Stock Purchase Agreement - Symposium Corp., Amerinet Inc., Richard Prochnow and David Kerlin
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into as of June 2, 1999 (the "EFFECTIVE DATE"), by and among Symposium
Corporation, a Delaware corporation (the "PURCHASER"), AmeriNet, Inc., an Oregon
corporation (the "ISSUER"), Richard Prochnow ("PROCHNOW") and David Kerlin
("KERLIN," and together with Prochnow, the "SHAREHOLDERS"), with reference to
the following facts:
A. The Shareholders currently own all of the issued and outstanding
capital stock of the Issuer.
B. On the terms and subject to the conditions set forth in this
Agreement, the Issuer desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase from the Issuer, that number of newly issued
shares of the Issuer's Common Stock as shall equal one share more than the sum
of: (a) the number of outstanding shares of the Common Stock immediately prior
to the Closing; and (b) the maximum number of shares of capital stock of the
Issuer which could be purchased upon exercise of Stock Equivalents of the Issuer
immediately prior to the Closing.
NOW, THEREFORE, with reference to the foregoing facts, the parties
hereto agree as follows:
1. DEFINITIONS.
1.1 CERTAIN DEFINITIONS. All terms defined in this Agreement shall have
the defined meanings when used in this Agreement, unless otherwise defined or
the context otherwise requires. The following terms shall have the following
meanings:
"ACTION" means any litigation, action, suit, proceeding, arbitration or
claim before any court or Governmental Authority, or investigation by any
Governmental Authority.
"ADDITIONAL LOAN" shall mean a loan of $750,000 from Purchaser to
Issuer as contemplated by Section 2.4 of this Agreement.
"AFFILIATE" shall mean, with respect to any specified Person, (i) any
other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(ii) any other Person who is a director, officer, manager, member, partner or
trustee of the specified Person or a Person described in clause (i) of this
definition or any spouse of the specified Person or any such other Person, (iii)
any relative of the specified Person or any other Person described in clause
(ii) of this definition, or (iv) any Person of which the specified Person and/or
any one or more of the Persons specified in clause (i),(ii) or (iii) of this
definition, individually or in the aggregate, beneficially own 10% or more of
any class of voting securities or otherwise have a substantial beneficial
interest. For purposes of this definition, "control" shall have the meaning for
such term set forth in Rule 405 under the Securities Act.
"ANNUAL FINANCIAL STATEMENTS" shall mean the consolidated balance
sheets of the Issuer as at December 31, 1997 and 1998 and the related
consolidated statements of operations,
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changes in shareholders' equity and cash flows for the fiscal years then ended,
including, without limitation, the notes (and schedules) to these financial
statements.
"BEST EFFORTS" shall mean the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that the result
is achieved as expeditiously as practicable under the circumstances; PROVIDED,
HOWEVER, that an obligation to use Best Efforts under this Agreement does not
require the Person subject to that obligation to (i) take actions that would
result in a material adverse change in the benefits to such Person under this
Agreement or the transactions contemplated by this Agreement, (ii) make any
significant cash payments or (iii) incur any significant liability or
obligation.
"BEST KNOWLEDGE" with respect to any Person shall mean and include (i)
the actual knowledge of the Person, including the actual knowledge of any of the
officers, directors or managers of such Person, and (ii) that knowledge which a
prudent businessperson could have obtained in the management of his business
after making due inquiry, and after exercising due diligence, with respect
thereto.
"BUSINESS" means the providing of ACH payment option solutions for
Internet commerce, audiotext service bureaus, infomercial order processing and
other direct marketing sales, and all business activities of the Issuer relating
thereto, and any other business the Issuer engages in after the date hereof.
"BUSINESS CONDITION" of any Person shall mean the financial condition,
results of operations, business, properties or prospects of such Person.
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or required by law or executive order to close.
"CHARTER DOCUMENTS" shall mean with respect to the Issuer or the
Purchaser, the Certificate of Incorporation and By-Laws of the Issuer or the
Purchaser.
"CLOSING" shall mean the closing of the purchase and sale of the
Shares.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean the common stock, no par value per share,
of the Issuer.
"CONTRACT" shall mean any written or oral note, bond, debenture,
mortgage, license, agreement, commitment, contract or understanding.
"COPYRIGHTS" shall mean all United States and foreign copyrights,
whether or not registered.
"CURRENT BALANCE SHEET" shall mean the unaudited consolidated balance
sheet of the Issuer as at March 31, 1999.
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"CURRENT FINANCIAL STATEMENTS" shall mean the Current Balance Sheet and
the related unaudited consolidated statement of operations and cash flows for
the three months ended March 31, 1999.
"EMPLOYEE PLANS" with respect to any Person shall mean any plan,
arrangement or Contract providing compensation or benefits to, for or on behalf
of employees and/or directors of such Person, including employment, deferred
compensation, retirement or severance Contracts; plans pursuant to which Equity
Securities are issued, including, without limitation, stock purchase, stock
option and stock appreciation rights plans; bonus, thrift, pension, savings,
insurance, profit sharing, severance, loan guaranty, employee loan or incentive
compensation plans or arrangements; supplemental unemployment benefit,
hospitalization or other medical, life, dental, vision, health care or other
insurance; and ERISA Plans.
"ENVIRONMENTAL LAWS" shall mean all present and future statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises, and similar items, of all
Governmental Authorities and all applicable judicial, administrative, and
regulatory decrees, judgments, and orders relating to Hazardous Substances or
the protection of the environment in any respect, including, without limitation:
(i) all requirements, including, without limitation, those pertaining to
notification, warning, reporting, licensing, permitting, investigation, and
remediation of Hazardous Substances; (ii) all requirements pertaining to the
protection of employees or the public from exposure to Hazardous Substances or
injuries or harm associated therewith; and (iii) the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss.9601 eT Seq.), the
Resource Conservation and Recovery Act (49 U.S.C. ss.6901 eT Seq.), the
Hazardous Materials Transportation Act (49 U.S.C. ss.1801 et SEQ.), the Clean
Air Act (42 U.S.C. ss.7401 et Seq.), the Occupational Safety and Health Act (29
U.S.C. ss.600 eT Seq.), and all similar federal, state, local and municipal laws
as they may from time to time be modified, amended or superseded.
"EQUITY SECURITIES" of any Person shall mean the capital stock,
partnership interests or membership interests of such Person and/or any Stock
Equivalents of such Person.
"EXPLOIT" shall mean manufacture, advertise, license, market,
merchandise, promote, publicize, sell, use, supply or distribute, and
"Exploitation" and "Exploited" shall have a correlative meaning.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"HAZARDOUS SUBSTANCE" means those substances defined as hazardous
substances in 42 U.S.C. ss. 9601(14) and all other substances defined as
hazardous under other applicable Laws.
"INDEBTEDNESS" means, with respect to any Person, (i) any liability,
contingent or otherwise, (a) for borrowed money, capitalized lease obligations,
purchase money obligations or other obligations relating to the deferred
purchase price of assets or property or (b) evidenced by a note, bond,
debenture, letter of credit or similar instrument given in connection with the
acquisition,
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other than in the ordinary course of business, of any property, assets,
securities or otherwise, including, without limitation, indebtedness created or
arising under conditional sale or other title retention agreements (even though
the rights and remedies of the seller or lender under the agreements in the
event of default are limited to repossession or sale of the property), (ii) any
liability of others described in the preceding clause which such Person has
guaranteed or which otherwise is its legal liability, (iii) all indebtedness
referred to above secured by (or for which the holder of the indebtedness has an
existing right, contingent or otherwise, to be secured by), any Lien upon the
property of such Person, whether or not the obligations secured thereby have
been assumed, and (iv) any amendment, renewal, extension or refunding of any
liability referred to in clauses (i), (ii) and (iii) above; PROVIDED, however,
that Indebtedness does not include any trade payables of any Person incurred in
the ordinary course of business. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at the date of all unconditional
obligations as described above and the maximum amount of any contingent
obligations at the date.
"INITIAL LOAN" shall mean a loan in the amount of $250,000 from
Purchaser to Issuer as contemplated by Section 2.3 of this Agreement.
"INITIAL NOTE" shall mean the promissory note of the Issuer evidencing
the Initial Loan, which shall be in the form of ANNEX B to this Agreement or
such other form as the Issuer and the Purchaser may agree.
"IP" shall mean Patents, Trademarks, Copyrights, Know-How and other
rights and property commonly referred to as intellectual property, and rights or
licenses to use the same, and any and all applications therefor.
"ISSUER CONTRACT" shall mean any Contract to which the Issuer is a
party or by which any assets or properties of the Issuer is subject.
"ISSUER IP" shall mean all IP that the Issuer owns, licenses and/or
uses.
"KERLIN EMPLOYMENT AGREEMENT" shall mean an employment agreement
effective as of the Closing between Kerlin as employee and the Issuer as
employer, in form and substance satisfactory to Kerlin, the Issuer and the
Purchaser.
"KNOW-HOW" shall mean all inventions, processes, systems,
methodologies, controls, trade secrets, know-how (including, without limitation,
proprietary know-how and use and application know-how), product designs,
drawings, technology, other intangibles, technical information, safety
information, engineering data and design and engineering specifications,
research records, market surveys, promotional literature, supplier lists,
similar data and formulas and processes.
"LAW" shall mean any federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority or otherwise,
including, without limitation, any judicial or administrative order, consent,
decree or judgment.
"LIEN" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or
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other security agreement or preferential arrangement, charge, or encumbrance of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction to evidence any of the foregoing).
"LOSSES" shall mean losses, liabilities, damages, claims, fines,
penalties, judgments, demands, actions or causes of action, regulatory,
legislative or judicial proceedings or investigations, assessments, levies,
costs and expenses, including, without limitation, reasonable attorneys',
accountants', investigators', and experts' fees and expenses, sustained or
incurred in connection with the defense or investigation of any claim or action.
"NOTE" shall mean the convertible promissory note of the Issuer
evidencing the Additional Loan, the unpaid balance of the Initial Loan at the
Additional Loan Closing Date and all accrued and unpaid interest on the Initial
Loan at the Additional Loan Closing Date, which shall be in the form of Annex C
to this Agreement or such other form as the Purchaser and the Issuer may agree.
"PATENTS" shall mean all patents (including, without limitation, all
reissues, divisions, continuations, continuations in part and extensions
thereof), patent applications and patent disclosures docketed and all other
patent rights.
"PERMITS" shall mean all governmental franchises, licenses, approvals,
authorizations and permits that are held or used by the Issuer in connection
with the Business, the Assets or the Premises.
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, Governmental Authority or other entity.
"PREMISES" shall mean collectively the Issuer's facilities located
at Three Centerpointe Drive, Suite 125, Lake Oswego, Oregon 97035, and at
U.S. 19 North, Clearwater, Florida.
"PRODUCTS" shall mean all items, products or systems of the Issuer used
in the operation of the Business which incorporate the processing of dates and
date-related data (including, without limitation, calculating, comparing and
sequencing) that are operationally material to the Business as conducted by the
Issuer or its agents or other third parties, including, without limitation,
computer systems, infrastructure items, software applications, hardware, and
related equipment and utilities.
"PURCHASE PRICE" shall mean $5,000,000.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHAREHOLDERS AGREEMENT" shall mean a shareholders agreement among the
Issuer, the Purchaser and the Shareholders, which agreement shall be on the
terms and conditions set forth on ANNEX A in form satisfactory to the parties
thereto, or such other terms and conditions as the parties may agree.
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"STOCK EQUIVALENTS" of any Person shall mean options, warrants, calls,
rights, commitments, convertible securities and other securities pursuant to
which the holder, directly or indirectly, has the right to acquire (with or
without additional consideration) capital stock, partnership interests or
membership interests of such Person.
"SUBSIDIARY" of any Person shall mean any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by such Person.
"TAXES" shall mean all taxes, charges, fees, levies or other
governmental assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, property or other taxes, customs, duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign).
"TAX LIABILITIES" shall mean all liabilities related to Taxes.
"TAX RETURNS" shall mean all foreign, federal, state and local returns
relating to Taxes.
"TRADEMARKS" shall mean all trademark, service mark and trade name
rights (including, without limitation, all registrations of trademarks and of
other marks, all registrations of trade names, labels and other trade rights and
applications for any of the foregoing), the name "AmeriNet" and any variation
thereof, and all associated goodwill symbolized thereby or connected therewith.
"TRANSFER" shall mean sell, assign, transfer, pledge, grant a security
interest in, or otherwise dispose of, with or without consideration, and
"TRANSFERRED" shall have a correlative meaning.
"YEAR 2000 COMPLIANT" shall mean that all Products accurately process
dates and date-related data (including, without limitation, calculating,
comparing and sequencing) in all material respects before, during and after the
year 2000.
1.2 OTHER DEFINITIONS. The following terms shall have the meanings
given the terms in the Sections set forth below:
<CAPTION>
TERM SECTION
---- -------
Acquisition Proposal.............................. Section 7.3
Additional Loan Closing........................... Section 3.2
Additional Loan Closing Date...................... Section 3.2
Agreement......................................... Preamble
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Closing........................................... Section 3.3
Closing Date...................................... Section 3.3
Damages........................................... Section 11.2
Effective Date.................................... Preamble
Initial Loan Closing.............................. Section 3.1
Initial Loan Closing Date......................... Section 3.1
Issuer Disclosure Letter.......................... Section 5
Jurisdictions..................................... Section 5.8
Kerlin............................................ Preamble
Material Contract................................. Section 5.7
Notices........................................... Section 14.1
Prochnow.......................................... Preamble
Purchaser......................................... Preamble
Purchaser Indemnified Parties..................... Section 11.2
Shares............................................ Section 2.1
Shareholders...................................... Preamble
1.3 CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context
otherwise requires, (a) words of any gender include each other gender; (b) words
using the singular or plural number also include the plural or singular number,
respectively; (c) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement; (d) the terms "Article" or
"Section" refer to the specified Article or Section of this Agreement; (e) the
terms "and" and "or" include the term "and/or" when the context is appropriate;
and (f) the phrases "ordinary course of business" and "ordinary course of
business consistent with past practice" refer to the business and practice of
the Person specified. Whenever this Agreement refers to a number of days, such
number shall refer to calendar days unless Business Days are specified. All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP. Whenever this Agreement refers to an Annex,
Exhibit or Schedule attached hereto, the Annex, Exhibit or Schedule shall be
deemed to be incorporated by reference.
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2. PURCHASE AND SALE OF SHARES; INITIAL LOAN; ADDITIONAL LOAN.
2.1 PURCHASE AND SALE OF SHARES. On the terms and subject to the
conditions of this Agreement, at the Closing, the Purchaser shall purchase from
the Issuer and the Issuer shall issue and sell to the Purchaser that number of
shares of the Common Stock (the "SHARES") as shall, following such issuance,
represent one share more than the sum of: (a) the number of outstanding shares
of the Common Stock immediately prior to the Closing; and (b) the maximum number
of shares of capital stock of the Issuer which could be purchased upon exercise
or conversion of Stock Equivalents of the Issuer outstanding immediately prior
to the Closing (regardless of whether such Stock Equivalents are then
exercisable or convertible).
2.2 PURCHASE PRICE. The Purchaser shall purchase the Shares from the
Issuer for the Purchase Price. The Purchase Price shall be payable by the
Purchaser as follows:
(a) cancellation of the Initial Loan and the Additional Loan; and
(b) a cash payment in the amount equal to the Purchase Price minus
the outstanding principal and accrued interest on the Initial Loan and the
Additional Loan.
2.3 THE INITIAL LOAN. At the Initial Loan Closing, the Purchaser shall
make the Initial Loan (assuming satisfaction of all conditions to the
Purchaser's obligation to make the Initial Loan).
2.4 THE ADDITIONAL LOAN. At the Additional Loan Closing, the Purchaser
shall make the Additional Loan (assuming satisfaction of all conditions to the
Purchaser's obligation to make the Additional Loan).
3. THE CLOSINGS.
3.1 THE INITIAL LOAN CLOSING. The closing of the Initial Loan by the
Purchaser to the Issuer (the "INITIAL LOAN CLOSING") shall take place at the
offices of Troop Steuber Pasich Reddick & Tobey, LLP, 2029 Century Park East,
24th Floor, Los Angeles, California, at 10:00 A.M., Los Angeles time, not later
than five Business Days following receipt by the Purchaser of the Issuer
Disclosure Letter, or at such other time and place as the Issuer and the
Purchaser mutually agree upon in writing. The date of the Initial Loan Closing
is referred to in this Agreement as the "INITIAL LOAN CLOSING DATE."
3.2 THE ADDITIONAL LOAN CLOSING. The closing of the Additional Loan by
the Purchaser to the Issuer (the "ADDITIONAL LOAN CLOSING") shall take place at
the offices of Troop Steuber Pasich Reddick & Tobey, LLP, 2029 Century Park
East, 24th Floor, Los Angeles, California, at 10:00 A.M., Los Angeles time,
within one Business Day following the execution and delivery of the Shareholders
Agreement, or at such other time and place as the Issuer and the Purchaser
mutually agree upon in writing. The date of the Additional Loan Closing is
referred to in this Agreement as the "ADDITIONAL LOAN CLOSING Date."
3.3 THE CLOSING. The closing of the purchase and sale of the Shares
(the "CLOSING") shall take place at the offices of Troop Steuber Pasich Reddick
& Tobey, LLP, 2029 Century Park East, 24th Floor, Los Angeles, California, at
10:00 A.M., Los Angeles time, on the 45th
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day (if a Business Day, and if not a Business Day, then on the first Business
Day following such 45th day) following the Issuer's delivery to the Purchaser of
the audited financial statements described in Section 10.1(g), or at such other
time and place as the Issuer and the Purchaser mutually agree upon in writing.
The date of the Closing is referred to in this Agreement as the "CLOSING DATE."
4. DELIVERIES AT THE CLOSINGS.
4.1 DELIVERIES AT THE INITIAL LOAN CLOSING. At the Initial Loan
Closing:
(a) The Purchaser shall deliver to the Issuer $250,000 by wire
transfer of immediately available funds to an account designated by the Issuer
in writing at least two Business Days prior to the Initial Loan Closing Date.
(b) The Issuer shall deliver to the Purchaser (i) the executed
Initial Note, dated the Initial Loan Closing Date and (ii) such documents and
instruments as the Purchaser may reasonably request to evidence the satisfaction
of all conditions precedent set forth in Section 8.1 of this Agreement.
4.2 DELIVERIES AT THE ADDITIONAL LOAN CLOSING. At the Additional Loan
Closing:
(a) The Purchaser shall deliver to the Issuer (i) $750,000 by wire
transfer of immediately available funds to an account designated by the Issuer
in writing at least two Business Days prior to the Additional Loan Closing Date
and (ii) the Initial Note marked "Cancelled."
(b) The Issuer shall deliver to the Purchaser (i) the executed
Note, dated the Additional Loan Closing Date and (ii) such documents and
instruments as the Purchaser may reasonably request to evidence the satisfaction
of all conditions precedent set forth in Section 9.1 of this Agreement.
4.3 DELIVERIES AT THE CLOSING. At the Closing:
(a) The Purchaser shall deliver to the Issuer (i) the cash payment
contemplated by Section 2.2(b) of this Agreement by wire transfer of immediately
available funds to an account designated by the Issuer in writing at least two
Business Days prior to the Closing Date, (ii) the Note marked "Cancelled" and
(iii) such documents and instruments as the Issuer may reasonably request to
evidence the satisfaction of all conditions precedent set forth in Section 10.2
of this Agreement.
(b) The Issuer shall deliver to the Purchaser a certificate or
certificates representing the Shares in the name of the Purchaser and such
documents and instruments as the Purchaser may reasonably request to evidence
the satisfaction of all conditions precedent set forth in Section 10.1 of this
Agreement.
4.4 FURTHER ASSURANCES. At the Initial Loan Closing, the Additional
Loan Closing and the Closing, each party to this Agreement shall deliver or
cause to be delivered, as appropriate, such further certificates, consents and
other documents as may be necessary to carry out the terms of this Agreement.
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5. REPRESENTATIONS AND WARRANTIES OF THE ISSUER AND THE SHAREHOLDERS. Except as
set forth in the disclosure letter to be delivered by the Issuer to the
Purchaser not later than June 2, 1999, which letter shall refer to the relevant
Sections of this Agreement (the "ISSUER DISCLOSURE LETTER"), the Issuer and the
Shareholders each represents and warrants to the Purchaser as follows:
5.1 ORGANIZATION, STANDING AND POWER. The Issuer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Oregon and has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted. The Issuer is duly qualified or licensed as a foreign corporation and
is in good standing in each jurisdiction where the nature of its properties
owned or held under lease or the nature of the business conducted by it make
such qualification necessary.
5.2 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT. Solely with respect
to this Section 5.2, the Issuer represents and warrants to the Purchaser with
respect to the Issuer, and each Shareholder represents and warrants to the
Purchaser with respect to the Issuer and such Shareholder, as follows:
(a) The Issuer and such Shareholder each has full power and
authority to enter into, execute and deliver this Agreement and perform its or
his obligations hereunder. This Agreement has been duly authorized by all
corporate action of the Issuer (including, without limitation, the authorization
and approval by the Shareholders) and by all necessary action of such
Shareholder. This Agreement has been duly executed and delivered by the Issuer
and such Shareholder and, assuming this Agreement is duly executed and delivered
by the Purchaser, constitutes a valid and legally binding obligation of the
Issuer and such Shareholder, enforceable against the Issuer and such Shareholder
in accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally, or the availability of
equitable remedies.
(b) The execution and delivery by the Issuer and such Shareholder
of this Agreement does not, and compliance by the Issuer and such Shareholder
with the provisions of this Agreement will not, (A) conflict with or result in a
breach or default under the Charter Documents of the Issuer or any of the terms,
conditions or provisions of any Contract to which the Issuer or such Shareholder
is a party or otherwise bound, or to which any property or asset of the Issuer
or such Shareholder is subject; (B) violate any Law applicable to the Issuer or
such Shareholder; or (C) result in the creation or imposition of any Lien on any
asset of the Issuer or such Shareholder.
5.3 CAPITALIZATION. The authorized capital stock of the Issuer is as
set forth in the Issuer Disclosure Schedule. Except for the number of shares of
Common Stock shown as outstanding in the Issuer Disclosure Schedule, all of
which are owned of record and beneficially by the Shareholders free and clear of
all Liens, there are no outstanding Equity Securities of the Issuer. After the
issuance and sale of the Shares to the Purchaser at the Closing, the Purchaser
will own one share of Common Stock more than the sum of: (a) the number of
outstanding shares of the Common Stock immediately prior to the Closing; and (b)
the maximum number of shares of capital stock of the Issuer which could be
purchased upon exercise or conversion of Stock Equivalents of the Issuer
outstanding immediately prior to the Closing (regardless of whether such Stock
Equivalents are then exercisable or convertible). All of the issued and
outstanding shares of Common Stock have been, and at the Closing the Shares will
be, duly authorized, validly issued, fully
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paid and non-assessable and not issued in violation of any preemptive rights or
any Federal or state securities laws.
5.4 SUBSIDIARIES AND AFFILIATES AND OTHER NAMES. The Issuer does not
own of record or beneficially any Equity Securities of any Person.
5.5 ASSETS. The Issuer has good and marketable title to all of its
assets free and clear of all Liens. Each item of tangible personal property
included in the assets of the Issuer is in good operating condition and repair,
ordinary wear and tear excepted, for the requirements of the Business as
currently conducted.
5.6 ACCOUNTS RECEIVABLE. The Issuer Disclosure Letter sets forth a true
and complete schedule of the accounts receivable of the Issuer as of the date of
the Current Balance Sheet, setting forth a description of the accounts
receivable including, without limitation, the names and addresses of the account
debtors, the balance amount and aging as of the date indicated therein. The
accounts receivable, whether reflected on the Current Balance Sheet or
subsequently created, and all books, records and documents relating to such
accounts receivable, are genuine and accurate. All accounts receivable of the
Issuer, whether reflected on the Current Balance Sheet or subsequently created:
(A) constitute bona fide and valid rights of the Issuer to collect payments from
other Persons; (B) represent credit extended in a manner consistent with the
Issuer's trade practices; (C) are not subject to any defense, counterclaim or
offset; and (D) except for reserves for bad debts set forth in the Current
Balance Sheet, are fully collectable within 90 days of the respective dates on
which such accounts receivable were billed.
5.7 MATERIAL CONTRACTS.
(a) True and correct copies of each Material Contract of the
Issuer, including, without limitation, all amendments and modifications thereof
and waivers thereunder, have been delivered to the Purchaser or its counsel.
Each Material Contract is in full force and effect, and is the valid and binding
obligation of each party to the Material Contract. The Issuer has performed all
of its obligations required to be performed by it to date under each Material
Contract, and the Issuer is not in breach of or default under any Material
Contract, and no event has occurred or circumstance exists which, with notice or
lapse of time or both, would constitute a breach of or default by the Issuer
under any Material Contract. To the Best Knowledge of the Issuer and the
Shareholders, each party to each Material Contract other than the Issuer has
performed all of the obligations required to be performed by it to date under
the Material Contract and is not in breach of or in default under the Material
Contract, and no event has occurred or circumstance exists which, with notice or
lapse of time or both, would constitute a breach of or default by such other
party under any Material Contract.
(b) For purposes of this Agreement, "MATERIAL CONTRACTS" shall
mean the following Issuer Contracts:
(i) Each Issuer Contract which is to be performed in whole or
in part at or after the date of this Agreement and which (1) cannot be
canceled upon 30 days' notice; (2) involves aggregate future payments by the
Issuer of more than $10,000; (3) involves material nonmonetary obligations
to be performed later than
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one year from the date hereof; (D) otherwise materially affects the Issuer or
the Business; or (E) was not entered into in the ordinary course of business;
(ii) Each Issuer Contract: (1) evidencing Indebtedness of the
Issuer; or (2) pursuant to which the Issuer has lent or committed to lend
money;
(iii) Each Issuer Contract regarding advertising, brokerage,
licensing, management, representative, publishing, clearing house or agency
relationships;
(iv) Each Employee Plan of the Issuer, each Issuer Contract
with or concerning any labor or employee organization, and each employment,
consulting, severance and change of control Contract with any present or
former officer, director, consultant or employee of the Issuer;
(v) Each Issuer Contract for the Transfer of any properties,
assets or rights of the Issuer for consideration in excess of $10,000 or for
the grant of any preferential right to purchase any of such assets,
properties or rights, or which requires the consent of any third party to
the Transfer of such assets, properties or rights;
(vi) Each Issuer Contract with any Shareholder or any
Affiliate of the Issuer or any Shareholder;
(vii) Each Issuer Contract (1) under which the benefits
cannot be retained upon the consummation of the transactions contemplated by
this Agreement without the written consent or approval of other parties, (2)
under which there will be a default as a result of the consummation of the
transactions contemplated by this Agreement unless such other parties
provide written consent or approval or (3) which would require the making of
any payment, other than payments as contemplated by this Agreement, to any
employee of the Issuer or to any other Person as a result of the
consummation of the transactions contemplated herein;
(viii) Each Issuer Contract involving a guarantee by a
Shareholder of any Indebtedness of the Issuer or imposing a Lien on personal
assets of a Shareholder which serve as collateral for Indebtedness of the
Issuer;
(ix) Each Contract providing the Issuer the right to use or
Exploit the IP of any Person; and
(x) Each Contract requiring the Issuer to make capital
expenditures in excess of $5,000.
5.8 INTELLECTUAL PROPERTY.
(a) The Issuer Disclosure Letter contains a true and complete list
of all Patents, Trademarks and registered Copyrights of the Issuer, the
jurisdictions of all registrations and
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the basis of the right of the Issuer to use such Patents, Trademarks and
Copyrights. The Issuer IP constitutes all IP that is required to enable the
Issuer to conduct the Business as now conducted. The Issuer has provided
commercially reasonable safeguards and security for the protection and
confidentiality of the Issuer IP. The Issuer has not received any written notice
of infringement or other written complaint and they are not otherwise aware of
any complaint to the effect that the Issuer or any of its Affiliates have
violated or infringed the IP or any other proprietary rights of others. None of
the Issuer or any of its Affiliates has wrongfully Exploited any IP owned or
licensed by any Person for which the Issuer could suffer any Damages, and none
of the Issuer or any Person employed by or affiliated with the Issuer has
violated any confidential relationship which such Person may have had with any
third party for which the Issuer could suffer any Damages. The Issuer has full
right and authority to utilize the Issuer IP, including, without limitation, the
processes, systems and techniques presently used by the Issuer in the design,
development, marketing, sale and delivery of its present services and related
products, and all rights to any such IP developed by any employee or consultant
of the Issuer have been duly and validly assigned to the Issuer. No royalties,
honoraria, damages or fees are payable by the Issuer to other Persons by reason
of the ownership or use by the Issuer of any Issuer IP. No Affiliate of the
Issuer owns or holds, directly or indirectly, any interests in any Issuer IP. To
the Best Knowledge of the Issuer, no Person has interfered with, infringed upon,
misappropriated, or otherwise violated any IP right of the Issuer. The Issuer
has not Transferred to any Person any right to Exploit any Issuer IP.
(b) The Issuer is the sole and exclusive owner (legal and
beneficial) of the Trademarks identified on Section 5.8(b) of the Issuer
Disclosure Letter in any and all forms and embodiments thereof in each
Jurisdiction, and to the goodwill attached to such Trademarks in each
Jurisdiction, in the class or classes identified on Section 5.8(b) of the Issuer
Disclosure Letter with respect to such Jurisdiction. Section 5.8(b) of the
Issuer Disclosure Letter sets forth a list of all countries, states or other
jurisdictions in which each such Trademark is registered or in which
registration applications are pending (the "JURISDICTIONS"), the date(s) of
registration (or application), the class(es) of registration and the name of the
Person in which each such Trademark is registered.
5.9 FINANCIAL STATEMENTS.
(a) The Issuer has delivered the Annual Financial Statements and
the Current Financial Statements to the Purchaser. The Annual Financial
Statements and the Current Financial Statements have been prepared from the
books and records of the Issuer in accordance with GAAP (with the only
exceptions that no notes have been prepared with respect to the Current
Financial Statements), consistently applied, and fairly present the consolidated
position, results of operations and cash flows of the Issuer as at dates and for
periods set forth therein.
(b) As of the date of this Agreement, the Issuer has no
liabilities or obligations, either accrued, absolute, contingent or otherwise,
which have not been reflected on the Current Balance Sheet, other than
non-monetary obligations under statutes and regulations and accounts payables
incurred in the ordinary course of business. The Current Balance Sheet reflects
adequate reserves for all material losses computed in accordance with GAAP.
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5.10 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since December 31, 1998,
except for this Agreement and changes contemplated by this Agreement, the Issuer
has conducted its business only in the ordinary course of business and there has
not been any:
(a) purchase, redemption, retirement or other acquisition by the
Issuer of any Equity Securities of the Issuer;
(b) declaration or payment of any dividend or other distribution
by the Issuer;
(c) increase by the Issuer in the compensation payable or to
become payable by the Issuer to any director, officer or employee of the Issuer
being paid $50,000 or more at or at any time after December 31, 1998;
(d) payment of any bonus, pension, retirement or insurance payment
or arrangement to or with, or advance or loan of any money to, any Person, or
entry into any employment, severance, loan or similar Contract with any Person;
(e) incurrence by the Issuer of any trade payables other than in
the ordinary course of business;
(f) sale, transfer or lease of any assets to, or entry into any
Contract with, any Shareholder or any officer or director of the Issuer (other
than payment of salaries to officers in the ordinary course of business and
consistent with past practice) or any of their respective Affiliates;
(g) material adverse change in the Business Condition of the
Issuer;
(h) change in accounting methods, principles and practices
employed by the Issuer;
(i) material change in the conduct or nature of any aspect of the
Business;
(j) casualty, damage, destruction or loss, or interruption of use
of any assets or property (whether covered by insurance or not) in excess of
$25,000 individually or in the aggregate or which otherwise has had a material
adverse effect on the Issuer;
(k) Transfer or lease of any assets, except for transfers of cash
applied in the payment of the Issuer's liabilities, in each case in the usual
and ordinary course of business consistent with the Issuer's past practices;
(l) capital expenditures in an amount which exceeds $15,000 in the
aggregate;
(m) discharge of any liability except in the usual and ordinary
course of business in accordance with past practice, or prepayment of any
liability which, in the aggregate, exceeds $15,000;
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(n) incurrence of Indebtedness or other material liability
(whether absolute, accrued, contingent, or otherwise);
(o) cancellation, without full payment, of any note, loan or other
obligation owing to the Issuer;
(p) waiver or release of any right or claim of the Issuer, except
in the ordinary course of business consistent with past practice;
(q) any amendment or termination of any Contract which would be a
Material Contract if such Contract were in effect as of the date of this
Agreement, other than in the ordinary course of business consistent with past
practice;
(r) issuance or sale of any Equity Securities; or
(s) without limitation by the enumeration of the foregoing, entry
into any Contract with respect to any of the foregoing or entry into any
material transactions other than in the ordinary course of business in
accordance with past practices.
5.11 LITIGATION AND PROCEEDINGS. There is no pending or, to the Best
Knowledge of the Issuer and the Shareholders, threatened Action (or basis for
any Action) to which the Issuer is a party or involving any of its assets, and
the Issuer is not subject to any judgment, order, writ, injunction, decree or
regulatory directive or agreement.
5.12 BROKERS. None of the Issuer or either Shareholder has retained or
otherwise engaged or employed any broker, finder or any other person, or paid or
agreed to pay any fee or commission to any agent, broker, finder or other
person, for or on account of acting as a finder or broker in connection with
this Agreement or the transactions contemplated hereby.
5.13 NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that are
required to be obtained or made by the Issuer or either Shareholder in
connection with the execution of, and the consummation of the transactions
contemplated under, this Agreement, including, without limitation, the making of
the Initial Loan and the Additional Loan and the sale and issuance of the
Shares.
5.14 ENVIRONMENTAL COMPLIANCE MATTERS. (a) The Premises constitute all
of the real property now or previously used or occupied by the Issuer or its
predecessors; (b) the Issuer and/or the Shareholders have inspected the Premises
and have no reason to believe that there may be Hazardous Substances
incorporated in or deposited, stored or buried at or upon the Premises; (c) the
Premises have never been used as a waste disposal site or a storage site for
petroleum products or chemicals; (d) no existing structures on the Premises
contain asbestos; (e) there are not now any underground storage tanks on the
Premises; (f) the Issuer has not knowingly allowed any Person occupying the
Premises to bring Hazardous Substances onto the Premises or to process or store
any Hazardous Substances on the Premises and, to the Best Knowledge of the
Issuer, no Hazardous Substance has been released into the environment by the
Issuer that may present an imminent and substantial endangerment to human
health; (g) neither the Issuer nor the Shareholders are aware of any complaints
on file or matters pending in any federal or state environmental protection
offices involving any allegation of Hazardous Substances on the Premises; and
(h) neither the Issuer nor the
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Shareholders have received notice from any environmental board, agency or
authority requiring the removal from the Premises of any Hazardous Substances or
other alleged harmful materials or wastes, or advising of any pending or
contemplated search or investigation of the Premises or any portion of the
Premises with respect the removal of any Hazardous Substances or other alleged
harmful materials or wastes.
5.15 COMPLIANCE WITH APPLICABLE LAW. The Issuer has complied with all
applicable Law except to the extent that such non-compliance could not have
material adverse affect on the Issuer.
5.16 PERMITS. The Issuer Disclosure Letter lists all federal, state,
local and foreign Permits issued by any Governmental Authority to the Issuer.
The Issuer has all Permits and other rights that are required in order to
conduct the Business presently.
5.17 EMPLOYEES. With respect to employees of the Issuer:
(a) The Issuer is and has been in material compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
such laws respecting employment discrimination, occupational safety and health,
immigration status, and unfair labor practices. There are no pending or, to the
knowledge of the Issuer or the Shareholders, threatened unfair labor practice
charges or employee grievance charges.
(b) There is no request for union representation, labor strike,
dispute, slowdown or stoppage pending or, to the knowledge of the Issuer or the
Shareholders, threatened against or directly affecting the Issuer.
(c) No grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims therefor exist before
any governmental agency.
(d) The employment of each employee of the Issuer is terminable at
will without cost to the Issuer except for payments required under the Employee
Plans and payment of accrued salaries or wages and vacation pay.
(e) There is no collective bargaining agreement that is binding on
the Issuer or other Contract with respect to collective bargaining with any
union or group of employees.
(f) The Issuer has not experienced any material work stoppage.
(g) The Issuer is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to the Closing Date or amounts
required to be reimbursed to such employees.
(h) No employee or former employee has any right to be rehired by
the Issuer prior to the Issuer hiring a Person not previously employed by any of
them.
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(i) Section 5.18(i) of the Issuer Disclosure Letter contains a
true and complete list of all employees who were employed by the Issuer as of
April 30, 1999, and such list correctly reflects their salaries, wages, other
compensation (other than benefits under the Employee Plans), dates of employment
and positions. To the Best Knowledge of the Issuer, no "Significant Employee"
(as herein defined) intends to terminate his or her employment with the Issuer.
As used herein "Significant Employee" means the Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, President or any Vice President of
the Issuer.
5.18 EMPLOYEE BENEFITS. All Employee Plans of any kind or nature
maintained by or on behalf of the Issuer comply with and are and have been
operated in material compliance with all applicable Laws. None of such plans are
subject to regulation under the Employment Retirement Income Security Act of
1974, as amended.
5.19 TAX AUDITS AND PAYMENT OF TAXES. Except as would not, singly or in
the aggregate, have a material adverse effect, (a) all Tax Returns required to
be filed by the Issuer have been filed and all such returns are true, complete,
and correct in all material respects, and (b) all Taxes that are due or claimed
to be due from the Issuer have been paid other than those (i) currently payable
without penalty or interest or (ii) being contested in good faith and by
appropriate proceedings and for which adequate reserves, if necessary, have been
established in accordance with generally accepted accounting principles. None of
the Tax Returns of the Issuer is currently being examined by the United States
Internal Revenue Service or any other Governmental Authority. The Issuer (and
any predecessor of the Issuer) has been a validly electing "S Corporation"
within the meaning of Code Sections 1361 and 1362 at all times during its
existence, and the Issuer will be a validly electing "S Corporation" up to and
including the Closing Date.
5.20 OTHER RELATIONSHIPS. None of the Shareholders has any interest
(other than as a noncontrolling holder of securities of a publicly traded
company), either directly or indirectly, in any Person, including, without
limitation, any Person (whether as an employee, officer, director, shareholder,
partner, member, agent, independent contractor, security holder, creditor,
consultant, or otherwise) that presently (i) provides any services or designs,
produces and/or sells any products or product lines, or engages in any activity
which is the same, similar to or competitive with any activity or business in
which the Issuer is now engaged; (ii) is a supplier of, customer of, creditor
of, or has an existing contractual relationship with the Issuer; or (iii) has
any direct or indirect interest in any asset or property used by the Issuer or
any property, real or personal, tangible or intangible, that is necessary or
desirable for the conduct of the Business. No current or former stockholder,
partner, member, director, officer or employee of the Issuer nor any Affiliate
of any such Person, is at present, or since January 1, 1996, has been, directly
or indirectly through his affiliation with any other person or entity, a party
to any transaction (other than as an employee) with the Issuer providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring cash payments to, any such Person.
5.21 CONFLICTS OF INTEREST. No Shareholder nor any officer, employee,
agent or any other Person acting on behalf of any Shareholder or the Issuer has,
directly or indirectly, given or agreed to give or receive any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to or from any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any Governmental Authority or
other Person who was, is, or may be in a position to help or hinder the Business
(or assist in connection with any
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actual or proposed transaction therewith) which (i) might subject the Issuer to
any Losses in any Action, (ii) if not given in the past, might have had a
material adverse effect on the Business Condition of the Issuer or (iii) if not
continued in the future, might have a material adverse effect on the Business
Condition of the Issuer.
5.22 INSURANCE. The Issuer has in full force and effect insurance
with respect to its assets and businesses against such casualties and
contingencies and of such types and forms and to such extent as is customary in
the case of Persons engaged in its businesses and in its areas. The Issuer
Disclosure Letter contains a true and correct list of all insurance policies
maintained by the Issuer and a general description of such policies.
5.23 YEAR 2000. All Products are Year 2000 Compliant.
5.24 MATERIAL MISSTATEMENTS AND OMISSIONS. No representations and
warranties by the Issuer or the Shareholders in this Agreement, or any exhibit,
schedule or certificate furnished by the Issuer or the Shareholders to the
Purchaser pursuant to this Agreement, contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants (PROVIDED that the representations and warranties
contained in Section 6.4 shall only be deemed to be given at the Closing) that:
6.1 ORGANIZATION, STANDING AND POWER. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted. The Purchaser is duly qualified or licensed as a foreign
corporation and is in good standing in each jurisdiction where the nature of its
properties owned or held under lease or the nature of the business conducted by
it make such qualification necessary, except for any failure to be so qualified
as will not, individually or in the aggregate, impair in any material respect
the Purchaser's performance of its obligations hereunder.
6.2 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
(a) The Purchaser has full power and authority to enter into,
execute and deliver this Agreement and perform its obligations hereunder. This
Agreement has been duly authorized by all corporate action of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser and,
assuming this Agreement is duly executed and delivered by the Issuer and the
Shareholders, constitutes a valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally, or the availability of equitable remedies.
(b) The execution and delivery by the Purchaser of this Agreement
do not, and compliance by the Purchaser with the provisions of this Agreement
will not, (i) conflict with or result in a breach or default under the Charter
Documents of the Purchaser or any of the terms, conditions or provisions of any
Contract to which the Purchaser is a party or otherwise
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bound, or to which any property or asset of the Purchaser is subject; (ii)
violate any Law applicable to the Purchaser; or (iii) result in the creation or
imposition of any Lien on any asset of the Purchaser, except in each case as
will not, individually or in the aggregate, impair in any material respect the
Purchaser's performance of its obligations hereunder.
6.3 NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that are
required to be obtained or made by the Purchaser in connection with the
execution of, and the consummation of the transactions contemplated under, this
Agreement, including, without limitation, the making of the Initial Loan and the
Additional Loan and the sale and issuance of the Shares, except for any matters
as will not, individually or in the aggregate, impair in any material respect
the Purchaser's performance of its obligations hereunder.
6.4 DISCLOSURE OF INFORMATION. The Purchaser believes that it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Shares. The Purchaser further represents that it has had
an opportunity to ask questions and receive answers from the Issuer regarding
the terms and conditions of the Shares and the Business. The foregoing, however,
does not limit or modify the representations and warranties of the Issuer and
the Shareholders in Section 5 of this Agreement or the right of the Purchaser to
rely thereon.
6.5 INVESTMENT EXPERIENCE. The Purchaser acknowledges that it is able
to fend for itself, can bear the economic risk of the purchase of the Shares,
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment in the Shares.
The Purchaser has not been organized for the purpose of acquiring the Shares.
6.6 BROKERS. The Purchaser has not retained or otherwise engaged or
employed any broker, finder or any other person for or on account of acting as a
finder or broker in connection with this Agreement or the transactions
contemplated hereby for which the Issuer could be responsible.
7. TRANSACTIONS PRIOR TO THE CLOSING DATE.
7.1 CONDUCT OF BUSINESS. Prior to the Closing, except as contemplated
by this Agreement or with the prior written consent of the Purchaser, the Issuer
agrees, and the Shareholders agree to cause the Issuer:
(a) to conduct its operations according to its ordinary and usual
course of business;
(b) not to Transfer any assets, other than asset Transfers
incidental to settlement processing according to its ordinary and usual course
of business;
(c) not to declare or pay any dividend or other distribution on
its Equity Securities, and not to purchase, redeem, retire or otherwise acquire
any of its Equity Securities;
(d) not to enter into any Material Contract;
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(e) not to amend, modify or terminate, or grant any waiver of any
right under, any Material Contract, and not to make any payment under any
Material Contract which is not required to be made strictly in accordance with
the terms of the Material Contract;
(f) to comply with all of its obligations and duties under any
Material Contract and not to create or permit to exist any default or event of
default on behalf of the Issuer under any Material Contract, or any event or
circumstance which, with lapse of time or notice, or both, would constitute a
default under a Material Contract;
(g) to use its Best Efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those Persons having
business relationships with the Issuer;
(h) to duly comply in all material aspects with all applicable
Laws;
(i) not to incur any fixed or contingent obligation or enter into
any Contract or other transaction or arrangement relating to the Business or the
assets of the Issuer which (i) may not be terminated by the Issuer on 30 days'
notice or less without cost or liability and (ii) which is not in the ordinary
course of the business;
(j) not to commit any act or omit to do any act which would be or
result in a breach of any of its obligations, duties, agreements or
representations under any Contract to which it is a party or to which it enters
into subsequent to the date of this Agreement which would have a material effect
on the Business Condition of the Issuer;
(k) to maintain all properties necessary for the conduct of the
Business, whether owned or leased, in substantially the same condition as they
now are;
(l) to maintain its books, records and accounts in the usual,
regular and ordinary manner, on a basis consistent with prior periods;
(m) not to enter into any Contract of any kind or nature with any
Affiliate, or make any payment or other asset Transfer to or for the benefit of
any Affiliate (other than employment compensation in the ordinary course of
business consistent with past practice);
(n) to use the proceeds of the Initial Loan and the Additional
Loan for working capital and not to repay any loan to any Shareholder;
(o) not to enter into any transaction or perform any act which
would make any of the representations, warranties or agreements of the Issuer
and the Shareholders contained in this Agreement false or misleading in any
material respect if made again immediately after such transaction or act; and
(p) not to take any affirmative action or fail to take any action
within its control that is likely to cause any of the changes or events listed
in Section 7.1 to occur.
7.2 INSPECTION OF RECORDS. Between the date of this Agreement and the
Closing, the Issuer and the Shareholders shall allow the duly authorized
officers, attorneys, accountants and
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other representatives of the Purchaser access at all reasonable times to the
records and files, correspondence, audits and properties, as well as to all
information in each case relating to the business and affairs of the Issuer.
7.3 ACQUISITION PROPOSALS. During the period from the date of this
Agreement and extending through the earlier of the termination of this Agreement
or the Closing, the Issuer and the Shareholders each agree that (i) the Issuer
and the Shareholders shall not, and the Issuer and the Shareholders shall direct
and cause the Issuer's officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant) not to, initiate, solicit, intentionally encourage or accept the
submission of any proposal or offer with respect to a merger, acquisition, sale,
consolidation or similar transaction involving all or any significant portion of
the assets of the Issuer or any Equity Securities of the Issuer (any such
proposal or offer being hereinafter referred to as an "ACQUISITION PROPOSAL") or
engage in any negotiations or discussions concerning, or provide any
confidential information or data to, any Person relating to an Acquisition
Proposal, and (ii) the Issuer and the Shareholders shall notify the Purchaser
immediately if any Acquisition Proposal is received by the Issuer and/or the
Shareholders or any negotiations or discussions relating to a potential
Acquisition Proposal are sought to be initiated or continued with the Issuer
and/or the Shareholders.
7.4 SHAREHOLDERS AGREEMENT. The Shareholders and the Purchaser agree to
negotiate in good faith and use their respective Best Efforts to enter into the
Shareholders Agreement.
7.5 BEST EFFORTS. Between the date of this Agreement and the Closing,
each of the parties to this Agreement will use its or his Best Efforts to cause
the conditions to the obligations of the other parties set forth in Sections 8,
9 or 10 of this Agreement, as the case may be, to be satisfied.
8. CONDITIONS TO THE INITIAL LOAN CLOSING.
8.1 CONDITIONS OF THE PURCHASER. The obligation of the Purchaser to
make the Initial Loan and to take the other actions required to be taken by the
Purchaser at the Initial Loan Closing is subject to the satisfaction, at or
prior to the Initial Loan Closing, of each of the following conditions (any of
which may be waived by the Purchaser in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Issuer and the Shareholders (contained in this Agreement, any
exhibit or schedule hereto, or any certificate, instrument or other writing
delivered to the Purchaser or its representatives by the Issuer or the
Shareholders or any of their representatives) shall be true and correct in all
material respects on the Initial Loan Closing Date with the same force and
effect as though made on and as of the Initial Loan Closing Date (I.E., with
respect to a representation that a state of facts exists on or as of the date
hereof, it is a condition that such state of facts exists on or as of the
Initial Loan Closing Date, and with respect to a representation that a state of
facts has or has not changed between a date prior to the date hereof and the
date hereof, it is a condition that such state of facts has or has not changed
between such prior date and the Initial Loan Closing Date), except as affected
by the transactions contemplated hereby and except that any such representation
or warranty made as of a specified date (other than the date of this Agreement)
shall only need to have been true on and as of such date.
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(b) PERFORMANCE. The Issuer and the Shareholders each shall have
performed all obligations and complied with in all material respects all
covenants required by this Agreement to be performed or complied with by the
Issuer and the Shareholders on or prior to the Initial Loan Closing Date.
(c) CERTIFICATE. The Issuer and the Shareholders shall have
delivered to the Purchaser a certificate, dated the Initial Loan Closing Date,
certifying that the conditions specified in Sections 8.1(a) and (b) of this
Agreement have been satisfied.
(d) NO PROCEEDINGS. No Action pertaining to the transactions
contemplated by this Agreement or to their consummation shall have been
instituted or threatened on or prior to the Initial Loan Closing Date.
(e) OPINION LETTER. The Purchaser shall have received from counsel
to the Issuer satisfactory to the Purchaser a written opinion, dated as of the
Initial Loan Closing Date and addressed to the Purchaser, in form and substance
satisfactory to the Purchaser.
(f) ISSUER DISCLOSURE LETTER. The Issuer shall have delivered to
the Purchaser the Issuer Disclosure Letter not later than 5:00 p.m. Los Angeles
time on June 2, 1999, which shall be in form and substance satisfactory to the
Purchaser (PROVIDED that if the Purchaser receives the Issuer Disclosure Letter
on or before the Issuer's delivery deadline and does not deliver an objection
notice to the Issuer on or before 5:00 p.m. Los Angeles time on the fifth
Business Day following the Purchaser's receipt of the Issuer Disclosure Letter,
the Purchaser shall be deemed to have approved the Issuer Disclosure Letter).
(g) OTHER MATTERS. All corporate and other proceedings and actions
taken in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such transactions shall
be reasonably satisfactory in form and substance to the Purchaser and its
counsel.
9. CONDITIONS TO THE ADDITIONAL LOAN CLOSING.
9.1 CONDITIONS OF THE PURCHASER. The obligation of the Purchaser to
make the Additional Loan and to take the other actions required to be taken by
the Purchaser at the Additional Loan Closing is subject to the satisfaction, at
or prior to the Additional Loan Closing, of each of the following conditions
(any of which may be waived by the Purchaser in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Issuer and the Shareholders (contained in this Agreement, any
exhibit or schedule hereto, or any certificate, instrument or other writing
delivered to the Purchaser or its representatives by the Issuer or the
Shareholders or any of their representatives) shall be true and correct in all
material respects on the Additional Loan Closing Date with the same force and
effect as though made on and as of the Additional Loan Closing Date (I.E., with
respect to a representation that a state of facts exists on or as of the date
hereof, it is a condition that such state of facts exists on or as of the
Additional Loan Closing Date, and with respect to a representation that a state
of facts has or has not changed between a date prior to the date hereof and the
date hereof, it is a condition that such state of facts has or has not changed
between such prior date and the
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Additional Loan Closing Date), except as affected by the transactions
contemplated hereby and except that any such representation or warranty made as
of a specified date (other than the date of this Agreement) shall only need to
have been true on and as of such date.
(b) PERFORMANCE. The Issuer and the Shareholders each shall have
performed all obligations and complied with in all material respects all
covenants required by this Agreement to be performed or complied with by the
Issuer and the Shareholders on or prior to the Additional Loan Closing Date.
(c) CERTIFICATE. The Issuer and the Shareholders shall have
delivered to the Purchaser a certificate, dated the Additional Loan Closing
Date, certifying that the conditions specified in Sections 9.1(a) and (b) of
this Agreement have been satisfied.
(d) NO PROCEEDINGS. No Action pertaining to the transactions
contemplated by this Agreement or to their consummation shall have been
instituted or threatened on or prior to the Additional Loan Closing Date.
(e) OPINION LETTER. The Purchaser shall have received from counsel
to the Issuer satisfactory to the Purchaser a written opinion, dated as of the
Additional Loan Closing Date and addressed to the Purchaser, in form and
substance satisfactory to the Purchaser.
(f) SHAREHOLDER AGREEMENT. The Shareholders shall have entered
into the Shareholders Agreement.
(g) KERLIN EMPLOYMENT AGREEMENT. Kerlin and the Issuer shall have
entered into the Kerlin Employment Agreement.
(h) APPOINTMENT OF DIRECTOR. The Shareholders shall have appointed
a designee of the Purchaser as a director of the Issuer.
(i) OTHER MATTERS. All corporate and other proceedings and actions
taken in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such transactions shall
be reasonably satisfactory in form and substance to the Purchaser and its
counsel.
9.2 CONDITIONS OF THE ISSUER. The obligation of the Issuer to accept
the Additional Loan and to take the other actions required to be taken by the
Issuer at the Additional Loan Closing is subject to the satisfaction, at or
prior to the Additional Loan Closing, of each of the following conditions (any
of which may be waived by the Issuer in writing, in whole or in part):
(a) SHAREHOLDER AGREEMENT. The Purchaser shall have entered into
the Shareholders Agreement.
(b) KERLIN EMPLOYMENT AGREEMENT. Kerlin shall have entered into
the Kerlin Employment Agreement.
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10. CONDITIONS TO THE CLOSING.
10.1 CONDITIONS OF THE PURCHASER. The obligation of the Purchaser to
complete the purchase of the Shares and to take the other actions required to be
taken by the Purchaser at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by the Purchaser in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Issuer and the Shareholders (contained in this Agreement, any
exhibit or schedule hereto, or any certificate, instrument or other writing
delivered to the Purchaser or its representatives by the Issuer or the
Shareholders or any of their representatives) shall be true and correct in all
material respects on the Closing Date with the same force and effect as though
made on and as of the Closing Date (I.E., with respect to a representation that
a state of facts exists on or as of the date hereof, it is a condition that such
state of facts exists on or as of the Closing Date, and with respect to a
representation that a state of facts has or has not changed between a date prior
to the date hereof and the date hereof, it is a condition that such state of
facts has or has not changed between such prior date and the Closing Date),
except as affected by transactions contemplated hereby and except that any such
representation or warranty made as of a specified date (other than the date of
this Agreement) shall only need to have been true on and as of such date.
(b) PERFORMANCE. The Issuer and the Shareholders each shall have
performed all obligations and complied with in all material respects all
covenants required by this Agreement to be performed or complied with by the
Issuer and the Shareholders on or prior to the Closing Date.
(c) CONSENTS. The Issuer shall have delivered to the Purchaser all
consents and approvals of Governmental Authorities and other Persons necessary
for the purchase and sale of the Shares and the unconditional consummation of
the transactions contemplated hereby at the Closing.
(d) CERTIFICATE. The Issuer and the Shareholders shall have
delivered to the Purchaser a certificate, dated the Closing Date, certifying
that the conditions specified in Sections 10.1(a), (b) and (c) of this Agreement
have been satisfied.
(e) NO PROCEEDINGS. No Action pertaining to the transactions
contemplated by this Agreement or to their consummation shall have been
instituted or threatened on or prior to the Closing Date.
(f) APPOINTMENT OF DIRECTORS. A majority of the Issuer's directors
shall be designees of the Purchaser, whose terms shall commence immediately
following the Closing.
(g) AUDITED FINANCIAL STATEMENTS. The Issuer shall have delivered
to the Purchaser an audited consolidated balance sheet of the Issuer as at
December 31, 1998 and the related audited consolidated statements of operations,
changes in shareholders' equity and cash flows for the fiscal year ended
December 31, 1998, with the report of the independent auditors subject to no
qualifications (other than a going concern qualification) and which otherwise
shall be in form and substance satisfactory to the Purchaser.
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(h) DUE DILIGENCE. The Purchaser shall have completed to its
satisfaction a due diligence investigation of the Issuer (including, without
limitation, a technical audit of the systems relating to the Business) and shall
have approved the results of such investigation.
(i) OPINION LETTER. The Purchaser shall have received from counsel
to the Issuer satisfactory to the Purchaser a written opinion, dated as of the
Closing Date and addressed to the Purchaser, in form and substance satisfactory
to the Purchaser.
(j) OTHER MATTERS. All corporate and other proceedings and actions
taken in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such transactions shall
be reasonably satisfactory in form and substance to the Purchaser and its
counsel.
10.2 CONDITIONS OF THE ISSUER. The obligation of the Issuer to complete
the issuance and sale of the Shares and to take the other actions required to be
taken by the Issuer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by the Issuer in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser (contained in this Agreement, any exhibit or
schedule hereto, or any certificate, instrument or other writing delivered to
the Issuer or its representatives by the Purchaser, or any of its
representatives) shall be true and correct in all material respects on the
Closing Date with the same force and effect as though made on and as of the
Closing Date (I.E., with respect to a representation that a state of facts
exists on or as of the date hereof, it is a condition that such state of facts
exists on or as of the Closing Date, and with respect to a representation that a
state of facts has or has not changed between a date prior to the date hereof
and the date hereof, it is a condition that such state of facts has or has not
changed between such prior date and the Closing Date), except as affected by
transactions contemplated hereby and except that any such representation or
warranty made as of a specified date (other than the date of this Agreement)
shall only need to have been true on and as of such date.
(b) PERFORMANCE. The Purchaser shall have performed all
obligations and complied with in all material respects all covenants required by
this Agreement to be performed or complied with by the Purchaser on or prior to
the Closing Date.
(c) CERTIFICATE. The Purchaser shall have delivered to the Issuer
a certificate, dated the Closing Date, certifying that the conditions specified
in Sections 10.2(a) and (b) of this Agreement have been satisfied.
(d) SHAREHOLDERS AGREEMENT. The Purchaser shall have entered into
the Shareholders Agreement.
(e) KERLIN EMPLOYMENT AGREEMENT. The Purchaser shall have approved
the Kerlin Employment Agreement.
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(f) NO PROCEEDINGS. There shall not be any temporary, preliminary
or permanent injunction against the Issuer prohibiting it form issuing and
selling the Shares to the Purchaser.
(g) OTHER MATTERS. All corporate and other proceedings and actions
taken in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such transactions shall
be reasonably satisfactory in form and substance to the Issuer and its counsel.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Agreement or made in any document delivered pursuant
to this Agreement by or on behalf of any party shall survive the execution and
delivery of this Agreement and the Closing, regardless of notice of or any
investigation or right of investigation made prior to or after the date of this
Agreement by or on behalf of any party, and shall terminate and expire eighteen
months following the Closing Date, after which date they shall be of no further
force or effect. No Action hereunder for breach of or inaccuracy in any
representation or warranty may be made unless such Action is commenced on or
before the 30th day following the expiration of the eighteen month period
following the Closing Date.
11.2 INDEMNIFICATION. The Issuer and the Shareholders shall indemnify,
save and hold harmless the Purchaser and each of its officers, directors,
employees, agents and Affiliates, and each of their successors and assigns
(individually, a "PURCHASER INDEMNIFIED PARTY" and collectively, the "PURCHASER
INDEMNIFIED PARTIES") from and against any and all costs, losses, claims,
liabilities, fines, penalties, and expenses (including, without limitation,
interest which may be imposed in connection therewith and court costs and
reasonable fees and disbursements of counsel) ("DAMAGES") incurred in connection
with, arising out of, resulting from or incident to any breach of, or any
inaccuracy in any of, the representations or warranties, or any default in any
agreements, made by the Issuer or the Shareholders in this Agreement, any
exhibit or schedule to this Agreement or any certificate, instrument or writing
delivered in connection with this Agreement or in connection with any exhibit or
schedule to this Agreement. Subject to the following sentence, the Issuer and
each Shareholder shall have the right to control and conduct the defense or
settlement of any Action giving rise to any claim for indemnification against
the Issuer or any Shareholder, respectively. None of the Issuer or the
Shareholders shall, without the prior written consent of the Purchaser
Indemnified Party, effect any settlement or compromise of or consent to the
entry of judgment with respect to any pending or threatened Action in respect of
which the Purchaser Indemnified Party is an actual or potential party and
indemnification may be sought hereunder by the Purchaser Indemnified Party,
unless such settlement, compromise or judgment (i) includes an unconditional
release of the Purchaser Indemnified Party from all liability on claims that are
or could have been the subject matter of such Action and (ii) does not include a
statement as to or an admission of fault, culpability or failure to act by or on
behalf of the Purchaser Indemnified Party.
11.3 LIMITATION ON INDEMNIFICATION OBLIGATIONS.
(a) The Purchaser Indemnified Parties shall not be entitled to
recover under Section 11.2 unless the aggregate amount of indemnifiable Damages
incurred by the Purchaser Indemnified Parties exceeds $150,000, at which time
any claim for indemnification may be made only for the excess. Notwithstanding
anything to the contrary herein contained, the limitations contained in this
Section 11.3(a) shall not apply to indemnification for breach of any
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representation and warranty contained in Section 5.3, breach of any covenant or
agreement of any indemnifying party, or fraud by an indemnifying party in
connection with this Agreement and the transactions contemplated hereby.
(b) Neither Shareholder shall be responsible for more than 50% of
the indemnifiable Damages incurred by the Purchaser Indemnified Parties in
connection with, arising out of, resulting from or incident to any breach of, or
any inaccuracy in any of, the representations or warranties made by the Issuer
or the Shareholders in this Agreement, any exhibit or schedule to this Agreement
or any certificate, instrument or writing delivered in connection with this
Agreement or in connection with any exhibit or schedule to this Agreement.
(c) In calculating any amount of Damages payable pursuant to
Section 11.2, the amount of any such Damages shall be reduced by any net Tax
benefit actually realized by the relevant Purchaser Indemnified Party as a
result of such Damages (whether in the form of an actual refund or a reduction
in any Tax that would otherwise have been payable). In computing the amount of
any such Tax cost, the Purchaser Indemnified Party shall be deemed to recognize
all other items of income, gain, loss, deduction or credit before recognizing
any items arising from the receipt or accrual of any indemnification payment
under Section 11.2 or the incurrence of any Damages payable pursuant to Section
11.2. In addition, to the extent not otherwise taken into consideration, in
connection with a claim for indemnification relating to a loss (or other Damage)
incurred by a Purchaser Indemnified Party based on the "value" of the Issuer
being less than was represented to the Purchaser (for example, due to an
undisclosed liability which was required to be disclosed), the value shall
consider any Tax benefit or Tax detriment actually realized or incurred by the
Issuer relating to such loss or Damage.
(d) If the Closing occurs, the Issuer and the Shareholders shall
not have any obligation or liability under Section 11.2 for breaches of or
inaccuracies in representations or warranties that (i) are not intentional and
(ii) are disclosed in the Issuer Disclosure Letter delivered to the Purchaser at
the Closing.
12. NONCOMPETITION.
12.1 PROCHNOW COVENANT NOT TO COMPETE. For a period of three years from
the Closing Date, Prochnow shall not, directly or indirectly, whether
individually or as a member, officer, director, investor, stockholder, employee
or consultant of any Person (other than the Issuer), or in any other capacity,
(i) engage anywhere in the world in a business which competes with the Business
or any other line of business engaged in by the Issuer, or (ii) induce or
attempt to induce (A) any employee of the Purchaser or the Issuer to leave the
employ of the Issuer or in any way interfere adversely with the relationship
between any such employee and the Issuer, (B) any employee of the Issuer to work
for, render services or provide advice to or supply confidential business
information or trade secrets of the Issuer to any Person, or (C) any customer,
supplier, agent, licensee, licensor or other business relation of the Issuer to
cease doing business with the Issuer or in any way interfere with the
relationship between any such customer, supplier, agent, licensee, licensor or
other business relation and the Issuer. The ownership by Prochnow of four
percent or less of the outstanding capital stock of any Person engaged in any
business which competes with any line of business engaged in by the Issuer,
where the capital stock of the Person is listed on a national securities
exchange or actively quoted on the Nasdaq Stock Market, shall not be deemed a
violation by Prochnow of this Section 12, provided that Prochnow is not an
officer,
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director or employee of, or a consultant to, such corporation or otherwise
related in any way to such Person (other than as a shareholder thereof).
12.2 KERLIN COVENANT NOT TO COMPETE. During the Term, Kerlin shall not,
directly or indirectly, whether individually or as a member, officer, director,
investor, stockholder, employee or consultant of any Person (other than the
Issuer), or in any other capacity, (i) engage anywhere in the world in a
business which competes with the Business or any other line of business engaged
in by the Issuer, or (ii) induce or attempt to induce (A) any employee of the
Purchaser or the Issuer to leave the employ of the Issuer or in any way
interfere adversely with the relationship between any such employee and the
Issuer, (B) any employee of the Issuer to work for, render services or provide
advice to or supply confidential business information or trade secrets of the
Issuer to any Person, or (C) any customer, supplier, agent, licensee, licensor
or other business relation of the Issuer to cease doing business with the Issuer
or in any way interfere with the relationship between any such customer,
supplier, agent, licensee, licensor or other business relation and the Issuer.
The ownership by Kerlin of four percent or less of the outstanding capital stock
of any Person engaged in any business which competes with any line of business
engaged in the Issuer, where the capital stock of the Person is listed on a
national securities exchange or actively quoted on the Nasdaq Stock Market,
shall not be deemed a violation by Kerlin of this Section 12, provided that
Kerlin is not an officer, director or employee of, or a consultant to, such
corporation or otherwise related in any way to such Person (other than as a
shareholder thereof). Upon the effectiveness of the Kerlin Employment Agreement,
this Section 12.2 shall be superceded by the covenant not to compete of Kerlin
contained in such agreement and shall cease to have any force or effect. For
purposes of this Section 12.2, the "TERM" shall mean the period commencing on
the Closing Date and ending on the later of (i) three years from the Closing
Date and (ii) one year from termination of Kerlin's employment; PROVIDED that if
the Issuer terminates the Kerlin's employment other than "for cause" (as defined
in the Kerlin Employment Agreement), the "Term" shall mean the period commencing
on the Closing Date and ending on the date Kerlin's severance period ends.
12.3 REMEDIES. Prochnow and Kerlin acknowledge and agree that, in the
event of a violation by Prochnow or Kerlin of the terms and provisions of this
Section 12, the remedies at law would not be adequate; and accordingly, in such
event, each of the Purchaser, the Issuer may proceed to protect and enforce its
rights under this Section 12 by a suit in equity for specific performance and
temporary, preliminary and permanent injunctive relief from violation of any of
the provisions of this Section 12 from any court of competent jurisdiction
without the necessity of proving the amount of any actual damages to the
Purchaser or the Issuer resulting from the breach.
12.4 MODIFICATION. If for any reason there should be a determination by
a court of competent jurisdiction that the provisions of this Section 12 are too
broad or unreasonable (or otherwise objectionable) and therefore unenforceable,
the provisions of this Section 12 shall be deemed modified, and fully
enforceable as so modified, to the extent that the court would find them to be
fair, reasonable and enforceable under the circumstances.
13. TERMINATION.
13.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the mutual agreement, in writing, of each of
the parties to this Agreement.
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13.2 TERMINATION BY THE PURCHASER. The Purchaser may (but shall not be
obligated to) terminate this Agreement prior to the Closing by giving written
notice to the Issuer if:
(a) the Issuer fails to deliver the Issuer Disclosure Letter to
the Purchaser on or before 5:00 p.m. Los Angeles time on June 2, 1999; or
following such timely delivery the Purchaser delivers an objection notice to the
Issuer on or before 5:00 p.m. Los Angeles time on the fifth Business Day
following the Purchaser's receipt of the Issuer Disclosure Letter and the Issuer
fails to deliver an amended Issuer Disclosure Letter in form and substance
satisfactory to the Purchaser on or before 5:00 p.m. Los Angeles time on the
fifth Business Day following the Issuer's receipt of the Purchaser's objection
notice;
(b) there has been a material violation or breach by the Issuer or
a Shareholder of any agreement, covenant, representation or warranty contained
in this Agreement, which violation or breach shall not have been cured or
corrected within ten days after receipt of notice thereof;
(c) the Closing does not occur on or prior to (i) the earlier of
(A) the 45th day following the Issuer's delivery to the Purchaser of the audited
financial statements described in Section 10.1(g) or (B) September 30, 1999, or
(ii) such later date as may be agreed to in writing by the parties;
(d) if the Purchaser is made aware and determines in its
reasonable discretion that any condition in Section 10.1 will not be satisfied
as of the Closing (other than through the failure of the Purchaser to comply
with its obligations under this Agreement) and the Purchaser has not expressly
waived such condition in writing on or before the Closing.
13.3 TERMINATION BY THE ISSUER. The Issuer may (but shall not be
obligated to) terminate this Agreement on behalf of itself and the Shareholders
prior to the Closing by giving written notice to the Purchaser if:
(a) there has been a material violation or breach by the Purchaser
of any agreement, covenant, representation or warranty contained in this
Agreement, which violation or breach shall not have been cured or corrected
within ten days after receipt of notice thereof;
(b) the Closing does not occur on or prior to (i) the earlier of
(A) the 45th day following the Issuer's delivery to the Purchaser of the audited
financial statements described in Section 10.1(g) or (B) September 30, 1999, or
(ii) such later date as may be agreed to in writing by the parties;
(c) if the Issuer is made aware and determines in its reasonable
discretion that any condition in Section 10.2 will not be satisfied as of the
Closing (other than through the failure of the Issuer or the Shareholders to
comply with its or their obligations under this Agreement) and the Issuer has
not expressly waived such condition in writing on or before the Closing.
13.4 EFFECT OF TERMINATION. In the event of the termination of this
Agreement without the Closing occurring, no party shall have any obligation or
liability to any other in respect to this Agreement, except for (i) any material
breach of any covenant occurring prior to such
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termination, or (ii) any material breach of or material inaccuracy in any
representation or warranty occurring prior to such termination that is
intentional; or (iii) the covenant under Section 14.12 shall remain in effect.
Notwithstanding anything to the contrary contained herein, the Purchaser shall
not have any obligation or liability to the Issuer or the Shareholders if the
Purchaser, after the exercise of its Best Efforts, is unable to obtain $4
million on commercially reasonable terms in order to pay the Purchase Price to
the Issuer at the Closing as provided hereunder.
14. MISCELLANEOUS.
14.1 NOTICES. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission
(which must be confirmed) or by United States first class, registered or
certified mail, postage prepaid, to the following addresses:
(i) if to the Purchaser, to:
Symposium Corporation
410 Park Avenue, 18th Floor
New York, New York 10022
Facsimile No. (212) 754-9906
Attn: Ronald Altbach
with a copy to:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East
Los Angeles, California 90067
Facsimile No. (310) 728-2211
Attn: Alan B. Spatz, Esq.
if to the Issuer or the Shareholders, to:
AmeriNet, Inc.
Three Centerpoint Drive, Suite 125
Lake Oswego, Oregon 97035
Facsimile No. (503) 670-8192
Attn: Richard Boonstra
With a copy to:
Lathrop & Gage, L.C.
2345 Grand Boulevard, Suite 2800
Kansas City, Missouri 64108
Facsimile No. (816) 292-2001
Attn: Tyler Prochnow, Esq.
Any Notice, other than a Notice sent by registered or certified mail, shall be
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effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other parties in the manner prescribed in this Section.
14.2 ENTIRE AGREEMENT. This Agreement, the attached exhibits and
schedules, and the Shareholders Agreement contain the sole and entire agreement
and understanding of the parties with respect to the entire subject matter of
this Agreement, and any and all prior discussions, negotiations, commitments and
understandings, whether oral or otherwise, related to the subject matter of this
Agreement are hereby merged herein. Nothing in this Agreement, express or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by way of this Agreement.
14.3 ASSIGNMENT. No party may assign its rights or obligations under
this Agreement, and any attempted or purported assignment or any delegation of
any party's duties or obligations arising under this Agreement to any third
party or entity shall be deemed to be null and void, and shall constitute a
material breach by such party of its duties and obligations under this
Agreement; provided that the Purchaser may assign its rights to any Subsidiary
of the Purchaser. This Agreement shall inure to the benefit of and be binding
upon any successors of each party by way of merger or consolidation.
14.4 WAIVER AND AMENDMENT. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and waiver of any
one provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement executed by
all of the parties to this Agreement.
14.5 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of New York without giving effect to the principles
of conflicts of law thereof.
14.6 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 shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
14.7 CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
14.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
14.9 COSTS AND ATTORNEYS' FEES. If any Action is instituted to remedy,
prevent or obtain relief from a default in the performance by any party to this
Agreement of its obligations under this Agreement, the prevailing party shall
recover all of such party's attorneys' fees incurred in each and every such
Action, including, without limitation, any and all appeals or petitions
therefrom. As used in this Section, attorneys' fees shall be deemed to mean the
full and actual costs of any legal services actually performed in connection
with the matters involved calculated on the
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basis of the usual fee charged by the attorney performing such services and
shall not be limited to "reasonable attorneys' fees" as defined in any statute
or rule of court.
14.10 RIGHTS CUMULATIVE. No right granted to the parties under this
Agreement on default or breach is intended to be in full or complete
satisfaction of any Damages arising out of such default or breach, and each and
every right under this Agreement, or under any other document or instrument
delivered hereunder, or allowed by law or equity, shall be cumulative and may be
exercised from time to time.
14.11 JUDICIAL INTERPRETATION. Should any provision of this Agreement
require judicial interpretation, it is agreed that a court interpreting or
construing the same shall not apply a presumption that the terms hereof shall be
more strictly construed against any Person by reason of the rule of construction
that a document is to be construed more strictly against the Person who itself
or through its agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement.
14.12 CONFIDENTIALITY.
(a) The Purchaser, the Issuer and the Shareholders hereby
acknowledge to and agree with the other that any and all information which has
been disclosed by one to the other, its directors, partners, members, managers,
employees, consultants, agents and shareholders during the discussions and
negotiations leading to the execution of this Agreement, and all information to
be disclosed by one to the other, its directors, employees, consultants and
agents and shareholders, during the period commencing on the date of execution
of this Agreement through the Closing or termination of this Agreement, shall
constitute confidential information and trade secrets of the disclosing party,
and as such are secret, confidential and unique and constitute the exclusive
trade secrets and property of such party. Such information has been made known
and available to the other party and its respective employees, consultants and
agents strictly in connection with the negotiation and execution of this
Agreement and the consummation of the transactions provided for herein. Each
party hereby acknowledges and agrees that any use or disclosure of any such
confidential information or trade secrets, other than pursuant to this
Agreement, would be wrongful and would cause irreparable injury to the other.
Accordingly, each party hereby expressly agrees, for itself and on behalf of its
shareholders, partners, members and directors, if any, and its principal
officers, managers, employees, agents, consultants and representatives, that it
and they will not at any time prior to the Closing or at any time thereafter,
use or disclose, other than in accordance with the terms and provisions of this
Agreement, any of such confidential information or trade secrets; provided, that
any of the parties hereto may use or disclose such confidential information or
secrets of the other without restriction if such information or secrets (i) were
or are available to such party on a non-confidential basis from a source other
than the other party, or (ii) were or become generally available to the public
(other than as a result of an impermissible disclosure by such party or its
Affiliates); and provided, further, that if either party is requested or
required (by oral question, interrogatories, requests for information or
documents, subpoena or similar process) to disclose any of such information or
secrets of the other, such disclosure be made without liability hereunder
(although notice of such request or requirement shall be given to the other
party so that, if practicable, the other party may seek a protective order
against such disclosure). Each party acknowledges that, in the event of a
violation by the other of the terms and provisions of this Section 14.12, the
remedies at law would not be adequate; and accordingly, in
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such event such party may proceed to protect and enforce its rights under this
Section 14.12 by a suit in equity for specific performance and temporary,
preliminary and permanent injunctive relief from violation of any of the
provisions of this Section 14.12 from any court of competent jurisdiction
without the necessity of proving the amount of any actual damages to the party
resulting from the breach.
(b) The Issuer and Shareholders acknowledge that: the Purchaser
has public reporting obligations under the Securities Exchange Act of 1934, as
amended, and the Purchaser must obtain financing to complete the purchase of the
Shares. In addition, the Shareholders, the Issuer and the Purchaser acknowledge
that, subject to various rights and obligations under the Shareholders
Agreement, each party has the right to sell its shares of the Common Stock.
Accordingly, notwithstanding the preceding paragraph:
(i) The Purchaser may make public disclosures of such
information regarding the Issuer as it deems appropriate under applicable
securities Laws; provided that for the first year following the Closing, the
Purchaser shall make every reasonable effort to give the Issuer an
opportunity to review any such written disclosure (in substantially final
form), but excluding financial information included in the consolidated
financial statements of the Purchaser prior to the filing or other public
disclosure and shall in good faith consider any comments which the Issuer
may have regarding the accuracy and completeness of such disclosure;
(ii) The Purchaser may disclose information regarding the
Issuer to Persons from whom the Purchaser seeks financing to complete the
purchase of the Shares and to underwriters, finders and broker/dealers who
assist in locating such investors; provided that each such Person is under a
confidentiality obligation with respect to such information not materially
less stringent than the confidentiality obligations applicable to the
Purchaser and Shareholders under this Agreement; and
(iii) The Shareholders and the Purchaser may disclose
information regarding the Issuer to any Person in connection with the
proposed sale of shares of Common Stock; provided that each such Person is
under a confidentiality obligation with respect to such information not
materially less stringent than the confidentiality obligations applicable to
the Purchaser and Shareholders under this Agreement.
15. PAYMENT TO PROCHNOW
15.1 At or immediately following the Closing, the Issuer shall pay to
Prochnow an amount equal the outstanding principal and interest owed to Prochnow
on loans made prior to the Initial Loan by Prochnow to the Issuer, up to a
maximum amount of $1.5 million. If the amount of such loans (including accrued
and unpaid interest) exceeds $1.5 million as of the Closing, the balance shall
be payable (without interest) at such time and in such manner (such as cash or
non-voting Equity Securities) as Prochnow and the Board of Directors of the
Issuer shall agree, it being understood that repayment will not occur prior to
two years from the Closing.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
SYMPOSIUM CORPORATION
By: /s/ RUPERT GALLIERS-PRATT
--------------------------------------
Rupert Galliers-Pratt
Co-Chairman and Chief Executive Officer
AMERINET, INC.
By: /s/ DAVID KERLIN
-------------------------------------
David Kerlin
President
RICHARD PROCHNOW
/s/ RICHARD PROCHNOW
--------------------------------------
Richard Prochnow
DAVID KERLIN
/s/ DAVID KERLIN
--------------------------------------
David Kerlin
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ANNEX A
SHAREHOLDERS AGREEMENT
Summary of Terms
1. RIGHT OF FIRST REFUSAL.
(a) The Shareholders and the Purchaser will have a right of first
refusal in connection with any proposed Transfer by the others of
shares of Equity Securities of the Issuer. Prochnow and Kerlin shall
have a priority over the Purchaser in exercising the right of
refusal on the Transfer of Prochnow's or Kerlin's shares. Transfers
by Prochnow and Kerlin for estate planning purposes, and Transfers
by among the Purchaser Group, are not subject to the right of first
refusal. The "Purchaser Group" is Purchaser and its Subsidiaries.
(b) The Issuer may not issue any Equity Securities in a financing
transaction without first offering such Securities to the
Shareholders and the Purchaser on no less favorable conditions than
proposed to be offered to other Persons. If the Shareholders and the
Purchaser elect to purchase more shares than the shares offered, the
offered shares shall be allocated among the electing shareholders
based on the number of shares held by each.
2. PURCHASE RIGHT UPON DEATH OF A SHAREHOLDER. Upon the death of a
Shareholder, the remaining Shareholder and the Purchaser shall have a
right to purchase the shares of Common Stock of the Issuer owned by the
deceased Shareholder, with the surviving Shareholder having priority over
the Purchaser in exercising such right. The purchase price shall be the
fair market value of the shares, and may be paid in cash or by cash and a
4-year note secured by the shares purchased.
3. SUPERMAJORITY VOTE. The following acts require a vote of at least 2/3 of
the outstanding shares of the Common Stock of the Issuer:
(a) Any amendment of the Certificate of Incorporation or By-Laws of the
Issuer;
(b) Any dissolution, liquidation, reorganization of the Issuer;
(c) Any sale or other disposition of all or substantially all of the
assets of the Issuer;
(d) Any merger or consolidation of the Issuer;
(e) The sale of Equity Securities by the Issuer.
4. SHARE TRANSFER LIMITATIONS. Neither Purchaser nor any Shareholder may
Transfer any shares of the Common Stock to a competitor of the Issuer.
5. COSTS INCURRED BY PURCHASER IN CONNECTION WITH THE ISSUER. The Issuer will
reimburse or pay the Purchaser for the costs and expenses incurred by
Purchaser on behalf of Issuer in
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connection with various overhead and administrative functions based on a
formula set forth in or as otherwise determined in accordance with the
Shareholders Agreement.
6. SHAREHOLDER'S OPTION ("PUT"). Each Shareholder shall have the right on up
to two occasions commencing one year following the Closing and ending five
years following the Closing, and provided that the Purchaser Group then
owns a majority interest in the Issuer, to sell to the Purchaser shares of
the Common Stock of the Issuer for the fair market value of the shares. At
the time of exercising the "put," the Shareholder may specify how much of
the purchase price he desires to be paid in cash and how much by common
stock of the Purchaser. However, the Purchaser shall have the right to
determine how much of the purchase price it will pay by cash and by shares
of its common stock PROVIDED that if requested by the Shareholder, the
Purchaser will pay at least $200,000 in cash (in the aggregate per
Shareholder for all exercises by such Shareholder of the "put"). If the
Purchaser's determination of the amount of the purchase price to be paid
by cash varies by more than $100,000 from the amount specified by the
Shareholder, the Shareholder shall have the right not to proceed with the
sale. Any shares of the common stock of the Purchaser used to pay the
purchase price shall be valued at their average market price over a
specified period.
7. PURCHASER'S CALL OPTION. On or after the third anniversary of the Closing
and until the seventh year following the Closing, and provided that the
Purchaser Group then owns a majority interest in the Issuer, the Purchaser
shall have the right to purchase all, and not less than all, of the
Shareholders' shares of Common Stock for the fair market value thereof. At
the time of exercising the "call," the Purchaser may specify how much of
the purchase price it desires pay in cash and how much by common stock of
the Purchaser. However, a Shareholder shall have the right to determine
how much of the purchase price he desires to receive in cash and how much
by shares of the common stock of the Purchaser. If the Shareholder's
determination of the amount of the purchase price to be received in cash
varies by more than $100,000 from the amount specified by the Purchaser,
the Purchaser shall have the right not to proceed with the purchase. Any
shares of the common stock of the Purchaser used to pay the purchase price
shall be valued at their average market price over a specified period.
8. TERMINATION. The Shareholders Agreement shall automatically terminate at
such time as the Issuer becomes a public company. In addition, the
obligations under Sections 1(b), 3, 4, 5, 6, 7, 10 and 12 shall terminate
if the Purchaser Group and the Shareholders (and their Affiliates) own
less than 50% of the outstanding Common Stock.
9. FAIR MARKET VALUE. If the parties are unable to agree on the fair
market value of shares of the Common Stock of the Issuer, such fair
market value shall be determined by obtaining from a mutually agreed
upon investment banking firm (which shall be a major bracket
underwriter unless otherwise agreed) an opinion as to the value of such
shares, which value shall be the price such investment banking firm
would pay to purchase such shares from the Issuer or selling
shareholder in an public offering firmly underwritten by such
investment banking firm, assuming that such underwriter would be unable
to resell such shares in such offering. The cost of such opinion will
be borne equally be the Purchaser on one hand and Prochnow and/or
Kerlin, as the case may be, on the other hand.
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If Symposium pays cash for any shares of the Common Stock of the Issuer
upon exercise of the put or call, if within six months thereafter
Symposium either (i) resells such shares at a price greater than paid to
the Shareholder, or (ii) enters into an agreement to resell the Shares at
a price greater than paid to Shareholder, and then sells such shares
pursuant to such agreement, then in either case Symposium will pay to such
Shareholder such excess within five days following receipt of such excess
consideration.
10. REGISTRATION RIGHTS. At any time after five years from the Closing, the
holder or holders of at least 20% of the outstanding Common Stock covered
by the Agreement may on one occasion demand that the Issuer register
shares of Common Stock of such holder or holders which in the aggregate
exceeds 20% of the outstanding Common Stock of the Issuer in connection
with a firmly underwritten public offering. Notwithstanding who demanded
the registration, the Purchaser and the Shareholders shall have the right
to participate in the offering; if the number of shares which may be
included in the offering is limited by the managing underwriter, the
available shares shall be allocated among the Purchaser and the
Shareholders on a pro rata basis based on the number of shares owned by
each. In addition: (i) the Purchaser and the Shareholders shall receive
piggyback registration rights from the Issuer (which rights shall not
expire upon termination of the Shareholders Agreement but shall not apply
to any person who owns less than 5% of the outstanding Common Stock of the
Issuer); and (ii) the Shareholders shall receive from the Purchaser
piggyback registration rights with respect to the shares of common stock
of Purchaser they receive upon exercise of the put or call (which rights
shall not apply at any time the shares received by such Shareholder
represent less than 5% of the outstanding common stock of Symposium).
11. DRAG ALONG AND TAG ALONG RIGHTS. In connection with any proposed sale or
transfer of shares of Common Stock by the Purchaser, if the Shareholders
do not exercise their right of first refusal with respect to such sale,
the Purchaser shall have "drag-along" rights with respect to the
Shareholders' shares and the Shareholders shall have "tag-along" rights
with respect to the Purchaser's shares.
12. EFFECTIVE DATE. The Shareholders Agreement shall be entered into at the
time of the Additional Loan Closing but shall become effective at the
earlier to occur of the Closing or the date the Purchaser converts the
Initial Note or the Convertible Note into Common Stock. During any period
that the Shareholders Agreement is in effect and the Closing has not
occurred: (a) the put and call options shall not be in effect; (b) the
Shareholders shall have the "drag-along" rights and the Purchaser shall
have the "tag-along" rights contemplated by Section 10; and (c) the
provisions of Sections 3, 4 and 5 shall not be in effect.
13. BOARD OF DIRECTORS. The Board of Directors will be composed of five
directors, three of whom shall be designated by the Purchaser and two of
whom shall be designated by the Shareholders.
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ANNEX B
FORM OF INITIAL NOTE
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION.
CONVERTIBLE NOTE
Principal Amount: $250,000
Date: _____, 1999
FOR VALUE RECEIVED AmeriNet, Inc., an Oregon corporation ("BORROWER"),
unconditionally promises to pay to Symposium Corporation, a Delaware corporation
("LENDER"), Two Hundred Fifty Thousand Dollars ($250,000) together with interest
thereon at a rate of 8% per annum. This Note is issued pursuant to that certain
Stock Purchase Agreement between Lender, Borrower and the shareholders of
Borrower dated May 27, 1999 (the "STOCK PURCHASE AGREEMENT"). Unless otherwise
defined herein, capitalized terms used in this Note shall have the meanings
ascribed to them in the Stock Purchase Agreement.
1. PAYMENTS.
(a) If Lender makes the Additional Loan to Borrower as contemplated under
the Stock Purchase Agreement, this Note shall be cancelled and the principal and
interest owing under this Note shall become part of the principal of the Note
delivered by Borrower to Lender at the Additional Loan Closing.
(b) If the Additional Loan Closing does not occur, the principal and
interest owing under this Note shall be due and payable upon the earlier of (i)
one year from the date of the Stock Purchase Agreement and (ii) the occurrence
of a Financing Event. A "FINANCING EVENT" shall mean: (i) a merger or
consolidation to which Borrower is a party; (ii) the sale of all or a majority
of the assets of Borrower; (iii) the receipt by Borrower after the date hereof
of gross proceeds of $2,000,000 or more from loans and the issuance of debt
and/or equity securities (excluding loans from Lender); or (iv) the date the
Shareholders together own less than 50% of the outstanding voting securities of
Borrower.
2. PREPAYMENT. Borrower may at any time and from time to time prepay 100% or any
portion of at least $100,000 of the principal owing hereunder, together with the
interest thereon, without penalty or premium.
3. CONVERSION.
(a) If the Additional Loan Closing does not occur and the principal and interest
owing under this Note has not been paid on or before one year from the date of
the Stock Purchase
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Agreement, Lender, in its sole and absolute discretion, may at any time after
one year from the date of the Stock Purchase Agreement convert the amounts then
owing under this Note in accordance with this Section 3 (the "CONVERSION") by
written notice to Borrower. Upon Conversion, the principal amount owing under
this Note shall be converted into that number of fully paid and non-assessable
shares of Common Stock of Borrower, which immediately following Conversion shall
represent 2.5% (rounded up to the nearest whole share) of the sum of: (a) the
number of shares of the Common Stock immediately following Conversion; and (b)
the maximum number of shares of capital stock of Borrower which could be
purchased upon exercise of Stock Equivalents of Borrower immediately following
Conversion (regardless of whether such Stock Equivalents are then exercisable or
convertible). At Borrower's option the interest owing under this Note on the
date of Conversion may be paid in cash or converted into shares of Common Stock
at the rate per share at which the principal is converted (rounded up to the
nearest whole share).
(b) Within five days following the notice of Conversion, Borrower shall
issue to Lender: (i) a certificate or certificates for the number of shares of
Common Stock to which the Lender is entitled upon Conversion; and (ii)
certification signed by the President and the Chief Financial Officer of
Borrower that the proper number of shares shall have been issued to Lender.
4. APPLICATION OF PAYMENT. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
5. PAYMENTS AND EXPENSES OF COLLECTION. All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account number
specified by the Lender, in lawful money of the United States. Borrower shall
pay all costs of collection of Lender, together with reasonable attorneys' fees
and costs, to enforce this Note in the event of a default whether or not a suit
is brought. Borrower waives demand, protest and notice of maturity and
non-payment, and all requirements necessary to hold Borrower liable hereunder.
6. MISCELLANEOUS. This Note shall be governed by, and construed in accordance
with, the laws of the State of Oregon.
To the extent that Borrower has or may hereafter acquire any immunity from
the jurisdiction of any court or from any legal process (whether through service
or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to Borrower's property, Borrower hereby
waives such immunity in respect of its obligations under this Note.
BORROWER:
AmeriNet, Inc.
By:
---------------------------------
David Kerlin, President
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ANNEX C
FORM OF CONVERTIBLE NOTE
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION.
CONVERTIBLE NOTE
Principal Amount: $__________
Date: ______, 1999
FOR VALUE RECEIVED AmeriNet, Inc., an Oregon corporation ("BORROWER"),
unconditionally promises to pay to Symposium Corporation, a Delaware corporation
("LENDER"), __________________($_________) together with interest thereon at a
rate of 8% per annum. This Note is issued pursuant to that certain Stock
Purchase Agreement between Lender, Borrower and the shareholders of Borrower
dated May 27, 1999 (the "STOCK PURCHASE Agreement"). Unless otherwise defined
herein, capitalized terms used in this Note shall have the meanings ascribed to
them in the Stock Purchase Agreement.
1. PAYMENTS. Barring Conversion (as defined in Section 3 below) of this Note,
the principal and interest owing under this Note shall be due and payable as
follows:
(a) If the Stock Purchase Agreement terminates pursuant to Section 13.2(b)
thereof, Borrower shall pay Lender an amount of the principal and interest owing
under this Note equal to the lesser of (i) all of such principal and interest
and (ii) Borrower's cash and cash equivalents in excess of $10,000.
(b) Any principal and interest owing under this Note that is not paid as
provided under Section 1(a) shall become due and payable upon the earlier of (i)
one year from the date of the Stock Purchase Agreement and (ii) the occurrence
of a Financing Event. A "FINANCING EVENT" shall mean: (i) a merger or
consolidation to which Borrower is a party; (ii) the sale of all or a majority
of the assets of Borrower; (iii) the receipt by Borrower after the date hereof
of gross proceeds of $2,000,000 or more from loans and the issuance of debt
and/or equity securities (excluding loans from the Lender); or (iv) the date the
Shareholders together own less than 50% of the outstanding voting securities of
Borrower.
2. PREPAYMENT. Borrower may at any time and from time to time prepay 100% or any
portion of at least $100,000 of the principal owing hereunder, together with the
interest thereon, without penalty or premium (a "Prepayment"), by giving Lender
at least 15 days prior written notice of its
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intention to make the Prepayment. Following receipt of written notice of
Prepayment from Borrower, Lender may at any time during the 15-day period
exercise its right of Conversion.
3. CONVERSION.
(a) The Lender, in its sole and absolute discretion, may at any time
convert the amounts then owing under this Note in accordance with this Section 3
(the "CONVERSION") by written notice to the Lender. Upon Conversion, the
principal amount owing under this Note shall be converted into that number of
fully paid and non-assessable shares of Common Stock of Borrower, which
immediately following Conversion shall represent 10% (rounded up to the nearest
whole share) of the sum of: (a) the number of shares of the Common Stock
immediately following Conversion; and (b) the maximum number of shares of
capital stock of Borrower which could be purchased upon exercise of Stock
Equivalents of Borrower immediately following Conversion (regardless of whether
such Stock Equivalents are then exercisable or convertible); PROVIDED that if
less than 100% of the original principal amount of this Note is being converted,
the number of shares of Common Stock of Borrower issuable upon Conversion shall
be reduced proportionately based on the percentage of the original principal
amount of this Note represented by the amount of this Note being converted. At
Borrower's option the interest owing under this Note on the date of Conversion
may be paid in cash or converted into shares of Common Stock at the rate per
share at which the principal is converted (rounded up to the nearest whole
share).
(b) Subject to Section 3(c) below, within five days following the notice
of Conversion, Borrower shall issue to Lender: (i) a certificate or certificates
for the number of shares of Common Stock to which the Lender is entitled upon
Conversion; and (ii) certification signed by the President and the Chief
Financial Officer of Borrower that the proper number of shares shall have been
issued to Lender.
(c) Within ten days following the notice of Conversion, Borrower shall
deliver to Lender a certificate dated the date of such delivery certifying that
the representations and warranties of Borrower set forth in the Stock Purchase
Agreement are true and correct in all material respects on the delivery date
with the same force and effect as though made on and as of the delivery date;
PROVIDED that any such representation and warranty made as of a specified date
shall only need to have been true on and as of such date; and PROVIDED FURTHER
that such representations and warranties may be subject to matters, if any, set
forth in a disclosure letter delivered by Borrower to Lender concurrently with
the delivery of such certificate. Lender shall have seven days after receipt of
Borrower's certificate (and disclosure letter, if any) to rescind its Conversion
by delivery of written rescission notice to Borrower. Upon delivery of such
rescission notice, the Conversion shall be cancelled and this Note shall remain
in full force and effect. Lender may exercise its Conversion rights hereunder
following one or more rescissions of proposed Conversions (but not with respect
to any portion of the Note that has been paid and with respect to which Lender
did not exercise its conversion right following Borrower's Prepayment notice).
(d) If Borrower delivers a notice to Lender of a partial Prepayment of
this Note pursuant to Section 2, Lender may at its election exercise its
Conversion rights hereunder with
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respect to the entire amount owing under this Note or the portion of such amount
that Borrower intends to prepay as stated in its Prepayment notice.
(e) Notwithstanding anything contained herein to the contrary, Lender
shall have no Conversion rights with respect to this Note if Borrower terminates
the Stock Purchase Agreement pursuant to Section 13.3(a) thereof.
4. APPLICATION OF PAYMENT. All payments made under this Note shall be applied
first against payment of interest accrued to the date of any payment and then
against principal due.
5. PAYMENTS AND EXPENSES OF COLLECTION. All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account number
specified by the Lender, in lawful money of the United States. Borrower shall
pay all costs of collection of Lender, together with reasonable attorneys' fees
and costs, to enforce this Note in the event of a default whether or not a suit
is brought. Borrower waives demand, protest and notice of maturity and
non-payment, and all requirements necessary to hold Borrower liable hereunder.
6. DELIVERY OF MONTHLY FINANCIAL INFORMATION. Commencing upon the termination of
the Stock Purchase Agreement and so long thereafter as this Note remains
outstanding, Borrower shall deliver to Lender within 30 days after the end of
each month a Borrower prepared, unaudited balance sheet and income statement of
Borrower for such month.
7. MISCELLANEOUS. This Note shall be governed by, and construed in accordance
with, the laws of the State of Oregon.
To the extent that Borrower has or may hereafter acquire any immunity from
the jurisdiction of any court or from any legal process (whether through service
or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to Borrower's property, Borrower hereby
waives such immunity in respect of its obligations under this Note.
BORROWER:
AmeriNet, Inc.
By:
---------------------------------
David Kerlin, President