns to be
due and payable. Neither Seller has, in respect of the eLoyalty Business, been
advised that any of its returns, whether federal, state or other, have been or
are being audited as of the date hereof.
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3.9 Title to Properties and Assets; Liens, etc. TSC has, and on the
Funding Date eLoyalty will have, good and marketable title to the properties and
assets reflected in the Financial Statements (except properties and assets
disposed of since the date of the Financial Statements at fair market value in
the ordinary course of business) as being owned by such party and, with respect
to the eLoyalty Business, good title to all its leasehold estates, in each case
subject to no mortgage, pledge, lien, encumbrance or charge, other than or
resulting from taxes which have not yet become delinquent and minor liens and
encumbrances which do not in any case or in the aggregate materially detract
from the value of the property of the eLoyalty Business taken as a whole or
materially impair the operations of the eLoyalty Business and which have not
arisen otherwise than in the ordinary course of business. On the Funding Date,
eLoyalty will have sufficient title and ownership to, or sufficient rights to
use, all of the material assets necessary to conduct the eLoyalty Business
substantially as conducted as of the date hereof.
3.10 Outstanding Indebtedness. Except as disclosed in the Financial
Statements, neither Seller has, in respect of the eLoyalty Business,
indebtedness to any third party for borrowed money which either Seller has
directly or indirectly created, incurred, assumed or guaranteed, or with respect
to which eLoyalty has otherwise become directly or indirectly liable.
3.11 Patents, Trademarks, etc. TSC has, and on the Funding Date
eLoyalty will have, sufficient title and ownership of or valid licenses to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for the eLoyalty
Business as now conducted, and neither Seller is aware of any conflict with or
infringement of the rights of others. Neither Seller has received any
communications alleging, and neither Seller is aware, that the eLoyalty Business
has violated or, by conducting the eLoyalty Business as proposed, would violate,
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity.
3.12 Compliance with Other Instruments. eLoyalty is not in violation of
any term of its Certificate of Incorporation or By-Laws as heretofore amended.
Neither Seller is, in respect of the eLoyalty Business, in violation in any
material respect of any mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation applicable to it or by
which it is bound or to which its properties are subject (collectively, "Seller
Legal Requirements"), which violation or violations, individually or in the
aggregate, would reasonably be expected to have a material adverse effect on the
financial condition or results of operations of the eLoyalty Business. The
execution, delivery and performance of and compliance with this Agreement and
the transactions contemplated hereby will not result in any violation of, will
not be in conflict with, will not constitute an event that, with the lapse of
time or action by a third party, will result in a default under, any of the
Seller Legal Requirements, and will not result in the creation of any lien or
encumbrance upon any of the properties or assets of the eLoyalty Business,
except in connection with the transactions contemplated by the Business Transfer
and except for such violations, conflicts, events, liens or encumbrances which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the financial condition or the results of operations
of the eLoyalty Business.
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3.13 Employees. To eLoyalty's knowledge, none of the officers or
employees engaged primarily in the eLoyalty Business is obligated under any
contract or commitment of any nature or subject to any judgment, decree, order
or claim of any court, administrative agency, person or entity which would
conflict with any obligation of any such officer or employee to use his or her
best efforts to promote the interests of the eLoyalty Business. To eLoyalty's
knowledge, conducting the eLoyalty business as currently contemplated will not
conflict with or result in a breach of the terms, conditions or provisions of or
constitute a default under any material contract, covenant or instrument under
which any of such officers or employees is now obligated or any legal obligation
applicable to them.
3.14 Litigation, etc.. There are no actions, proceedings or
investigations pending or, to eLoyalty's knowledge, threatened against the
Sellers in respect of the eLoyalty Business which, either in any case or in the
aggregate, would reasonably be expected to result in any material adverse change
in the financial condition or results of operations of the eLoyalty Business or
in any material impairment of the right or ability of the Sellers to carry on
the eLoyalty Business as now conducted or as proposed to be conducted, and none
which questions the validity of this Agreement or any action taken or to be
taken in connection herewith. Neither Seller, in respect of the eLoyalty
Business, is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
3.15 Material Contracts and Commitments. The Disclosure Letter sets
forth as of the date hereof a true and complete list, in respect of the eLoyalty
Business, of all (i) written or oral contracts to which either Seller is a party
or otherwise bound requiring future annual expenditures by either Seller to
vendors of more than Two Hundred Fifty Thousand Dollars ($250,000), (ii)
employment, consulting or agency contracts not terminable without penalty upon
notice of ninety (90) days or less and (iii) bonus, deferred compensation,
profit sharing, pension, retirement, stock option, stock purchase or other
similar plans or arrangements (the "Material Contracts"). eLoyalty has delivered
to counsel for the Purchasers true and complete copies of all of the written
Material Contracts set forth in the Disclosure Letter requested in writing by
counsel for the Purchasers. All of the Material Contracts are valid, binding and
in full force and effect in all material respects. Neither Seller is in material
default under any of such Material Contracts. To eLoyalty's knowledge, no other
party to any of the Material Contracts is in material default thereunder.
3.16 Governmental Consent, etc. No consent, approval or authorization
of, or designation, declaration or filing with, any governmental authority on
the part of the Sellers is required in connection with the valid execution and
delivery of this Agreement or the performance of the Sellers' obligations
hereunder.
3.17 Insurance. In the reasonable judgment of eLoyalty, TSC maintains,
and on the Funding Date eLoyalty will maintain, (a) insurance on all assets and
activities of the eLoyalty Business covering property damage and loss of income
by fire or other casualty that is adequate in light of the business and risks of
the eLoyalty Business, (b) insurance protection against all other claims and
risks that is reasonable in light of the business and risks of the eLoyalty
Business and (c) directors' and officers' insurance that is reasonable in light
of the business and risks of the eLoyalty Business.
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3.18 Certain Transactions. Neither Seller, in respect of the eLoyalty
Business, is indebted, either directly or indirectly, to any of its officers,
directors or stockholders or to their respective spouses or children
(collectively "Affiliated Parties"), in any amount in excess of $100,000 other
than for payment of salary for services rendered and reasonable expenses; and
none of such Affiliated Parties are indebted to either Seller in an amount in
excess of $100,000. No Affiliated Party has any direct or indirect ownership
interest in any firm or corporation with which either Seller has a business
relationship which is material to the eLoyalty Business or, to the knowledge of
eLoyalty, any firm or corporation which competes with the eLoyalty Business. To
eLoyalty's knowledge, no Affiliated Party is, directly or indirectly, interested
in any third-party contract with either Seller which is material to the eLoyalty
Business.
3.19 Offering. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Section 5 of this Agreement, the offer,
sale and issuance of the eLoyalty Shares as contemplated by this Agreement are
exempt from the registration requirements of any applicable state and federal
securities laws, and neither eLoyalty nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
3.20 Information. Sellers have provided each Purchaser with all the
information that such Purchaser has requested in writing for deciding whether to
purchase the eLoyalty Shares.
3.21 Registration Rights. eLoyalty has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity.
3.22 Minute Books. The minute books of eLoyalty contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects. eLoyalty has delivered a true and complete
copy of the minute books to counsel for the Purchasers to the extent requested
in writing.
3.23 Labor Agreements and Actions. Neither Seller in respect of the
eLoyalty Business is bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to Sellers' knowledge, has sought to represent any of the
employees, representatives or agents of Sellers engaged primarily in the
eLoyalty Business. There is no strike or other labor dispute involving the
eLoyalty Business pending, or to Sellers' knowledge, threatened that would
reasonably be expected to have a material adverse effect on the financial
condition or results of operations of the eLoyalty Business, nor is either
Seller aware of any labor organization activity involving its employees engaged
primarily in the eLoyalty Business.
3.24 Proprietary Information Agreements. To Sellers' knowledge, each
employee at TSC's facility in Austin, Texas has executed a Proprietary
Information Agreement, substantially in the form previously delivered to
Purchasers.
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3.25 Disclosure. As of the date hereof, no representation or warranty
by eLoyalty in this Agreement, after giving effect to the disclosures set forth
in the Disclosure Letter, contains any untrue statement of a material fact or
omits to state a material fact required to be stated herein or therein or
necessary to make such representation or warranty not materially misleading.
3.26 Employee Relations. As of the date hereof, none of the individuals
set forth in the Disclosure Letter shall have resigned.
3.27 Employee Benefit Plans. As of the date hereof, eLoyalty does not
have any "Employee Benefit Plan," as defined in the Employee Retirement Income
Security Act of 1974, as amended, to which employees engaged primarily in the
eLoyalty Business are entitled to receive benefits.
4. Representations and Warranties of TSC. TSC represents and warrants to
and agrees with the Purchasers as set forth in this Section 4. The
representations and warranties of TSC shall be subject to the Disclosure Letter.
The aggregate liability of TSC for the breach of any representation or warranty
of TSC in this Section 4 shall be limited to the gross sales price of the TSC
Shares sold to the Purchasers by TSC.
4.1 Authority.
(1) TSC has all requisite corporate power to enter into this Agreement
and the TSC Registration Rights Agreement and to carry out and perform its
obligations under the terms of this Agreement and the TSC Registration Rights
Agreement.
(2) Each of this Agreement and the TSC Registration Rights Agreement
has been duly and validly authorized by TSC and duly executed and delivered by
TSC and constitutes a valid and binding obligation of TSC enforceable in
accordance with its terms, except in each case as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and rules
or laws concerning equitable remedies and except, in the case of the TSC
Registration Rights Agreement, as limited by principles of public policy.
(3) The TSC Shares to be sold on the date hereof will be validly
issued, fully paid and nonassessable and free of any liens, encumbrances and/or
rights of first refusal imposed by or otherwise operating in favor of TSC or its
affiliates; provided, however, that such TSC Shares will be subject to the
restrictions set forth in this Agreement.
4.2 Conflicts. TSC's compliance with its obligations hereunder and
under the TSC Registration Rights Agreement will not violate, conflict with or
constitute a breach of any agreement, arrangement, commitment or understanding
to which it is a party or by which it is bound.
4.3 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority or agency is required on
the part of TSC in connection with the valid execution and delivery of this
Agreement or the TSC Registration Rights
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Agreement or the offer and sale of the TSC Shares by it, except such consents,
approvals or authorizations as have already been obtained or made.
4.4 SEC Documents and Other Reports. TSC has filed all required
documents with the Securities and Exchange Commission (the "SEC") since January
1, 1998 (the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as the case may be, and, at the respective
times they were filed, none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements (including, in each case, any notes thereto) of TSC
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly presented in all material respects the consolidated financial
position of TSC and its consolidated subsidiaries as at the respective dates
thereof and the consolidated results of their operations and their consolidated
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein).
4.5 Absence of Certain Changes or Events. Except as disclosed in SEC
Documents filed with the SEC prior to the date of this Agreement, since December
31, 1998, (A) TSC and its subsidiaries have not incurred any liability or
obligation (indirect, direct or contingent) that would reasonably be expected to
result in a material adverse effect on the financial condition or results of
operations of TSC and its subsidiaries taken as a whole, (B) TSC and its
subsidiaries have not sustained any loss or interference with their business or
properties from fire, flood, windstorm, accident or other calamity (whether or
not covered by insurance) that has had a material adverse effect on the
financial condition or results of operations of TSC and its subsidiaries taken
as a whole and (C) there has been no material adverse change with respect to the
financial condition or results of operations of TSC and its subsidiaries taken
as a whole.
4.6 Litigation. There are no actions, proceedings or investigations
pending or, to TSC's knowledge, threatened against TSC which, either in any case
or in the aggregate, would reasonably be expected to result in any material
adverse change in the financial condition or results of operations of TSC and
its subsidiaries taken as a whole.
4.7 Disclosure. As of the date hereof, no representation or warranty by
TSC in this Agreement, after giving effect to the disclosures set forth in the
Disclosure Letter and the SEC Documents, contains any untrue statement of a
material fact or omits to state a material fact required to be stated herein or
therein or necessary to make such representation or warranty not materially
misleading.
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4.8 Options. As of the distribution to stockholders of TSC of the
Common Stock of eLoyalty held by TSC (the "Spin-Off"), the number of shares of
TSC Common Stock subject to options which will be converted into options to
purchase shares of eLoyalty Common Stock will not exceed 8,400,145, subject to
adjustment for any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event
involving TSC Common Stock, or any distribution to holders of TSC Common Stock
other than a regular cash dividend.
5. Representations and Warranties of the Purchasers and Restrictions on
Transfer Imposed by the Securities Act of 1933.
5.1 Representations and Warranties by Each Purchaser. Each Purchaser
understands that the Shares have not been and, except pursuant to the TSC
Registration Rights Agreement (as defined below), will not be registered under
the Securities Act, or the securities laws of any state, and that they are being
sold to the Purchasers pursuant to an exemption from registration or
qualification, as applicable, contained in the Securities Act or said state
securities laws, based in part upon the representations of the Purchasers
contained herein. Each Purchaser hereby severally represents and warrants to and
agrees with the Sellers as follows:
(1) Such Purchaser has received a copy of the Financial Statements and
the SEC Documents and has carefully reviewed the Financial Statements, the SEC
Documents and this Agreement. All matters relating to the Financial Statements,
the SEC Documents and this Agreement have been discussed with such Purchaser and
explained to such Purchaser's satisfaction by the Sellers, the management of the
Sellers or persons acting on their behalf. Such Purchaser understands that this
investment involves substantial risks and has independently examined and
investigated the Sellers in making its decision to acquire the Shares. Such
Purchaser or its representative has made inquiry deemed by it to be satisfactory
concerning each Seller, its business and services, its officers and its
personnel. The officers, directors, stockholders, employees and agents of each
Seller have made available to such Purchaser or its representative any and all
requested written information.
(2) Such Purchaser is able to bear the economic risk of the investment
contemplated by this Agreement. Such Purchaser understands that the Purchaser
must bear the economic risk of this investment indefinitely unless the Shares
are registered pursuant to the Securities Act, or an exemption from such
registration is available. Such Purchaser is acquiring the Shares for such
Purchaser's own account for investment and not with a view toward the
distribution thereof.
(3) Such Purchaser is duly organized, validly existing and in good
standing, if applicable, under the laws of the jurisdiction of its formation.
Such Purchaser has all requisite power to execute and deliver this Agreement and
to perform its obligations under this Agreement. This Agreement has been duly
and validly authorized by such Purchaser, duly executed and delivered by the
Purchaser or an authorized representative of such Purchaser and constitutes a
valid, legal and binding obligation of such Purchaser, enforceable in accordance
with its terms, except as such enforceability is limited by applicable
insolvency and other laws affecting creditors' rights generally, and by the
availability of equitable remedies. The execution and delivery of this Agreement
by such
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Purchaser, the performance by such Purchaser of its obligations under this
Agreement and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of the charter
or bylaws, as amended, of the Purchaser or other documents, as amended, pursuant
to which it was formed, as the case may be, or any statute, rule, regulation or
order of any court or governmental agency or body having jurisdiction over such
Purchaser or any of its property, or in any material respect, any mortgage,
indenture, contract, agreement or instrument to which such Purchaser is a party
or to which the Purchaser is otherwise subject.
(4) Such Purchaser is an "accredited investor" as such term is defined
in Rule 501(a) of Regulation D promulgated under the Securities Act and/or is a
partnership composed solely of partners of such Purchaser, each of whom: (i) is
an accredited investor and/or (ii) has responsibility for evaluating the
investment in the Shares by such Purchaser, with an adequate net worth and means
of providing for his current needs and possible personal contingencies to
sustain a complete loss of the partnership's investment in the Shares.
(5) Such Purchaser was not organized for the specific purpose of
acquiring the TSC Shares or the eLoyalty Shares.
(f) In the case of each Purchaser (other than Sutter Hill Ventures),
such Purchaser's sole general partner is Technology Crossover Management III,
L.L.C.
5.2 Legends. (a) Each certificate representing the Shares may be
endorsed with legends in substantially the following forms:
(1) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND ARE
"RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT.
THE SECURITIES MAY NOT BE DISPOSED OF, WHETHER BY SALE, ASSIGNMENT,
TRANSFER, MORTGAGE, PLEDGE, ENCUMBRANCE OR OTHERWISE, UNLESS SUCH
DISPOSITION IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR ANY APPLICABLE STATE "BLUE SKY" OR SECURITIES LAWS,
OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO
COUNSEL FOR THE CORPORATION THAT SUCH DISPOSITION DOES NOT REQUIRE
REGISTRATION UNDER THE ACT OR APPLICABLE BLUE SKY OR SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
(2) Any other legends required by applicable state securities laws.
(b) Neither Seller need register a transfer of any Shares, and may also
instruct its transfer agent not to register the transfer of the Shares, unless
the applicable conditions for transfer are satisfied.
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5.3 Removal of Legend and Transfer Restrictions. Any legend endorsed on
a certificate pursuant to Section 5.2(a)(i) and the stop transfer instructions
with respect to such Shares shall be removed, and the applicable Seller shall
issue a certificate without such legend to the holder thereof, if such Shares
are registered under the Securities Act and a prospectus meeting the
requirements of Section 10 of the Securities Act is available, or if such legend
may be properly removed under the terms of Rule 144 promulgated under the
Securities Act, or if such holder provides the applicable Seller with an opinion
of counsel for such holder reasonably satisfactory to legal counsel for the
applicable Seller, to the effect that such Shares may be sold, transferred or
assigned without registration.
6. Conditions.
6.1 Conditions to the Obligations of the Purchasers. (a) Each
Purchaser's obligation to purchase TSC Shares is subject to the fulfillment on
or prior to the date hereof of the conditions set forth in this Section 6.1(a).
(1) The representations and warranties made by TSC in Section 4, when
read together with the Disclosure Letter, shall be true and correct in all
material respects when made.
(2) The TSC Shares shall have been approved for listing on NASDAQ.
(3) TSC shall have entered into a Registration Rights Agreement,
substantially in the form of Exhibit C (the "TSC Registration Rights
Agreement").
(4) Purchasers shall have received an opinion of Sidley & Austin
substantially in the form attached to Exhibit D-1.
(v) Purchasers shall have received a copy of TSC's Restated Certificate
of Incorporation certified as of a recent date by the Secretary of State of
the State of Delaware.
(vi) Purchasers shall have received a certificate of good standing
issued as of a recent date by the Secretary of State of the State of
Delaware and the Secretary of State of the State of Illinois.
(vii) Purchasers shall have received a certificate of the secretary of
TSC, dated as of a recent date, as to (i) no amendments to the Restated
Certificate of Incorporation of TSC since a specified date, (ii) the By-laws
of TSC, (iii) the resolutions adopted by the Board of Directors of TSC
authorizing the execution and performance of this Agreement and the
transactions contemplated hereby and (iv) incumbency and signatures of the
officers of TSC executing this Agreement and any ancillary agreement.
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Notwithstanding the failure of any one or more of the
foregoing conditions, each Purchaser may proceed with the purchase of the TSC
Shares without satisfaction, in whole or in part, of any one or more of such
conditions and without written waiver. To the extent that on or prior to the
execution of this Agreement TSC delivers to Purchasers a written notice
specifying in reasonable detail the failure of any of such conditions or the
breach by TSC of any of the representations or warranties of TSC herein, and
nevertheless such Purchaser proceeds with the purchase of the TSC Shares, such
Purchaser shall be deemed to have waived for all purposes any rights or remedies
it may have against the Sellers by reason of the failure of any such conditions
or the breach of any such representations or warranties to the extent described
in such notice.
(b) Each Purchaser's obligation to purchase eLoyalty Shares is
subject to the fulfillment on or prior to the Funding Date of the conditions set
forth in this Section 6.1(b), any of which may be waived by such Purchaser.
(i) Each of the representations and warranties of the Sellers
contained in Section 3 that is qualified by materiality, when read
together with the Disclosure Letter as of the date hereof, shall be
true and correct on and as of the Funding Date as if made on and as of
such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct as of
such certain date), and each of the representations and warranties that
is not so qualified, when read together with the Disclosure Letter as
of the date hereof, shall be true and correct in all material respects
on and as of the Funding Date as if made on and as of such date (other
than representations and warranties which address matters only as of a
certain date which shall be true and correct in all material respects
as of such certain date), in each case except as contemplated or
permitted by this Agreement.
(ii) eLoyalty shall have performed in all material respects
all obligations and conditions herein required to be performed or
observed by it on or prior to the Funding Date.
(iii) TSC shall have received a ruling (the "Revenue Ruling")
from the Internal Revenue Service that the Spin-Off qualifies as a
tax-free distribution under Section 355 of the Internal Revenue Code of
1986, as amended.
(iv) eLoyalty shall have sufficient title and ownership to, or
sufficient rights to use, all of the material assets necessary to
conduct the eLoyalty Business substantially as conducted as of the date
hereof and as of the Funding Date.
(v) TSC shall have completed the Business Transfer, including,
without limitation, the transfer to eLoyalty of the assets described in
Exhibit B-2.
(vi) eLoyalty shall have obtained any and all consents
(including all governmental or regulatory consents, approvals or
authorizations required in connection with the valid execution and
delivery of this Agreement), permits and waivers necessary for
consummation of the transactions contemplated by this
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Agreement, except for such consents, permits and waivers which the
failure to obtain would not reasonably be expected to have a material
adverse effect on the financial condition or results of operation of the
eLoyalty Business.
(vii) No injunction or restraining order shall have been issued by any
court of competent jurisdiction and be in effect which restrains or
prohibits any material transaction contemplated hereby.
(viii) eLoyalty shall have delivered to the Purchasers a certificate,
executed by the President or any Vice President of eLoyalty, dated the
Funding Date, certifying to the fulfillment by eLoyalty of the conditions
specified in subsections (i), (ii) and (iv) of this Section 6.1(b).
(ix) Notwithstanding any other provision of this Agreement, including,
without limitation, Exhibit B-2, between the date hereof and the Funding
Date, there shall not have been any material adverse change (including,
without limitation, taking into account the terms of the Business Transfer)
in the financial condition, results of operations or prospects of the
eLoyalty Business.
(x) Purchasers shall have received opinions of Sidley & Austin and
counsel to TSC in substantially the forms attached as Exhibit D-2.
(xi) Purchasers shall have received a copy of the audited consolidated
financial statements of eLoyalty as of December 31, 1998 and for the period
then ended, and there shall not have been any material adverse change from
the Financial Statements delivered by eLoyalty pursuant to Section 3.6.
(xii) Purchasers shall have received a copy of eLoyalty's Certificate
of Incorporation, as amended, certified as of a recent date by the
Secretary of State of the State of Delaware.
(xiii) Purchasers shall have received a certificate of good standing
issued as of a recent date by the Secretary of State of the State of
Delaware.
(xiv) Purchasers shall have received a certificate of the secretary of
eLoyalty, dated as of a recent date, as to (i) no amendments to the
Certificate of Incorporation of eLoyalty since a specified date, (ii) the
By-laws of eLoyalty, (iii) the resolutions adopted by the Board of
Directors of eLoyalty authorizing the execution and performance of this
Agreement and the transactions contemplated hereby and (iv) incumbency and
signatures of the officers of eLoyalty executing this Agreement and any
ancillary agreement.
(xv) Purchasers shall have received a schedule of assets owned by or to
be contributed to eLoyalty in substantially final form at least 2 business
days prior to the Funding Date.
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<PAGE> 15
(xvi) Kelly D. Conway shall not have resigned from eLoyalty.
Notwithstanding the failure of any one or more of the foregoing
conditions, each Purchaser may proceed with the purchase of the eLoyalty Shares
without satisfaction, in whole or in part, of any one or more of such conditions
and without written waiver. To the extent that on or prior to the Funding Date
eLoyalty delivers to Purchasers a written notice specifying in reasonable detail
the failure of any of such conditions or the breach by eLoyalty of any of the
representations or warranties of eLoyalty herein, and nevertheless such
Purchaser proceeds with the purchase of the eLoyalty Shares, such Purchaser
shall be deemed to have waived for all purposes any rights or remedies it may
have against the Sellers by reason of the failure of any such conditions or the
breach of any such representations or warranties to the extent described in such
notice.
6.2 Conditions to the Obligations of eLoyalty. The obligation of
eLoyalty to sell the eLoyalty Shares and the obligations of eLoyalty to comply
with the other covenants and agreements set forth herein are subject to the
fulfillment on or prior to the Funding Date of the following conditions, any of
which may be waived by eLoyalty.
(1) The representations and warranties made by each Purchaser shall be
true and correct in all material respects on the Funding Date with the same
force and effect as if they had been made on and as of said date; and each such
Purchaser shall have performed or observed in all material respects all
obligations and conditions herein required to be performed or observed by it on
or prior to the Funding Date.
(b) TSC shall have received the Revenue Ruling.
(c) The conditions set forth in subsections (vi) and (vii) of Section
6.1(b) shall have been fulfilled.
Notwithstanding the failure of any one or more of the foregoing
conditions, eLoyalty may proceed with the sale of the eLoyalty Shares without
satisfaction, in whole or in part, of any one or more of such conditions and
without written waiver. To the extent that on or prior to the Funding Date a
Purchaser delivers to eLoyalty a written notice specifying in reasonable detail
the failure of any of such conditions or the breach by such Purchaser of any of
the representations or warranties of such Purchaser herein, and nevertheless
eLoyalty proceeds with the sale of the eLoyalty Shares, eLoyalty shall be deemed
to have waived for all purposes any rights or remedies it may have against such
Purchaser by reason of the failure of any such conditions or the breach of any
such representations or warranties to the extent described in such notice.
7. Affirmative Covenants of eLoyalty. eLoyalty hereby covenants and
agrees as follows:
7.1 Basic Financial Information. From and after the Funding Date,
eLoyalty will furnish to each Purchaser, as soon as practicable after the end of
each fiscal year, and in any event within ninety (90) days thereafter,
consolidated balance sheets of eLoyalty and its subsidiaries, if any, as at the
end of such fiscal year and consolidated statements of income and surplus and
consolidated statements of cash flows of eLoyalty and its subsidiaries, if any,
for such year, prepared in accordance
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with generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail, and certified by independent public accountants of recognized national
standing selected by eLoyalty.
7.2 Additional Financial and Other Information. From and after the
Funding Date, eLoyalty will deliver the financial and other information
hereafter described in this Section 7.2 to each Purchaser.
(1) As soon as available and in any event within forty-five (45) days
after the close of each fiscal quarter (other than at the end of a fiscal year),
quarterly unaudited financial statements of eLoyalty, including a balance sheet,
profit and loss statement, cash flow analysis, and comparison to year earlier
results and to projected results.
(2) As soon as practicable after the adoption or approval by eLoyalty's
Board of Directors, an annual plan for each fiscal year which shall include
monthly capital and operating expense budgets, cash flow statements, projected
balance sheets and profit and loss projections for each such month and for the
end of the year, itemized in such detail as the Board of Directors may
reasonably determine.
7.3 Board of Directors. From and after the Funding Date (and, in any
event, prior to the earlier to occur of eLoyalty's sale of Common Stock pursuant
to a firm commitment underwritten offering upon an effective registration
statement under the Securities Act (an "IPO") or the Spin-Off), eLoyalty shall
exert its best efforts to cause a nominee of each of Technology Crossover
Ventures and Sutter Hill Ventures to be nominated, elected and maintained as a
member of eLoyalty's Board of Directors. TSC agrees to vote its shares of Common
Stock of eLoyalty in favor of such nominees.
7.4 Employee Stock Issuances. eLoyalty shall issue shares of its
capital stock or grant options to purchase shares of its capital stock pursuant
to the Plan providing for the issuance of stock in the manner and subject to the
terms and conditions outlined in Exhibit E or upon issuance of options which are
substituted for options to purchase shares of TSC Common Stock. eLoyalty agrees
not to amend Sections 1.5 or 2.4 of the Plan to increase the number of shares of
Common Stock of eLoyalty available for issuance under the Plan.
7.5 Preemptive Rights.
(1) If, at any time after the Funding Date and prior to the termination
of these preemptive rights pursuant to Section 7.9, eLoyalty should enter into
an agreement to issue, in a transaction not registered under the Securities Act
in reliance upon a claimed exemption thereunder, any Equity Securities (as
hereinafter defined), it shall give each Purchaser the right to purchase a pro
rata portion of such privately offered Equity Securities on the same terms as
eLoyalty is willing to sell such Equity Securities to any other person. A
Purchaser's pro rata share, for purposes of this Section 7.5, is the number of
whole shares obtained by multiplying the proposed number of new Equity
Securities by a fraction, the numerator of which is the number of shares of
Common Stock of eLoyalty held by such Purchaser, and the denominator of which is
the total number of issued and
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outstanding shares of Common Stock of eLoyalty as of the date of the written
notice pursuant to subsection (b) below (assuming full exercise of all
outstanding options and conversion of all outstanding Preferred Stock). The
intention of this Section 7.5 is to provide Purchasers with an opportunity to
purchase their pro rata share of any proposed issuance of Equity Securities so
as to avoid dilution and maintain each Purchaser's respective percentage
ownership interest in eLoyalty.
(2) Prior to any sale or issuance by eLoyalty of any Equity Securities
subject to preemptive rights as described in this Section 7.5, eLoyalty shall
notify the Purchasers in writing of its intention to sell and issue such
securities, setting forth the terms under which it proposes to make such sale.
Within twenty (20) business days after receipt of such notice, each Purchaser
shall notify eLoyalty whether the Purchaser desires to exercise the option to
purchase all or any part of such Purchaser's pro rata share of the Equity
Securities so offered. If a Purchaser elects not to purchase its pro rata share,
such amount may be purchased by those Purchasers electing to purchase their pro
rata share of the Equity Securities.
(3) After termination of the twenty (20) day period specified in
subsection (b) above, eLoyalty may, during a period of ninety (90) days
following the end of such twenty (20) day period, sell and issue (or enter into
an agreement to sell and issue) such Equity Securities as to which the
Purchasers do not exercise their option to purchase, to another person upon the
same terms and conditions as those set forth in the notice to the Purchasers. In
the event eLoyalty has not sold the Equity Securities within said ninety (90)
day period, eLoyalty shall not thereafter issue or sell any Equity Securities
without again offering such securities to the Purchasers in the manner provided
above.
(4) If any Purchaser exercises its option to purchase any of the Equity
Securities offered by eLoyalty, payment for the Equity Securities shall be by
wire transfer, against delivery of the Equity Securities at the executive
offices of eLoyalty at the closing of such transaction. eLoyalty and such
Purchasers shall take all such reasonable actions as may be required by any
regulatory authority in connection with the exercise by the Purchasers of the
right to purchase Equity Securities as set forth in this Section 7.5.
(5) For purposes of this Agreement, the term "Equity Securities" shall
mean (i) Common Stock, rights, options or warrants to purchase Common Stock,
(ii) any security other than Common Stock having voting rights in the election
of the Board of Directors, not contingent upon a failure to pay dividends, (iii)
any security convertible into or exchangeable for any of the foregoing, or (iv)
any agreement or commitment to issue any of the foregoing, other than (1) the
issuance of shares of Common Stock in an IPO, (2) options to purchase shares of
Common Stock granted pursuant to the Plan and any issuance of shares of Common
Stock pursuant to such options, (3) options to purchase shares of Common Stock
which are substituted for options to purchase shares of TSC Common Stock and any
issuances of Common Stock pursuant to such options and (4) preferred stock
purchase rights in connection with a stockholders rights plan.
7.6 Confidentiality of Information. Each Purchaser agrees that all
information obtained by such Purchaser pursuant to Sections 7.1 and 7.2 shall be
deemed proprietary and confidential to eLoyalty and will not be disclosed to any
person or entity, or used other than in
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connection with the evaluation of its investment in eLoyalty, without the prior
written consent of eLoyalty; provided, however, that notwithstanding the
foregoing, each Purchaser may disclose such information without the prior
written consent of eLoyalty to its partners, associates or employees to the
extent required in order to evaluate this investment and as may be necessary to
continue to evaluate eLoyalty, it being understood that each Purchaser shall be
responsible for any breach of this Section 7.6 by its partners, associates and
employees. Each Purchaser further agrees that it will require any transferee of
its eLoyalty Shares to agree to become subject to the confidentiality
obligations of the transferring Purchaser hereunder. At the request of eLoyalty,
any Purchaser or any transferee of a Purchaser who receives information with
respect to the terms and conditions of any proposed offering pursuant to Section
7.5 or Section 7.8 or in any negotiations with eLoyalty of any private placement
shall maintain the confidentiality of such information and shall not disclose
such information to any party with whom eLoyalty is negotiating the proposed
offering or any other offering of its securities or with whom eLoyalty may
negotiate any other offering of its securities.
7.7 Management Rights Agreement. eLoyalty shall execute a management
rights letter with TCV III (Q), L.P. ("TCV"), the form of which is attached
hereto as Exhibit F, pursuant to which a TCV representative shall have the right
to attend all meetings of the eLoyalty Board of Directors in a non-voting
advisory capacity, shall be entitled to consult with and advise management of
eLoyalty on significant business issues and shall have the right to examine
eLoyalty company records.
7.8 Issuance of Equity Securities. eLoyalty covenants that, from and
after the date hereof (except as otherwise provided herein or unless Purchasers
have given their prior written consent, which consent shall not be unreasonably
withheld and which consent shall be deemed granted if Purchasers have not
delivered a written notice of objection to eLoyalty within ten (10) business
days of Purchasers' receipt of written notice of a proposed issuance of Equity
Securities), it shall not issue Equity Securities to any person, other than the
issuance of shares of eLoyalty Common Stock to TSC on or prior to the Funding
Date.
7.9 Termination of Covenants. Notwithstanding anything contained herein
to the contrary, the covenants set forth in Sections 7.1, 7.2, 7.3, 7.4, 7.5,
7.7 and 7.8 shall terminate and be of no further force and effect upon the
earlier to occur of (i) the closing of the IPO and (ii) the closing of the
Spin-Off.
8. Additional Agreements.
8.1 Indemnification; Reimbursement. Prior to the Funding Date, eLoyalty
will enter into indemnification agreements in customary form with its directors
and will amend its Certificate of Incorporation to provide for indemnification
of directors to the maximum extent permitted by law. eLoyalty will reimburse all
non-employee directors for their reasonable expenses to attend Board meetings.
8.2 IPO Lockup; Cooperation. In connection with the IPO, the Purchasers
agree to enter into a lockup agreement with the underwriters containing
customary terms and conditions and restricting sales of Common Stock of eLoyalty
for a period of up to 180 days following the IPO
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(provided (i) directors and officers of eLoyalty agree to the same lockup and
(ii) such agreement shall provide that any discretionary waiver or termination
of the restrictions of such agreements by eLoyalty or representatives of the
underwriters shall apply to all persons subject to such agreements pro rata
based on the number of shares subject to such agreements). Notwithstanding the
foregoing, shares of Common Stock of eLoyalty purchased by a Purchaser in or
following the IPO are specifically excluded from the lockup restrictions
contained in this Section 8.2. In addition, the Purchasers agree to cooperate
with the Sellers and to take such actions as may be reasonably requested by the
Sellers (including furnishing any necessary information) in order to facilitate
the IPO and the Spin-Off. eLoyalty agrees to provide Purchasers with five days
advance written notice prior to its initial filing of a Registration Statement
on Form S-1 with respect to an IPO.
8.3 Put Right. (a) If, prior to the first anniversary of the date of
this Agreement, eLoyalty has not closed an IPO or the Spin-Off, each Purchaser
may, by written notice to eLoyalty (the "Put Notice"), elect to sell all of its
eLoyalty Shares to eLoyalty at a date specified in the Put Notice, which date
shall be not less than 30 nor more than 60 days after the date the Put Notice is
delivered to eLoyalty. Upon delivery of the Put Notice, eLoyalty shall be
obligated to purchase from such Purchaser, and such Purchaser shall be obligated
to sell to eLoyalty, such eLoyalty Shares on such date at a purchase price of $4
per eLoyalty Share as adjusted pursuant to Section 8.4(b) below (the "Put
Price"). Following the closing of the purchase of such Purchaser's eLoyalty
Shares, the Sellers shall have no further liability or obligation whatsoever to
such Purchaser under this Agreement or in connection with the sale of Shares or
otherwise.
(b) If at any time after the Funding Date and prior to the earlier to
occur of the closing of the IPO or the Spin-Off, TSC ceases to own a majority of
the outstanding eLoyalty shares on a fully diluted basis or eLoyalty enters into
an agreement to sell all or substantially all of its assets, each Purchaser may
deliver a Put Notice to eLoyalty. Upon delivery of the Put Notice, eLoyalty
shall be obligated to purchase from such Purchaser, and such Purchaser shall be
obligated to sell to eLoyalty, all of its eLoyalty Shares on the date specified
in the Put Notice at the Put Price (which shall in no event be earlier than the
closing of the proposed transaction). Following the closing of the purchase of
such Purchaser's eLoyalty Shares, the Sellers shall have no further liability or
obligation whatsoever to such Purchaser under this Agreement or in connection
with the sale of Shares or otherwise.
8.4 Adjustment of Number of eLoyalty Shares and Put Right. (a) The
Purchasers acknowledge that the number of eLoyalty Shares being sold pursuant to
this Agreement was calculated based upon the assumption that the aggregate
number of shares of Common Stock of eLoyalty to be owned by TSC on the Funding
Date will be 41,400,000. The number of eLoyalty Shares being sold pursuant to
this Agreement (i.e., initially 2,400,000) and the per share purchase price
(i.e., initially $3.50) shall be adjusted on the Funding Date as follows. The
number of eLoyalty Shares being sold pursuant to this Agreement shall be
adjusted to equal the number of eLoyalty Shares subject to this Agreement
immediately prior to the Funding Date multiplied by the Adjustment Ratio (as
hereinafter defined). The per share purchase price applicable hereto shall be
adjusted to equal the per share price applicable hereto immediately prior to the
Funding Date divided by the Adjustment Ratio and then rounded up to the nearest
cent. Any adjustment that would otherwise result in the purchase of a fraction
of an eLoyalty Share shall be rounded to the nearest whole
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number. As used herein, the term "Adjustment Ratio" shall mean that number,
equal to a fraction, rounded down to the nearest one-millionth, the numerator of
which shall be equal to the number of shares of Common Stock of eLoyalty owned
by TSC on the Funding Date and the denominator of which is 41,400,000.
Notwithstanding the foregoing adjustment to the number of eLoyalty Shares being
sold pursuant to this Agreement, in no event shall the aggregate number of
eLoyalty Shares available for purchase by the Purchasers on the Funding Date
equal less than 4.171% of the Fully Diluted Capitalization of eLoyalty. For
purposes of this Section 8.4, "Fully Diluted Capitalization" means the number of
shares of eLoyalty Common Stock equal to the sum of the following: (i) the
number of shares of eLoyalty Common Stock held by TSC (i.e., assumed to be
41,400,000 shares as of the date hereof); (ii) the number of shares of eLoyalty
Common Stock subject to options that are contemplated to be granted in
connection with the Spin-Off in substitution for options to acquire shares of
TSC Common Stock (i.e., assumed to be 8,400,145 shares as of the date hereof);
(iii) the number of shares of eLoyalty Common Stock (other than those described
in clause (ii)) that are reserved for issuance pursuant to the Plan as of the
date hereof (i.e., assumed to be 5,340,000 shares); and (iv) the number of
shares of eLoyalty Common Stock acquired by the Purchasers pursuant to this
Agreement. For purposes of determining the calculation in clause (ii) above, it
is agreed that the number of shares of TSC Common Stock subject to options which
may be converted into eLoyalty options shall be multiplied by the Adjustment
Ratio in order to obtain the relevant number of shares of eLoyalty Common Stock
subject to options. No adjustment shall be made after the Funding Date if the
actual number of eLoyalty shares under clause (ii) as of the Spin-Off varies
from the assumed number for purposes of this calculation.
(b) In the event of any adjustment pursuant to Section 8.4(a), the
parties agree that the Put Price shall be adjusted to equal $4 divided by the
Adjustment Ratio and then rounded up to the nearest cent.
8.5 Termination. (a) Anything contained in this Agreement to the
contrary notwithstanding, the purchase and sale of the eLoyalty Shares may be
terminated at any time prior to the Funding Date:
(1) by the mutual written consent of the Purchasers and eLoyalty;
(2) by the Purchasers or eLoyalty if TSC shall not have received the
Revenue Ruling on or before December 31, 1999;
(3) by Purchasers or eLoyalty if the Funding Date shall not have
occurred on or before the first anniversary of the date of this Agreement (or
such later date as may be agreed to in writing by Purchasers and eLoyalty); or
(4) by Purchasers in the event of any material breach of Section 1.3(b)
by Sellers and the failure of Sellers to cure such breach within 30 days after
receipt of written notice from Purchasers that such breach be cured.
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<PAGE> 21
(b) Any party desiring to terminate the purchase and sale of
the eLoyalty Shares pursuant to Sections 8.5(a)(ii), 8.5(a)(iii) or 8.5(a)(iv)
shall give written notice of such termination of the other parties to this
Agreement.
(c) In the event that the purchase and sale of the eLoyalty
Shares shall be terminated pursuant to Section 8.5(a), all further obligations
of the parties under this Agreement (other than Section 9.9) shall be terminated
without further liability of any party to the others; provided, however, that if
the purchase and sale of the eLoyalty Shares is terminated pursuant to Section
8.5(a)(iv), TSC shall pay each Purchaser an amount equal to the product of (x)
the number of eLoyalty Shares set forth opposite each Purchaser's name on
Exhibit A and (y) $.50, as liquidated damages (such payment being referred to
herein as the "Termination Fee"). Except for the Termination Fee, Purchasers
will have no other remedy, whether at law or in equity, for any breach by
Sellers of Section 1.3(b). THE PARTIES EXPRESSLY AGREE AND ACKNOWLEDGE THAT
DETERMINING ACTUAL DAMAGES IN THE EVENT OF A BREACH BY SELLERS OF SECTION 1.3(b)
WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO ASCERTAIN AND THAT THE AMOUNT
SET FORTH ABOVE REPRESENTS THE PARTIES' REASONABLE ESTIMATE OF SUCH DAMAGES. THE
PAYMENT OF THE AMOUNT SET FORTH ABOVE IS NOT INTENDED AS A FORFEITURE OR PENALTY
BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO PURCHASERS.
9. Miscellaneous.
9.1 Waivers and Amendments. With the written consent of the party or
parties entitled to the benefit thereof, any obligation under this Agreement may
be waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely). In
addition, the Purchasers and eLoyalty may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement relating solely to eLoyalty.
Except as otherwise provided herein, neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against whom enforcement of the change,
waiver, discharge or termination is sought, except to the extent provided in
this Section 9.1.
9.2 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Illinois as such laws are applied to agreements between
Illinois residents entered into and to be performed entirely within Illinois.
9.3 Survival. The representations, warranties, covenants and agreements
made herein shall survive the execution of this Agreement and the closing of the
transactions contemplated hereby. Any liability arising out of (i) the
representations and warranties of eLoyalty, TSC and the Purchasers made in
Sections 3, 4 and 5 hereof, respectively, or (ii) any certificate delivered on
behalf of eLoyalty, TSC or the Purchasers pursuant to this Agreement shall
terminate and be extinguished upon the completion of the audits of TSC and
eLoyalty for the period ending December 31, 2001. No party shall have any
liability for any inaccuracy in or breach of any representation or warranty by
such party or for any certificate delivered on behalf of such party pursuant to
this Agreement if such party can demonstrate that the other party or any of its
officers, employees, counsel or other
-21-
<PAGE> 22
representatives had actual knowledge in writing (including without limitation,
by means of electronic transmission) on or before the Funding Date of the facts
as a result of which such representation or warranty was inaccurate or breached.
9.4 Successors and Assigns. The rights and obligations of the parties
hereto may not be assigned or transferred, other than by operation of law,
without the express written consent of eLoyalty, TSC and the Purchasers. Subject
to the foregoing, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and permitted assigns of the parties hereto.
9.5 Entire Agreement. This Agreement, the exhibits to this Agreement,
the Disclosure Letter and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
9.6 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by overnight courier
or mailed by certified or registered mail, postage prepaid, return receipt
requested, addressed (a) if to TSC, at 205 North Michigan Avenue, 15th Floor,
Chicago, Illinois 60601, or at such other address as TSC shall have furnished to
the other parties hereto in writing, (b) if to eLoyalty, at 205 North Michigan
Avenue, 15th Floor, Chicago, Illinois 60601, or at such other address as
eLoyalty shall have furnished to the other parties hereto in writing, and (c) if
to a Purchaser, at the address of the Purchaser as set forth in the signature
pages hereto, or at such other address as such Purchaser shall have furnished to
the other parties hereto in writing. Notice shall be effective as of the time
received by the addressee.
9.7 Separability. In case any provision of this Agreement shall be
declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
9.8 Finder's Fees.
(1) Each of the Sellers (i) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated by
this Agreement and (ii) hereby agrees to indemnify and to hold the Purchasers
harmless of and from any liability for any commission or compensation in the
nature of a finder's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which it, or any of its employees or representatives, are responsible.
(2) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Sellers harmless
of and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which it, or any
of its employees or representatives, are responsible.
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<PAGE> 23
9.9 Expenses. TSC, eLoyalty and the Purchasers shall bear their
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby.
9.10 Interpretation. Articles, titles and headings to sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. The Exhibits
and the Disclosure Letter referred to herein shall be construed with and as an
integral part of this Agreement to the same extent as if they were set forth
verbatim herein. Disclosure of any fact or item in the Disclosure Letter
referenced by a particular section in this Agreement shall be deemed to have
been disclosed with respect to every other section in this Agreement. Neither
the specification of any dollar amount in any representation or warranty
contained in this Agreement nor the inclusion of any specific item in the
Disclosure Letter is intended to imply that such amount, or higher or lower
amounts, or the item so included or other items, are or are not material, and no
party shall use the fact of the setting forth of any such amount or the
inclusion of any such item in any dispute or controversy between the parties as
to whether any obligation, item or matter not described herein or included in
the Disclosure Letter is or is not material for purposes of this Agreement.
Unless this Agreement specifically provides otherwise, neither the specification
of any item or matter in any representation or warranty contained in this
Agreement nor the inclusion of any specific item in the Disclosure Letter is
intended to imply that such item or matter, or other items or matters, are or
are not in the ordinary course of business, and no party shall use the fact of
the setting forth or the inclusion of any such item or matter in any dispute or
controversy between the parties as to whether any obligation, item or matter not
described herein or included in the Disclosure Letter is or is not in the
ordinary course of business for purposes of this Agreement. eLoyalty may, from
time to time prior to or on the Funding Date, by notice in accordance with the
terms of this Agreement, supplement or amend the Disclosure Letter, in order to
add information or correct previously supplied information. No such amendment
shall be evidence, in and of itself, that the representations and warranties in
the corresponding section are no longer true and correct in all material
respects. It is specifically agreed that the Disclosure Letter may be amended to
add immaterial, as well as material, items thereto. No such supplement or
amendment shall be deemed to cure any breach for purposes of Section 6.1(b). If,
however, the purchase and sale of the eLoyalty Shares occurs, any such
supplement, amendment or addition will be effective to cure and correct for all
other purposes any breach of any representation, warranty or covenant which
would have existed if eLoyalty had not made such supplement, amendment or
addition, and all references to the Disclosure Letter which is supplemented or
amended as provided in this Section 9.10 shall for all purposes after the
purchase and sale of the eLoyalty Shares be deemed to be a reference to such
Disclosure Letter as so supplemented or amended.
9.11 No Public Announcement. Neither Purchasers, as a party on the one
hand, nor the Sellers, as a party on the other hand, shall, without the approval
of the other, make any press release or other public announcement concerning the
transactions contemplated by this Agreement, except as and to the extent that
any such party shall be so obligated by law, in which case the other party shall
be advised and the parties shall use their reasonable efforts to cause a
mutually agreeable release or announcement to be issued; provided, however, that
the foregoing shall not preclude communications or disclosures necessary to
implement the provisions of this Agreement or to comply with the accounting and
SEC disclosure obligations or the rules of any stock exchange.
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<PAGE> 24
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.13 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to the Purchasers, upon any breach
or default of the Sellers under this Agreement, shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character on the Purchasers' part of any breach or default under
this Agreement, or any waiver on the Purchasers' part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement or by law or otherwise afforded to the Purchasers, shall be
cumulative and not alternative.
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TECHNOLOGY SOLUTIONS COMPANY
a Delaware corporation
By: /s/ William H. Waltrip
---------------------------------
Name: William H. Waltrip
Title: Chairman of the Board
eLOYALTY CORPORATION
a Delaware corporation
By: /s/ Kelly D. Conway
---------------------------------
Name: Kelly D. Conway
Title: President and Chief
Executive Officer
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
INVESTORS:
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover
Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III, L.P.
a Delaware Limited Partnership
By: Technology Crossover
Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover
Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INVESTORS:
TCV III STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover
Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Mailing Address:
Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
Phone: (650) 614-8210
Fax: (650) 614-8222
<PAGE> 28
IN WITNESS WHEREOF, the Issuer and the Investors have caused this
Agreement to be duly executed as of the day and year first above written.
INVESTORS:
SUTTER HILL VENTURES
a California Limited Partnership
By:
Its:
By: /s/ Tench Coxe
------------------------------
Name: Tench Coxe
Title: Managing Director
Mailing Address:
Sutter Hill Ventures
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Attention:
Phone: (650) 493-5600
Fax: (650) 858-1854
<PAGE> 29
EXHIBIT A
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
NUMBER OF TSC SHARES NUMBER OF ELOYALTY
NAME OF PURCHASER BEING PURCHASED SHARES BEING PURCHASED*
----------------- --------------- -----------------------
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCV III Strategic Partners, L.P. 10,379 49,817
--------------------------------------------------------------------------------------------------------------
TCV III (GP) 1,815 8,714
--------------------------------------------------------------------------------------------------------------
TCV III, L.P. 8,623 41,389
--------------------------------------------------------------------------------------------------------------
TCV III (Q), L.P. 229,183 1,100,080
--------------------------------------------------------------------------------------------------------------
Sutter Hill Ventures 250,000 1,200,000
--------------------------------------------------------------------------------------------------------------
</TABLE>
---------------
* Subject to Section 8.4