STOCK PURCHASE AND INVESTOR RIGHTS AGREEMENT
This STOCK PURCHASE AND INVESTOR RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of March 30, 2000, by and between XXXXXXX.XXX,
INC., a Nevada corporation (the "Company"), and GATEWAY COMPANIES, INC., a
Delaware corporation (the "Investor"), and is made with reference to the
following facts:
A. The Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, shares of Common Stock, par value
$0.001 per share, of the Company ("Common Stock"), on the terms and
conditions set forth in this Agreement.
B. The Company wishes to provide certain other agreements with
respect to the Investor's investment.
NOW, THEREFORE, in consideration of the foregoing recitals, the
mutual promises hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Agreement to Purchase and Sell Stock.
(a) Authorization. The Company's Board of Directors (the "Board")
will, prior to the Closing, authorize the issuance, pursuant to the terms
and conditions of this Agreement, of shares of Common Stock in an amount
equal to the number of Purchased Shares (as defined in Section 1(b)).
(b) Agreement to Purchase and Sell the Purchased Stock. The Company
hereby agrees to issue to the Investor, and the Investor hereby agrees to
acquire from the Company, at the times set forth in Section 2, a number of
shares of Common Stock (collectively, the "Purchased Shares") equal to
$10,000,000 (the "Purchase Price") divided by the Per Share Purchase Price
(as defined below), rounded up to the nearest whole share. As used in this
Agreement, "Per Share Purchase Price" means the lower of (i) the ten
consecutive trading day average of the Market Prices (as defined in Section
7(f)(iii)) of the Common Stock for the period ending on Xxxxx 00, 0000,
(xx) the ten consecutive trading day average of the Market Prices (as
defined in Section 7(f)(iii)) of the Common Stock ending two trading days
prior to the public announcement of this transaction and (iii) the ten
consecutive trading day average of the Market Prices (as defined in Section
7(f)(iii)) of the Common Stock for the period ending two trading days
before the Closing Date (as defined in Section 2). The Per Share Purchase
Price shall be payable as set forth in Section 2 and will be adjusted
within 10 days following the Closing if required by Section 1(b)(ii).
2. Closing. The purchase and sale of the Purchased Shares shall take
place at the offices of Gateway, Inc., 0000 Xxxxx Xxxxxx Xxxxx, Xxx Xxxxx,
Xxxxxxxxxx, at 10:00 a.m., California time, on the date mutually agreed
(which time and place are referred to in this Agreement as the "Closing").
At the Closing, the Company will deliver to the Investor certificates
representing the Purchased Shares and the Investor will deliver to the
Company the Purchase Price in cash paid by wire transfer of same-day funds
to the Company. Closing documents may be delivered by facsimile with
original signature pages sent by overnight courier. The date of the Closing
sometimes is referred to herein as the "Closing Date."
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that the statements in this
Section 3 are true and correct on the date hereof and will be true and
correct on the Closing Date, except as set forth in the Disclosure Schedule
(as defined in Section 7(a)):
(a) Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all corporate power and authority required to (i)
own or lease its properties and assets and carry on its business as presently
conducted, and (ii) enter into this Agreement and the other agreements,
instruments and documents contemplated hereby, and to consummate the
transactions contemplated hereby and thereby. Each of the Company's subsidiaries
is a
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corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power and authority
required to own or lease its properties and assets and carry on its business as
presently conducted. Each of the Company and its subsidiaries is qualified to do
business and is in good standing in each jurisdiction in which the failure to so
qualify or be in good standing, either individually or in the aggregate, would
have a Material Adverse Effect on the Company. As used in this Agreement,
"Material Adverse Effect" means a material adverse effect on, or a material
adverse change in, or a group of such effects on or changes in, the business,
operations, financial condition, results of operations, prospects, assets or
liabilities of the applicable party and its subsidiaries, taken as a whole.
(b) Capitalization. The capitalization of the Company, without giving
effect to the transactions contemplated by this Agreement, is as follows. The
authorized capital stock of the Company consists only of 50,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock, $0.001 par value
("Preferred Stock"), of which 17,401,734 shares of Common Stock and no shares
of Preferred Stock were issued and outstanding as of March 22, 2000. All such
shares of Common Stock have been duly authorized, and all such issued and
outstanding shares of Common Stock have been validly issued, are fully paid and
nonassessable and are free and clear of all liens, claims and encumbrances,
other than any liens, claims or encumbrances created by or imposed upon the
holders thereof. As of March 22, 2000 the Company had also reserved: (i)
2,067,202 shares of Common Stock for issuance upon exercise of outstanding
options granted to officers, directors, employees, independent contractors or
affiliates of the Company or its subsidiaries under the Company's equity
incentive plans; and (ii) 2,067,202 shares of Common Stock issuable upon
exercise of the Company's outstanding warrants (the "Outstanding Warrants"). As
of March 22, 2000, the 2,081,818 shares of Common Stock reserved for issuance
upon exercise of options have a weighted average exercise price of approximately
$9.00, and 3,932,798 shares were reserved for future grant. All shares of Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. There are
no other equity securities, options, warrants, calls, rights, commitments or
agreements of any character to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend or enter
into any such equity security, option, warrant, call, right, commitment or
agreement. The issuance of the Purchased Shares to the Investor will not (i)
trigger any rights of first refusal, maintenance rights, preemptive rights or
any other rights of any stockholder of the Company, or (ii) trigger any change
in control provisions in any of the Company's equity incentive plans or stock
option plans.
(c) Due Authorization. All corporate actions on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution, delivery of, and the performance of all obligations of the Company
under, this Agreement, and the authorization, issuance, reservation for issuance
and delivery of all of the Purchased Shares being sold under this Agreement,
have been taken, and this Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except (i) as may be limited by (A) applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (B) the effect of rules of law governing the availability of
equitable remedies and (ii) as rights to indemnity or contribution may be
limited under federal or state securities laws or by principles of public policy
hereunder.
(d) Valid Issuance of Stock.
(i) Valid Issuance. The Purchased Shares to be issued pursuant to
this Agreement are duly authorized and, upon payment of the Purchase Price by
the Investor in accordance with this Agreement, will be validly issued, fully
paid and non-assessable.
(ii) Compliance with Securities Laws. Assuming the correctness of the
representations made by the Investor in Section 4, the Purchased Shares will be
issued to the Investor in compliance with applicable exemptions from (A) the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and (B) the registration and qualification
requirements of all applicable securities laws of the states of the United
States.
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(e) Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, or
notice to, any federal, state or local governmental authority on the part of the
Company or any of its subsidiaries is required in connection with the issuance
of the Purchased Shares to the Investor, or the consummation of the other
transactions contemplated by this Agreement
(f) Non-Contravention. The execution, delivery and performance of this
Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby (including the issuance of the Purchased
Shares), do not (i) contravene or conflict with the Company's Certificate of
Incorporation or Bylaws, in each case as amended; (ii) constitute a violation of
any provision of any federal, state, local or foreign law binding upon or
applicable to the Company or any of its subsidiaries; or (iii) constitute a
default or require any consent under, give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Company or any of its subsidiaries is entitled under, or result in the creation
or imposition of any lien, claim or encumbrance on any assets of the Company or
any of its subsidiaries under, any contract to which the Company or such
subsidiary is a party or any permit, license or similar right relating to the
Company or such subsidiary or by which the Company or such subsidiary may be
bound or affected.
(g) Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation (each an "Action") pending or, to the best of the Company's
knowledge, threatened: (i) against the Company or any of its subsidiaries, or
any of their respective activities, properties or assets, or any of their
respective officers, directors or employees of the Company or any of its
subsidiaries in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, the Company or such
subsidiary, or (ii) that seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement (including the issuance of the
Purchased Shares). Neither the Company nor any of its subsidiaries is a party
to or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. No Action by the
Company or any of its subsidiaries is currently pending nor does the Company or
any of its subsidiaries intend to initiate any Action that could reasonably be
expected to have a Material Adverse Effect on the Company.
(h) Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of its Articles of Incorporation or
Bylaws, in each case as amended. The Company and its subsidiaries have complied
and are in compliance with all applicable statutes, laws, rules, regulations and
orders of the United States of America and all states thereof, foreign countries
and other governmental bodies and agencies having jurisdiction over their
respective businesses or properties, except where such failure to comply would
not reasonably be likely to have a Material Adverse Effect on the Company.
(i) SEC Documents.
(i) Reports. Each report, registration statement, proxy statement or
other document filed by the Company with the Securities and Exchange Commission
(the "SEC Documents"), as of the respective date thereof (or if amended or
superseded by a filing prior to the Closing Date, then on the date of such
filing), did not, and each of the registration statements, reports and proxy
statements filed by the Company with the SEC after the date hereof and prior to
the Closing will not, as of the date thereof (or if amended or superseded by a
filing after the date of this Agreement, then on the date of such filing),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Neither the Company
nor any of its subsidiaries is a party to any material contract, agreement or
other arrangement that was required to have been filed as an exhibit to the SEC
Documents that was not so filed.
(ii) Financial Statements. The audited and unaudited consolidated
financial statements of the Company included in the SEC Documents filed prior to
the date hereof fairly present, in conformity with generally accepted accounting
principles ("GAAP") (except, in the case of the Forms 10-Q and 8-K, as may
otherwise be permitted by Form 10-Q and Forms 8-K) applied on a consistent basis
(except as otherwise may be stated in the notes thereto), the consolidated
financial position of the Company as at the dates thereof and the
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consolidated results of its operations and cash flows for the periods then ended
(subject to normal year-end audit adjustments in the case of unaudited interim
financial statements).
(j) Absence of Certain Changes Since Balance Sheet Date. Since September
30, 1999, the businesses and operations of the Company and its subsidiaries have
been conducted in the ordinary course consistent with past practice, and there
has not been:
(i) any declaration, setting aside or payment of any dividend or
other distribution of the assets of the Company or any of its subsidiaries with
respect to any shares of capital stock of the Company or such subsidiary (except
for any such distribution by a wholly-owned subsidiary to the Company) or any
repurchase, redemption or other acquisition by the Company or any of its
subsidiaries of any outstanding shares of the Company's capital stock;
(ii) any damage, destruction or loss, whether or not covered by
insurance, except for such occurrences, individually and collectively, that are
not material to the Company and its subsidiaries, taken as a whole;
(iii) any waiver by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to it, except for such waivers,
individually and collectively, that are not material to the Company and its
subsidiaries, taken as a whole;
(iv) any material change or amendment to, or any waiver of any
material right under a material contract or arrangement by which the Company or
any of its subsidiaries or any of their respective assets and properties is
bound or subject, except for changes, amendments or waivers that are expressly
provided for or disclosed in this Agreement;
(v) any change by the Company in its accounting principles, methods
or practices or in the manner it keeps its accounting books and records, except
any such change required by a change in GAAP; or
(vi) any other event or condition of any character, except for such
events and conditions that have not resulted, and could not reasonably be
expected to result, either individually or in the aggregate, in a Material
Adverse Effect on the Company.
(k) Invention Assignment and Confidentiality Agreements. Each employee and
consultant or independent contractor of the Company or any of its subsidiaries
whose duties include the development of products or Intellectual Property (as
defined below), and each former employee and consultant or independent
contractor whose duties included the development of products or Intellectual
Property, has entered into and executed an invention assignment and
confidentiality agreement in customary form or an employment or consulting
agreement containing substantially similar terms.
(l) Intellectual Property.
(i) Ownership or Right to Use. Each of the Company and its
subsidiaries has sole title to and owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents or patent applications, software,
know-how, registered or unregistered trademarks and service marks and any
applications therefor, registered or unregistered copyrights, trade names, and
any applications therefor, trade secrets or other confidential or proprietary
information (collectively, "Intellectual Property") necessary to enable it to
carry on its business as currently conducted, except where any deficiency, or
group of deficiencies, would not be reasonably likely to have a Material Adverse
Effect on the Company.
(ii) Licenses; Other Agreements. Neither the Company nor any of its
subsidiaries is currently the licensee of any material portion of the
Intellectual Property of the Company and its subsidiaries. There are not
outstanding any licenses or agreements of any kind relating to any Intellectual
Property owned by the Company or any of its subsidiaries, except for agreements
with customers entered into in the ordinary course of its
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business and other licenses and agreements that, collectively, are not material.
Neither the Company nor any of its subsidiaries is obligated to pay any
royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any Intellectual Property,
except as the Company or any such subsidiary may be so obligated in the ordinary
course of its business, as disclosed in the Company's SEC Documents or where the
aggregate amount of such payments could not reasonably be expected to be
material.
(iii) No Infringement. Neither the Company nor any of its
subsidiaries has violated or infringed in any material respect, neither the
Company nor any of its Subsidiaries is currently violating or infringing in any
material respect, and neither the Company nor any of its subsidiaries has
received any communications alleging that it (or any of its employees or
consultants) has violated or infringed, any Intellectual Property of any other
person or entity, except for any such violations or infringements that would not
be reasonably likely to have a Material Adverse Effect on the Company.
(iv) Employees and Consultants. To the best of the Company's
knowledge, no employee of or consultant to the Company or any of its
subsidiaries is in material default under any term of any material employment
contract, agreement or arrangement relating to Intellectual Property of the
Company or any such subsidiary or any material non-competition arrangement,
other contract or restrictive covenant relating to the Intellectual Property of
the Company or any such subsidiary. The Intellectual Property of the Company or
any of its subsidiaries (other than any Intellectual Property duly acquired or
licensed from third parties) was developed entirely by the employees of or
consultants to the Company or one of its subsidiaries during the time they were
employed or retained by it (or by entities acquired in whole by the Company or
any of its subsidiaries), and to the best knowledge of the Company, at no time
during conception or reduction to practice of such Intellectual Property of the
Company or any of its subsidiaries were any such employees or consultants
operating under any grant from a government entity or agency or subject to any
employment agreement or invention assignment or non-disclosure agreement or any
other obligation with a third party that would materially and adversely affect
the Company's or such subsidiary's rights in its Intellectual Property. Such
Intellectual Property of the Company or any of its subsidiaries does not, to the
best knowledge of the Company, include any invention or other intellectual
property of such employees or consultants made prior to the time such employees
or consultants were employed or retained by the Company, any such subsidiary or
any such acquired entity nor any intellectual property of any previous employer
of such employees or consultants (other than any such acquired entity) nor the
intellectual property of any other person or entity.
(m) Subsidiaries. Section 3(m) of the Disclosure Schedule sets forth all
other persons, entities, or businesses in which the Company presently owns or
controls, directly or indirectly, more than a 19.9 percent interest.
(n) Environmental Matters. To the Company's knowledge, there have been no
disposals, releases or threatened releases of Hazardous Materials on, from or
under any properties or facilities owned or leased by the Company which, either
individually or in the aggregate, would have a Material Adverse Effect on the
Company. Neither the Company, any of its subsidiaries nor, to the Company's
knowledge, any other person or entity, has used, generated, manufactured or
stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials, where such use,
generation, manufacture or storage, either individually or in the aggregate,
would have a Material Adverse Effect on the Company. The Company has no
knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to the Company or any of its subsidiaries having
taken possession of any of such properties or facilities and which, either
individually or in the aggregate, would have a Material Adverse Effect on the
Company. For purposes of this Agreement, the terms "disposal," "release," and
"threatened release" shall have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., as amended ("CERCLA"). For purposes of this
Agreement, "Hazardous Materials" means any hazardous or toxic substance,
material or waste which is regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant," "toxic chemical," "hazardous material,"
"toxic substance" or "hazardous chemical" under (A) CERCLA; (B) the Emergency
Planning and Community Right-to- Know Act, 42 U.S.C. Section 11001 et seq.; (C)
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; (D)
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (E) the
5
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (F)
regulations promulgated under any of the above statutes; or (G) any applicable
state or local statute, ordinance, rule, or regulation that has a scope or
purpose similar to those statutes identified above.
(o) Registration Rights. The Company is not currently subject to any
agreement providing any person or entity with any rights (including piggyback
registration rights) to have any securities of the Company registered with the
SEC or registered or qualified with any other governmental authority.
(p) Title to Property and Assets. The properties and assets of the Company
or any of its subsidiaries are owned by the Company or such subsidiary free and
clear of all mortgages, deeds of trust, liens, charges, encumbrances and
security interests except for statutory liens for the payment of current taxes
that are not yet delinquent and liens, encumbrances and security interests that
arise in the ordinary course of business and do not in any material respect
affect the properties and assets of the Company or such subsidiary. With respect
to the property and assets it leases, each of the Company and its subsidiaries
is in compliance with such leases in all material respects.
(q) Tax Matters. Each of the Company and its subsidiaries has filed all
material tax returns required to be filed, which returns are true and correct in
all material respects, and each of the Company and its subsidiaries has paid in
full all taxes that have become due on or prior to the date hereof, including
penalties and interest, assessments, fees and other charges, other than those
being contested in good faith and for which adequate reserves have been provided
or those currently payable without interest that were payable pursuant to said
returns or any assessments with respect thereto.
(r) Brokers and Finders. None of the Company, its subsidiaries, their
respective directors or officers and their respective agents has incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement or any of the transactions contemplated hereby. The Company will
indemnify and hold the Investor harmless from any brokerage or finder's fees or
agents' commissions or other similar payment alleged to be due by or through the
Company or any of such other persons and entities as a result of the action of
the Company, its subsidiaries, their respective directors or officers or their
respective agents.
(s) Interested Party Transactions. Except as disclosed in the Company's
SEC Documents, to the best knowledge of the Company, no officer or director of
the Company or any of its subsidiaries or any "affiliate" or "associate" (as
those terms are defined in Rule 405 promulgated under the Securities Act) of any
such person or entity has had, either directly or indirectly, a material
interest in: (i) any person or entity which purchases from or sells, licenses or
furnishes to the Company or any of its subsidiaries any goods, property,
technology, intellectual or other property rights or services; or (ii) any
contract or agreement to which the Company or any of its subsidiaries is a party
or by which it or any of its properties and assets may be bound or affected.
(m) Full Disclosure. The information contained in this Agreement, the
Disclosure Schedule and the SEC Documents with respect to the business,
operations, assets, results of operations and financial condition of the Company
and its subsidiaries, and the transactions contemplated by this Agreement , are
true and complete in all material respects and do not omit to state any material
fact or facts necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4. Representations, Warranties and Certain Agreements of the Investor. The
Investor hereby represents and warrants to the Company, and agrees that:
(a) Organization, Good Standing and Qualification. The Investor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all corporate power and authority required to
own or lease its properties and assets and carry on its business as presently
conducted. The Investor is qualified to do business and is in good standing in
each jurisdiction in which the failure to so qualify or be in good standing,
either individually or in the aggregate, would have a Material Adverse Effect on
the Investor.
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(b) Due Authorization. The execution of this Agreement has been duly
authorized by all necessary corporate action on the part of the Investor. This
Agreement constitutes the Investor's legal, valid and binding obligation,
enforceable against the Investor in accordance with its terms, except (i) as may
be limited by (A) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (B) the effect of rules of law
governing the availability of equitable remedies and (ii) as rights to indemnity
or contribution may be limited under federal or state securities laws or by
principles of public policy hereunder.
(c) Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Investor is
required in connection with the purchase of the Purchased Shares by the Investor
pursuant to this Agreement.
(d) Non-Contravention. The execution, delivery and performance of this
Agreement by the Investor, and the consummation by the Investor of the
transactions contemplated hereby, do not (i) contravene or conflict with the
Certificate of Incorporation or Bylaws of the Investor, in each case as amended;
(ii) constitute a violation of any provision of any federal, state, local or
foreign law binding upon or applicable to the Investor; or (iii) constitute a
default or require any consent under, give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Investor is entitled under, or result in the creation or imposition of any lien,
claim or encumbrance on any assets of the Investor under, any contract to which
the Investor is a party or any permit, license or similar right relating to the
Investor or by which the Investor may be bound or affected.
(e) Litigation. There is no Action pending that seeks to prevent, enjoin,
alter or delay the transactions contemplated by this Agreement.
(f) Purchase for Own Account. The Purchased Shares are being acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the public resale or distribution thereof within the meaning of
the Securities Act, and the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. The Investor
also represents that it has not been formed for the specific purpose of
acquiring the Purchased Shares.
(g) Investment Experience. The Investor understands that the purchase of
the Purchased Shares involves substantial risk. The Investor has experience as
an investor in securities of companies and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment in the Purchased Shares
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of this investment in the
Purchased Shares and protecting its own interests in connection with this
investment.
(h) Accredited Investor Status. The Investor is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act. The
Investor's headquarters are located in the State of California.
(i) Restricted Securities. The Investor understands that the Purchased
Shares are characterized as "restricted securities" under the Securities Act,
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the Securities Act and applicable
regulations thereunder such securities may be resold without registration under
the Securities Act only in certain limited circumstances. The Investor is
familiar with Rule 144 of the SEC, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
(j) Legends. The Investor agrees that the certificates for the Purchased
Shares shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act") and are "restricted
securities" as that term is defined in Rule 144 under the Act. The
shares may not be offered for sale, sold, or otherwise transferred
except pursuant to an
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effective registration statement under the Act or pursuant to an
exemption from registration under the Act, the availability of which
is to be established to the satisfaction of the Company."
In addition, the Investor agrees that the Company may place stop transfer
orders with its transfer agents with respect to such certificates. The
appropriate portion of the legend and the stop transfer orders will be removed
promptly upon delivery to the Company of such satisfactory evidence as
reasonably may be required by the Company that such legend or stop orders are
not required to ensure compliance with the Securities Act.
5. Conditions to the Investor's Obligations at Closing.
(a) The obligations of the Investor under this Agreement are subject to
the fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(i) Representations and Warranties True. Each of the representations
and warranties of the Company contained in Section 3 shall be true and correct
in and as of the date of this Agreement, on and as of the Closing Date, except
as set forth in the Disclosure Schedule, with the same effect as though such
representations and warranties had been made as of the Closing Date.
(ii) Performance. The Company shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
(iii) Securities Exemptions. The offer and sale of the Purchased
Shares to the Investor pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
(iv) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor, and the Investor shall have received all such
counterpart originals and certified or other copies of such documents as it may
reasonably request. Such documents shall include but not be limited to the
following:
(A) Certified Charter Documents. A copy of (x) the Certificate
of Incorporation certified as of a recent date by the Secretary of State of
Nevada as a complete and correct copy thereof, and (y) the Bylaws of the Company
(as amended through the Closing Date) certified by the Secretary of the Company
as a true and correct copy thereof as of the Closing Date.
(B) Board Resolutions. A copy, certified by the Secretary of the
Company, of the resolutions of the Board providing for the approval of this
Agreement and the issuance of the Purchased Shares and the other matters
contemplated hereby.
(v) Opinions of Company Counsel. The Investor will have received
opinions on behalf of the Company, dated the Closing Date, from each of Xxxxxx
Kaemfer Xxxxxx & Xxxxxxx and Xxxxxxxxxx Xxxxx & Xxxxxx, P.C., counsel to the
Company, in the form attached hereto as Exhibits B-1 and B-2.
(vi) PC Purchase Agreement. The Company and the Investor shall have
entered into an Agreement for the purchase of personal computers in the form of
Exhibit A hereto (the "PC Purchase Agreement").
(vii) Marketing Fee. In consideration of Gateway's participation in
the Company's marketing initiatives, including personal appearances and
providing personal computers, Spanish language services and technical support,
at the Closing Date, the Company shall pay the Investor a prepaid twelve month
marketing fee of $1,000,000 in cash.
8
(viii) Other Actions. The Company shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Investor in
connection with the transactions contemplated hereby.
6. Conditions to the Company's Obligations at Closing.
(a) The obligations of the Company to the Investor under this Agreement
are subject to the fulfillment or waiver, on or before the Closing, of each of
the following conditions:
(i) Representations and Warranties True. The representations and
warranties of the Investor contained in Section 4 shall be true and correct in
all material respects on and as of the date hereof and on and as of the date of
the Closing with the same effect as though such representations and warranties
had been made as of the Closing.
(ii) Performance. The Investor shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
(iii) Payment of Purchase Price. The Investor shall have delivered
to the Company the Purchase Price.
(iv) Securities Exemptions. The offer and sale of the Purchased
Shares to the Investor pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
(v) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto will be reasonably satisfactory in form and substance
to the Company, and the Company will have received all such counterpart
originals and certified or other copies of such documents as it may reasonably
request.
(vi) Other Actions. The Investor shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Company in
connection with the transactions contemplated hereby.
7. Covenants of the Parties.
(a) Disclosure Schedule. Simultaneously with the execution of this
Agreement, the Company is delivering to the Investor a disclosure schedule,
which sets forth exceptions, if any, to the representations and warranties made
by the Company in Article 3. Such disclosure schedule is organized such that any
exceptions specifically identify the representation and warranty, by section, to
which they relate, and clearly identify the nature of the exception, to the
Investor's reasonable satisfaction (the "Disclosure Schedule"). In any
determination of whether the Investor is entitled to indemnification for the
breach of any representations or warranties set forth in this Agreement, only
the Disclosure Schedule (i.e., the final disclosure letter agreed upon by the
Company and the Investor) shall be relevant, and the identification of any
matters on any drafts of the Disclosure Schedule shall not be introduced as
evidence or otherwise used in any manner in connection therewith.
(b) Information Rights.
(i) Financial Information. The Company covenants and agrees that,
commencing on the Closing Date and continuing for so long as the Investor holds
any Purchased Shares, the Company shall:
(A) Annual Reports. Furnish to the Investor promptly following
the filing of such report with the SEC a copy of the Company's Annual Report on
Form 10-K for each fiscal year, which shall include
9
a consolidated balance sheet as of the end of such fiscal year, a consolidated
statement of income and a consolidated statement of cash flows of the Company
for such year, setting forth in each case in comparative form the figures from
the Company's previous fiscal year, all prepared in accordance with GAAP and
generally accepted accounting practices, and audited by nationally- recognized
independent certified public accountants. In the event the Company shall no
longer be required to file Annual Reports on Form 10-K, the Company shall,
within 90 days following the end of each respective fiscal year, deliver to the
Investor a copy of such balance sheets, statements of income and statements of
cash flows.
(B) Quarterly Reports. Furnish to the Investor promptly following
the filing of such report with the SEC, a copy of each of the Company's
Quarterly Reports on Form 10-Q, which shall include a consolidated balance sheet
as of the end of the respective fiscal quarter, consolidated statements of
income and cash flows of the Company for the respective fiscal quarter and for
the year to-date, setting forth in each case in comparative form the figures
from the comparable periods in the Company's immediately preceding fiscal year,
all prepared in accordance with GAAP and generally accepted accounting practices
(except, in the case of any Form 10-Q, as may otherwise be permitted by Form 10-
Q), but all of which may be unaudited. In the event the Company shall no longer
be required to file Quarterly Reports on Form 10-Q, the Company shall, within 45
days following the end of each of the first three fiscal quarters of each fiscal
year, deliver to the Investor a copy of such balance sheets, statements of
income and statements of cash flows.
(c) Registration Rights.
(i) Definitions. For purposes of this Section 7(c):
(A) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(B) Registrable Securities. The term "Registrable Securities"
means: (x) the Purchased Shares; (y) any other shares of Common Stock acquired
by the Investor after the date hereof which are not already freely tradable
under the Securities Act (pursuant to Rule 144(k) promulgated under the
Securities Act); and (z) any shares of Common Stock or other securities of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, any of the securities
described in the immediately preceding Clause (x) or (y). Notwithstanding the
foregoing, "Registrable Securities" shall exclude any Registrable Securities
sold by a person or entity in a transaction in which rights under this Section
7(c) are not assigned in accordance with this Agreement or any Registrable
Securities sold in a public offering, whether sold pursuant to Rule 144
promulgated under the Securities Act, or in a registered offering, or otherwise
or eligible to be sold pursuant to Rule 144(k) promulgated under the Securities
Act.
(C) Registrable Securities Then Outstanding. The number of shares
of "Registrable Securities then outstanding" shall mean the number of Purchased
Shares, other shares of Common Stock and other securities that are Registrable
Securities and are then issued and outstanding.
(D) Holder. For purposes of this Section 7(c), the term "Holder"
means any person or entity owning of record Registrable Securities that have not
been sold to the public or pursuant to Rule 144 promulgated under the Securities
Act or any permitted assignee of record of such Registrable Securities to whom
rights under this Section 7(c) have been duly assigned in accordance with this
Agreement.
(E) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC that permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(ii) Automatic Registration.
10
(A) Registration Statement. On or before July 1, 2000, the
Company shall use its commercially reasonable best efforts to file a
registration statement under the Securities Act on Form S-3, or any successor
form, for the registration of all of the Registrable Securities so that such
registration statement becomes effective not later than November 1, 2000, and to
cause such Registrable Securities to be listed on the Nasdaq National Market by
such date. Such registration statement shall be filed and maintained as a
"shelf" registration statement until the date that Rule 144 is first available
as an exemption for the sale in a single 90-day period of all of the outstanding
Registrable Securities.
(B) Underwriting. If the Holders of at least 25 percent of the
Registrable Securities ("Initiating Holders") intend to distribute the
Registrable Securities by means of an underwriting, then they shall so advise
the Company and the Company shall thereafter notify all of the Holders thereof.
In such event, the right of any Holder to include his or her Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the initiating Holders and such Holder determined
based on the number of Registrable Securities held by such Holders being
registered). All Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the managing underwriter or underwriters selected for such
underwriting by the Holders of a majority of the Registrable Securities being
registered and reasonably acceptable to the Company (including a market stand-
off agreement of up to 90 days if required by such underwriters but only if the
Company's executive officers and directors also execute substantially similar
agreements).
(C) Expenses. All expenses incurred in connection with any
registration pursuant to this Section 7(c)(ii), including all federal and "blue
sky" registration, filing and qualification fees, printer's and accounting fees,
and fees and disbursements of counsel for the Company (but excluding
underwriters' discounts and commissions relating to shares sold by the Holders
and the fees and disbursements of counsel for the Holders), shall be borne by
the Company. Each Holder participating in a registration pursuant to this
Section 7(c)(ii) shall bear such Holder's proportionate share (based on the
total number of shares sold in such registration other than for the account of
the Company or any of its directors, officers, employees, consultants and
affiliates) of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such offering by the Holders.
(D) Maintenance. Subject to Section 7(c)(vi), the Company shall
use all commercially reasonable efforts to maintain the effectiveness of any
Form S-3 registration statement filed under this Section 7(c)(ii) until the
earlier of: (1) the date on which all of the Registrable Securities have been
sold; and (2) the second anniversary of the effective date of such registration
statement. If the Company receives written notice from the Investor that, after
consultation with counsel, the Investor reasonably believes that it may be
deemed to be an "affiliate" of the Company for purposes of the Securities Act,
the date in this Clause (2) shall be extended until the Investor advises the
Company that it no longer believes it may be deemed such an "affiliate."
(E) Payments if Registration Statement not Timely Filed. In the
event that the Company fails to file the Registration Statement referred to in
Section 7(c)(ii)(A) on or before July 1, 2000, until such Registration Statement
is filed the Company will pay the Investor in cash $25,000 on July 7, 2000,
$50,000 on July 14, 2000, $75,000 on July 21, 2000, and $100,000 per week
beginning on July 28, 2000. In the event that such Registration Statement has
not been declared effective and the Registrable Securities registered thereunder
shall not have been listed on the Nasdaq National Market by November 1, 2000,
until such Registration Statement is declared effective and such Registrable
Securities have been listed on the Nasdaq National Market the Company agrees to
pay the Investor in cash $25,000 on November 7, 2000, $50,000 on November 14,
2000, $75,000 on November 21, 2000, and $100,000 per week beginning November 28,
2000. Such amounts are in addition to any amounts payable by the Company due to
the fact that a Registration Statement had not been filed by July 1, 2000. If by
January 1, 2001, such Registration Statement has not been declared effective or
the Registrable Securities have not been listed on the Nasdaq National Market,
the Company shall issue to the Investor additional shares of common stock equal
in amount to 20 percent of the number of Purchased Shares issued to the Investor
on the Closing Date, subject to adjustment for any subsequent stock splits,
stock dividends, recapitalizations or other similar events.
11
(iii) Piggyback Registrations. The Company shall notify all Holders
of Registrable Securities in writing at least 15 days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including registration statements
relating to secondary offerings of securities of the Company, but excluding
registration statements (i) relating to employee benefit plans, (ii) with
respect to corporate reorganizations or other transactions under Rule 145 of the
Securities Act or any similar rule of the Commission, (iii) a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the Registrable
Securities (including Form S-4 or any form substituted therefor) or (iv) being
filed for the account of other holders of the Company's Common Stock who are
entitled by right to exclude the Registrable Securities in such registration
statement), and will afford each such Holder an opportunity to include in such
registration statement all or any part of the Registrable Securities then held
by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall, within ten business days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(A) Underwriting. If a registration statement under which
the Company gives notice under this Section 7(c)(iii) is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable Securities
to be included in such a registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting
(including a market stand-off agreement of up to 90 days if required by such
underwriters, but only if the Company's executive officers and directors also
execute substantially similar agreements); provided, however, that it shall not
be considered customary to require any of the Holders to provide representations
and warranties regarding the Company or indemnification of the underwriters for
material misstatements or omissions in the registration statement or prospectus
for such offering other than with respect to information furnished by or on
behalf of the Holders. Notwithstanding any other provision of this Agreement, if
the managing underwriter determine(s) in good faith that marketing factors
require a limitation of the number of shares to be underwritten, then the
managing underwriter(s) may exclude shares from the registration and the
underwriting; provided, however, that the securities to be included in the
registration and the underwriting shall be allocated as follows: (1) first to
the Company; (2) second, to holders of securities that have registration rights
superior to those of the Holders; (3) third, to each of the Holders requesting
inclusion of their Registrable Securities in such registration statement on a
pro rata basis based on the total number of Registrable Securities and other
securities with pari passu registration rights whose holders wish to include in
the registration; and (4) fourth, any other shares of Common Stock or other
securities of the Company. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder that is a partnership, the Holder and the partners and retired partners
of such Holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing persons,
and for any Holder that is a corporation, the Holder and all corporations that
are affiliates of such Holder, shall be deemed to be a single "Holder," and any
pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
(B) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 7(c)(iii) (excluding underwriters' and
brokers' discounts and commissions relating to shares sold by the Holders and
the fees and disbursements of counsel for the Holders), including all federal
and "blue sky" registration, filing and qualification fees, printers' and
accounting fees, and fees and disbursements of counsel for the Company shall be
borne by the Company.
12
(C) No Limit. Except as otherwise provided herein, there shall be no
limit on the number of times the Holders may request registration of Registrable
Securities under this Section 7(c)(iii).
(iv) Intentionally Omitted.
(v) Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement the Company
shall, as expeditiously as reasonably possible:
(A) Registration Statement. Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use all
commercially reasonable efforts to cause such registration statement to become
effective.
(B) Amendments and Supplements. Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(C) Prospectuses. Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(D) Blue Sky. Use all commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(E) Underwriting. In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement in usual
and customary form (including customary indemnification of the underwriters by
the Company) with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(F) Notification. Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, in which event no Holder shall use such prospectus in connection
with any offer or sale of its Registrable Securities until such prospectus has
been appropriately amended (which the Company shall promptly under the
circumstances do and deliver new prospectuses, as requested by the Holders,
promptly thereafter).
(G) Opinion and Comfort Letter. With respect to an underwritten
offering of Registrable Securities only, furnish, at the request of the
underwriters of such offering, on the date that such Registrable Securities
are delivered to the underwriters for sale (1) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering addressed to the underwriters, and (2) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters and to the Holders requesting
registration of Registrable Securities.
(vi) Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 7(c)(ii),
(iii) or (v) that the selling Holders shall furnish to the
13
Company such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as shall be
required to timely effect the registration of their Registrable Securities.
(vii) Indemnification. In the event any Registrable Securities are
included in a registration statement under Section 7(c)(ii) or (iii):
(A) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers,
shareholders, employees, representatives, agents and directors of each Holder,
any underwriter (as determined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(x) any untrue statement or alleged untrue statement
of a material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto;
(y) the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading; or
(z) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any federal or state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any federal or state securities law in connection with the offering covered by
such registration statement;
and the Company will reimburse each such Holder, partner, officer, shareholder,
employee, representative, director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
paragraph shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf of such
Holder, partner, officer, shareholder, employee, representative, director,
underwriter or controlling person of such Holder.
(B) By the Selling Holders. To the extent permitted by law,
each selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
representative and agent of the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter and any other
Holder selling securities under such registration statement or any of such other
Holder's partners, officers, shareholders, employees, representatives, agents
and directors and any person who controls such Holder within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such officer or
director, controlling person, underwriter or other such Holder, partner,
officer, shareholder, employee, representative, agent, director or controlling
person of such other Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by or on behalf of such Holder expressly for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such officer or
director, representative, agent, controlling person, underwriter or other
Holder, partner, officer, representative, agent, shareholder, employee, director
or controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this paragraph shall not apply to
amounts paid in settlement of any such loss,
14
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld; and
provided further, that the total amounts payable in indemnity by a Holder under
this subsection or otherwise in respect of any and all Violations shall not
exceed in the aggregate the net proceeds received by such Holder in the
registered offering out of which such Violations arise.
(C) Notice. Promptly after receipt by an indemnified party under
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this section, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, to the
extent that representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
conflict of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of liability except to
the extent the indemnifying party is prejudiced as a result thereof.
(D) Defect Eliminated in Final Prospectus. The foregoing indemnity
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the amended prospectus
filed with the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any person if a copy of
the Final Prospectus was timely furnished to the indemnified party and was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Securities Act.
(E) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (1) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
section, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this section provides for
indemnification in such case, or (2) contribution under the Securities Act may
be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this
section; then, and in each such case, the Company and such Holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that such
Holder is responsible for the portion represented by the percentage that the
public offering price of its Registrable Securities offered by and sold under
the registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case: (X) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such registration statement; and (Y)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
(F) Survival. The obligations of the Company and Holders under
this Section 7(c)(vii) shall survive until the first anniversary of the
completion of any offering of Registrable Securities in a registration
statement, regardless of the expiration of any statutes of limitation or
extensions of such statutes.
(viii) Termination of the Company's Obligations. The Company shall
have no obligations pursuant to this Section 7(c) with respect to any
Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Section 7(c)(ii) or (iii) if in the written opinion of counsel to
the Company, reasonably
15
acceptable to counsel for a Holder, all such Registrable Securities proposed to
be sold by a Holder may then be sold under Rule 144 in any three month period
without exceeding the volume limitations thereunder.
(ix) Limitation of Registration Rights to Third Parties. Without the
prior written consent of the Investor, the Company covenants and agrees that it
shall not grant, or cause or permit to be created, for the benefit of any person
or entity any registration rights that would obligate the Company to file a
registration statement prior to the filing of the registration statement
required to be filed pursuant to Section 7(c)(ii)(A).
(d) Publicity. The Investor and the Company shall jointly prepare a joint
press release for issuance upon the Closing. Without the other party's prior
written consent, neither party will issue any other press release after the date
hereof or publicize the other party's name in any public documents except in
compliance with the Confidentially Agreement referred to below. Investor agrees
to use commercially reasonably efforts to approve or disapprove any press
release or other public announcement or statement that includes such party's
name within two business days of being provided (including by facsimile or
email) the text of such release, announcement or statement. The provisions of
this Section 7(d) shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by any of the
parties hereto with respect to the transactions contemplated hereby, including
without limitation, the Confidentiality Agreement between the Company and the
Investor dated October 1, 1999. Additional disclosures and exchange of
confidential information between the Company and the Investor shall be governed
by the terms of such Confidentiality Agreement.
(e) Rights of Participation.
(i) General. Until such time as the Investor, together with its
subsidiaries, no longer holds any of the outstanding voting securities of the
Company (such period from the date hereof through such time being referred to
herein as the "Initial Rights Period"), the Investor and each other person or
entity to whom rights under this Section 7(e) have been duly assigned (each of
the Investor and each such assignee, a "Participation Rights Holder") shall have
a right of first refusal to purchase such Participation Rights Holder's Pro Rata
Share (as defined below) of all New Securities (as defined below) that the
Company may from time to time issue during the Initial Rights Period. Such New
Securities shall be allocated among the Participation Rights Holders who elect
to exercise their right to purchase such New Securities on a pro rata basis
according to the number of Purchased Shares held by each such Participation
Rights Holder. The rights described in the preceding sentence, as further
described in this subsection (e), are referred to as the "Right of
Participation."
(ii) Pro Rata Share. "Pro Rata Share" means, with respect to each
Participation Rights Holder, the ratio of the following numbers calculated
immediately prior to the issuance of the New Securities giving rise to the Right
of Participation: (A) the Participant Share Number (as defined below) for such
Participation Rights Holder, to (B) the sum of (1) the total number of shares of
Common Stock and other voting capital stock of the Company then outstanding,
plus (2) the number of shares of voting capital stock issuable upon the
exercise, conversion or exchange of any other security of the Company then
outstanding.
(iii) New Securities. "New Securities" means any Common Stock,
preferred stock or other voting capital stock or security of the Company,
whether now authorized or not, and rights, options or warrants to purchase such
Common Stock or preferred stock or other voting capital stock or security, and
securities of any type whatsoever that are, or may become, convertible into or
exchangeable or exercisable for Common Stock, preferred stock or other voting
capital stock or security; provided, however, that the term "New Securities"
shall not include:
(A) any shares of Common Stock (or options or warrants
therefor) issued to employees, officers, directors or consultants of the Company
pursuant to any stock purchase or stock option incentive plans approved by the
Board;
(B) the Purchased Shares issued under this Agreement;
16
(C) any securities issued in connection with any stock
split, stock dividend or other similar event in which all Participation Rights
Holders are entitled to participate on a pro rata basis;
(D) any securities issued upon the exercise, conversion or
exchange of (1) any options, warrants or other securities convertible or
exchangeable into shares of Common Stock that are outstanding on the date of
this Agreement, (2) any shares of Common Stock issued as payment of accrued
interest on the securities listed in Clause (1) above, or (3) any outstanding
security if such outstanding security constituted a New Security; or
(E) any securities issued pursuant to the acquisition of
another person or entity by the Company by consolidation, merger, purchase of
assets, or other reorganization or issued in connection with the Company's
participation in a joint venture or similar form of alliance, so long as such
securities represent no more than five percent of the Company's voting
securities at the time of each such issuance and no more than an aggregate of
ten percent of the Company's outstanding voting securities in any 12 month
period (calculated as of the closing of each such transaction).
(iv) Participant Share Number. "Participant Share Number," with
respect to a Participant Rights Holder, means the sum of (A) the number of
Purchased Shares held by such Participant Rights Holder, (B) the number of
shares of other voting capital stock or securities of the Company held by such
Participant Rights Holder, and (C) the number of shares of Common Stock or other
voting capital stock or securities issuable upon the exercise, conversion or
exchange of any other security of the Company held by such Participant Rights
Holder.
(v) Procedures. If the Company proposes to undertake an issuance of
New Securities (in a single transaction or a series of related transactions) in
circumstances that entitled a Participation Rights Holder to participate therein
in accordance with this subsection (e), the Company shall give to each
Participation Rights Holder written notice of its intention to issue New
Securities (the "Participation Notice"), describing the amount and the type of
New Securities and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Participation Rights Holder shall
have five business days from the date of receipt of any such Participation
Notice to agree in writing to purchase up to the maximum number of such New
Securities that such Participation Rights Holder is entitled to purchase for the
price and upon the terms and conditions specified in the Participation Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such maximum). If any Participation
Rights Holder fails to so agree in writing within such five business day period,
then such Participation Rights Holder shall forfeit the right hereunder to
participate in such sale of New Securities; provided, however, that any
Participation Rights Holders that have elected to exercise their Right of
Participation shall be entitled to exercise such right with respect to any New
Securities where such right has been forfeited by such other Participation
Rights Holder(s). All sales hereunder shall be consummated concurrently with the
closing of the transaction triggering the Right of Participation.
(vi) Failure to Exercise. Upon the expiration of such five business
day period, the Company shall have 90 days thereafter, subject to extensions for
regulatory compliance, to sell the New Securities described in the Participation
Notice (with respect to which the Participation Rights Holders' rights of first
refusal hereunder were not exercised) at the price (or a higher price) and upon
non-price terms not materially more favorable to the purchasers thereof than
specified in the Participation Notice. If the Company has not issued and sold
such New Securities within such 90-day period, then the Company shall not
thereafter issue or sell any New Securities without again first offering such
New Securities to the Participation Rights Holders pursuant to this Section
7(e).
(f) [Intentionally Omitted]
(g) Equal Rights. Notwithstanding anything contained herein, if the terms,
conditions, representations and warranties, covenants and provisions taken as a
whole contained in any other stock purchase documents executed by the Company in
connection the sale of ten percent or less of the Company's outstanding voting
securities at the time of such purchase ("Other Purchase Documents") entered
into prior to the date hereof (unless disclosed in the SEC Documents filed on or
prior to March 17, 2000 or disclosed in full to the Investor prior
17
to the Closing) or entered into on or after the date hereof and before September
30, 2000, then this Agreement shall be deemed to contain the terms, conditions,
representations and warranties, covenants and provisions contained in such Other
Purchase Documents.
(h) Rights Relating to a Corporate Event.
(i) Corporate Events. A "Corporate Event" shall mean any of the
following, whether accomplished directly or indirectly through one or a series
of related transactions: (A) any reorganization, merger or consolidation, or
sale or other disposition of all or substantially all of the assets of the
Company, or (B) a shareholder, or group of affiliated shareholders, or group of
shareholders acting in concert, shall have the ability to control or direct the
votes of at least 30% of the voting power of the Company.
(ii) Notice of Corporate Events. Until expiration of the
Notification Period (as defined below), the Company shall provide the Investor
with written notice of terms of any written agreement entered into with any
person or entity for a proposed Corporate Event. Any notice shall be delivered
to the Investor as soon as practicable but no later than two business days after
the date the Company first executes such written agreement. Without limiting the
generality of the foregoing, such notice shall subject to applicable
confidentiality provisions, set forth the identity(ies) of the person(s) or
entity(ies) involved, the consideration to be paid and all other material terms
and conditions, and the Company shall deliver a copy thereof to the Investor.
(iii) Right of Resale Period Defined. "Right of Resale Period"
means the period commencing on the Closing Date and ending on September 30,
2000.
(iv) Guaranteed Price Defined. "Guaranteed Price" means the Per
Share Purchase Price.
(v) Right of Resale. During the Right of Resale Period, the
Investor shall, upon the Company's consummation of a Corporate Event, have the
following rights with respect to the shares of Purchased Shares and New
Securities then owned by the Investor (the "Owned Shares"):
(A) If a Corporate Event results in any or all of the Owned
Shares being acquired at less than the Guaranteed Price, the Investor shall
receive from the Company the difference between the Guaranteed Price with
respect to the Owned Shares so acquired and the price at which such Owned Shares
are acquired, such payment to be made in cash upon the consummation of such
Corporate Event.
(B) If a Corporate Event results in some of the Owned Shares being acquired at
less than the Guaranteed Price, the Investor shall have the right to sell to the
Company for cash any or all of the Owned Shares not so acquired at the
Guaranteed Price, such sale to occur upon consummation of such Corporate Event.
(C) If in connection with a Corporate Event the Owned
Shares are not purchased on a pro rata basis with the Company's other then-
outstanding voting securities, the Investor shall have the right to sell to the
Company for cash any or all of the pro rata portion of the Owned Shares not so
purchased at the Guaranteed Price.
Notwithstanding the foregoing, the Investor shall not have the right to sell to
the Company any Owned Shares pursuant to this Section 7(g)(iv) if the person
affecting a Corporate Event offers to acquire all of such Owned Shares (or the
Investor's pro rata portion of such Owned Shares in the event the person
affecting such Corporate Event offers to acquire less than all of the Company's
outstanding voting securities) for cash or in exchange for registered, readily
tradable securities listed on the Nasdaq National Market, the New York Stock
Exchange or another national securities exchange, at a purchase price that is
not less than the Guaranteed Price.
(vi) Delivery of Certificates for Owned Shares. Within 15 days prior
to the consummation of the Corporate Event, the Investor shall deliver to the
Company the certificate or certificates representing shares to be sold to the
Company pursuant to Section 7(g)(iv), each such certificate to be properly
endorsed for transfer.
(i) Rights Relating to Competitors.
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(i) Until such time as the Investor, together with its
subsidiaries, no longer hold the equivalent of at least one percent of the
outstanding voting securities of the Company (such period from the date hereof
through such time being referred to herein as the "PC/OEM Period"), unless such
transaction constitutes a Corporate Event, and the Investor elects not to
exercise the right of first refusal provided in Section 7(h)(ii), the Company
will not issue any securities to another PC/OEM. A "PC/OEM" means a personal
computer original equipment manufacturer or any entity that derives at least
five percent of its annual gross sales from the manufacturer or sale of personal
computers, including but not limited to Dell, Apple, Compaq, IBM, Hewlett
Packard, Micron and Acer.
(ii) Right of First Refusal. During the PC/OEM Period, the Company
shall, prior to effecting or entering into any agreement for any Corporate Event
involving a PC/OEM, present to the Investor in writing the final terms and
conditions of the proposed Corporate Event, including the name of the other
party or parties to the Corporate Event and a copy of the definitive agreements
that the Company is prepared to enter into (such information and agreements, a
"Final Notice"). The Investor shall have ten business days after the date of
receipt of the Final Notice to deliver written notice to the Company agreeing to
enter into a written agreement with the Company on substantially the same terms
and conditions specified in the Final Notice, which agreement shall nevertheless
provide for consummation of the transaction within 90 days after the date of
delivery of the Final Notice (such 90-day period subject to extensions for
regulatory compliance). During such ten business day period, the Investor shall
be entitled to conduct due diligence with the reasonable cooperation of the
Company. If the Investor fails to enter into a definitive agreement within such
10 business day period, for a period of 90 days thereafter, the Company shall
have the right to enter into an agreement regarding such Corporate Event with
the party or parties specified in the applicable Final Notice; provided,
however, that such definitive agreement is entered into within 90 days following
termination of such ten business day period; provided further, that if during
such ten business day period, the Investor shall have made a written offer for
the acquisition of the Company, the Corporate Event with such a third party
shall be for at least 95 percent of the price offered by the Investor and on
other terms no less favorable to shareholders of the Company than the terms of
the offer proposed by the Investor with respect to shareholders other than the
Investor.
(j) E-Commerce; Exclusive Sales Rights.
(i) The Company will add a xxxxxxx.xxx icon on its website,
xxxx://xxx.xxxxxxx.xxx, and any other website hosted by the Company during the
----------------------
term of this agreement (the "Company Website"), and shall provide an electronic
link from such icon to xxxx://xxx.xxxxxxx.xxx or any successor website (the
"Investor Website"). For a one-year period from the Closing Date, the Investor
will have the exclusive right in the United States to market, sell, lease and
finance personal computer hardware and related products on the Company Website
and any successor website hosted by the Company during the term of this
Agreement. For a one-year period from the Closing Date, the Investor will
retain all revenues from products sold on the Investor Website and the Investor
will pay the Company a bounty of two percent of the gross sales (net of returns)
of the Investor's goods and services sold through the link to the Company
Website as well as two percent of the gross sales (net of returns) of the
Investor's goods and services sold on the Company Website. The Company agrees
that no other PC/OEM shall advertise or have access to any of the Company's
sales channels during such period.
(ii) Until the later of the expiration of the PC/OEM Period and the
second anniversary of the Closing Date, the Investor will have the exclusive
right to provide personal computers and related hardware to the Company and any
direct or indirect subsidiary, joint venture, limited liability company,
partnership or other entity controlled by the Company, at prices no less
favorable than the prices offered by the Investor to similarly situated
customers.
(iii) The Investor shall have the right to terminate its obligations
under this Section 7(i) upon the occurrence of a Corporate Event.
(k) Xxxxxx Xxxxxxx Promotional Activities. The Company agrees that the
Investor shall participate in any public relations and promotional events or
opportunities in connection with Xxxxxx Xxxxxxx'x Community and
19
Educational Initiative, subject to the consent of Xxxxxx Xxxxxxx if required
under her existing contract with the Company. In the event such consent is
required, the Company will use its best efforts to obtain such consent.
(l) Training Programs. The Company and the Investor agreed to work
together to develop Spanish language training programs for computer-related
applications.
(m) International Rights. During the Initial Rights Period, if the Company
shall expand its operations beyond the United States, the Company will negotiate
in good faith with the Investor to finalize an agreement concerning personal
computer purchases and e-commerce for such operations prior to contacting or
negotiating with any other PC/OEM.
(n) Option for Additional Investments. The Company hereby grants the
Investor an option to acquire up to 483,495 additional shares of the Company's
Common Stock (which number of shares shall be appropriately adjusted for stock
splits, stock dividends and similar transactions) for cash at a price per share
equal to the Per Share Purchase Price. The option may be exercised in whole
(but not in part) in writing delivered to the Company on or prior to May 30,
2000, and the closing with respect to the issuance of such shares shall occur as
soon as practicable thereafter. Upon receipt of payment for the shares issuable
as a result of such option, the Company shall simultaneously use 67.5 percent of
the gross proceeds paid by the Investor to purchase personal computers, as
contemplated by the PC Purchase Agreement, and at the closing of such option
exercise, the Company will pay the Investor ten percent of the gross proceeds
received for such shares as a prepaid marketing fee.
8. Indemnification.
(a) Agreement to Indemnify.
(i) Company Indemnity. The Investor, its Affiliates and Associates,
and each officer, director, shareholder, employer, representative and agent of
any of the foregoing (collectively, the "Investor Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this Section 8 by the
Company with respect to any and all Damages (as defined below) incurred by any
Investor Indemnitee as a proximate result of any inaccuracy or misrepresentation
in, or breach of, any representation, warranty, covenant or agreement made by
the Company in this Agreement (including any exhibits and schedules hereto).
Indemnification claims arising from the registration of the Purchased Shares
under Federal and state securities laws are covered by Section 7(c) and not this
Section 8.
(ii) Investor Indemnity. The Company, its respective Affiliates and
Associates, and each officer, director, shareholder, employer, representative
and agent of any of the foregoing (collectively, the "Company Indemnitees")
shall each be indemnified and held harmless to the extent set forth in this
Section 8, by the Investor, in respect of any and all Damages incurred by any
Company Indemnitee as a proximate result of any inaccuracy or misrepresentation
in, or breach of, any representation, warranty, covenant or agreement made by
the Investor in this Agreement. Indemnification claims arising from the
registration of the Purchased Shares under Federal and state securities laws are
covered by Section 7(c) and not this Section 8.
(iii) Equitable Relief. Nothing set forth in this Section 8 shall be
deemed to prohibit or limit any Investor Indemnitee's or Company Indemnitee's
right at any time before, on or after the Closing, to seek injunctive or other
equitable relief for the failure of any Indemnifying Party to perform or comply
with any covenant or agreement contained herein.
(b) Survival. All representations and warranties of the Investor and the
Company contained herein and all claims of any Investor Indemnitee or Company
Indemnitee in respect of any inaccuracy or misrepresentation in or breach
hereof, shall survive the Closing until the second anniversary of the date of
this Agreement, regardless of whether the applicable statute of limitations,
including extensions thereof, may expire, and no claim for any breach therefore
may be made unless notice thereof is given to the other party prior to such
date. All covenants and
20
agreements of the Investor and the Company contained in this Agreement shall
survive the Closing in perpetuity (except to the extent any such covenant or
agreement shall expire by its terms).
(c) Claims for Indemnification. If any Investor Indemnitee or Company
Indemnitee (an "Indemnitee") shall believe that such Indemnitee is entitled to
indemnification pursuant to this Section 8 in respect of any Damages, such
Indemnitee shall give the appropriate Indemnifying Party (which for purposes
hereof, in the case of an Investor Indemnitee, means the Company, and in the
case of a Company Indemnitee, means the Investor) prompt written notice thereof.
Any such notice shall set forth in reasonable detail and to the extent then
known the basis for such claim for indemnification. The failure of such
Indemnitee to give notice of any claim for indemnification promptly shall not
adversely affect such Indemnitee's right to indemnity hereunder except to the
extent that such failure adversely affects the right of the Indemnifying Party
to assert any reasonable defense to such claim. As soon as practicable following
receipt of such notice, if the Indemnifying Party objects to such claim, the
senior management of the Company and the Investor shall meet to attempt to
resolve such dispute. If the dispute cannot be resolved by the senior
management, either party may make a written demand for formal dispute resolution
and specify therein the scope of the dispute. Within 30 days after such written
notification, the parties agree to meet for one day with an impartial mediator
and consider dispute resolution alternatives other than litigation. If an
alternative method of dispute resolution is not agreed upon within thirty days
after the one day mediation, either party may begin litigation proceedings.
Nothing in this section shall be deemed to require arbitration.
(d) Defense of Claims. In connection with any claim that may give rise to
indemnity under this Section 8 resulting from or arising out of any claim or
Proceeding against an Indemnitee by a person or entity that is not a party
hereto, the Indemnifying Party may (unless such Indemnitee elects not to seek
indemnity hereunder for such claim) but shall not be obligated to, upon written
notice to the relevant Indemnitee, assume the defense of any such claim or
Proceeding if the Indemnifying Party with respect to such claim or Proceeding
acknowledges to the Indemnitee the Indemnitee's right to indemnity pursuant
hereto to the extent provided herein (as such claim may have been modified
through written agreement of the parties); provided, however, that nothing set
forth herein shall be deemed to require the Indemnifying Party to waive any
crossclaims or counterclaims the Indemnifying Party may have against the
Indemnified Party for damages. The Indemnified Party shall be entitled to retain
separate counsel, reasonably acceptable to the Indemnifying Party, if the
Indemnified Party shall determine, upon the written advice of counsel, that an
actual or potential conflict of interest exists between the Indemnifying Party
and the Indemnified Party in connection with such Proceeding. The Indemnifying
Party shall be obligated to pay the reasonable fees and expenses of such
separate counsel to the extent the Indemnified Party is entitled to
indemnification by the Indemnifying Party with respect to such claim or
Proceeding under this Section 8(d). If the Indemnifying Party assumes the
defense of any such claim or Proceeding, the Indemnifying Party shall select
counsel reasonably acceptable to such Indemnitee to conduct the defense of such
claim or Proceeding, shall take all steps necessary in the defense or settlement
thereof and shall at all times diligently and promptly pursue the resolution
thereof. If the Indemnifying Party shall have assumed the defense of any claim
or Proceeding in accordance with this Section 8(d), the Indemnifying Party shall
be authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, with the prior written consent of
such Indemnitee, not to be unreasonably withheld; provided, however, that the
Indemnifying Party shall not be authorized to encumber any of the assets of any
Indemnitee or to agree to any restriction that would apply to any Indemnitee or
to its conduct of business; and provided further, that a condition to any such
settlement shall be a complete release of such Indemnitee and its Affiliates,
directors, officers, employees and agents with respect to such claim, including
any reasonably foreseeable collateral consequences thereof. Such Indemnitee
shall be entitled to participate in (but not control) the defense of any such
action, with its own counsel and at its own expense. Each Indemnitee shall, and
shall cause each of its Affiliates, directors, officers, employees and agents
to, cooperate fully with the Indemnifying Party in the defense of any claim or
Proceeding being defended by the Indemnifying Party pursuant to this Section
8(d). If the Indemnifying Party does not assume the defense of any claim or
Proceeding resulting therefrom in accordance with the terms of this Section
8(d), such Indemnitee may defend against such claim or Proceeding in such manner
as it may deem appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnifying Party, on such terms as such
Indemnitee may deem appropriate. If any Indemnifying Party seeks to question the
manner in which such Indemnitee defended such claim or Proceeding or the amount
of or nature of any
21
such settlement, such Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that such Indemnitee did not defend such claim or
Proceeding in a reasonably prudent manner.
(e) Certain Definitions. As used in this Agreement, (a) "Affiliate"
means, with respect to any person or entity, any person or entity directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other person or entity; (b) "Associate" means, when used to indicate a
relationship with any person or entity, (1) any other person or entity of which
such first person or entity is an officer, director or partner or is, directly
or indirectly, the beneficial owner of ten percent or more of any class of
equity securities, membership interests or other comparable ownership interests
issued by such other person or entity, (2) any trust or other estate in which
such first person or entity has a ten percent or more beneficial interest or as
to which such first person or entity serves as trustee or in a similar fiduciary
capacity, and (3) any relative or spouse of such first person or entity who has
the same home as such first person or entity or who is a director or officer of
such first person or entity; (c) "Damages" means all demands, claims, actions or
causes of action, assessments, losses, damages, costs, expenses, liabilities,
judgments, awards, fines, response costs, sanctions, taxes, penalties, charges
and amounts paid in settlement, including (1) interest on cash disbursements in
respect of any of the foregoing at the prime rate of Bank of America, as in
effect from time to time, compounded quarterly, from the date each such cash
disbursement is made until the date the party incurring such cash disbursement
shall have been indemnified in respect thereof, and (2) reasonable out-of-pocket
costs, fees and expenses (including reasonable costs, fees and expenses of
attorneys, accountants and other agents of, or other parties retained by, such
party), and (d) "Proceeding" means any action, suit, hearing, arbitration,
audit, proceeding (public or private) or investigation that is brought or
initiated by or against any federal, state, local or foreign governmental
authority or any other person or entity.
9. Assignment. The rights of the Investor under Sections 7(b), (c), (e) and
(g) are transferable only to a subsidiary, limited liability company, or
partnership of the Investor who acquires at least 20 percent of the Purchased
Shares issued on the Closing Date (subject to appropriate adjustment for all
stock splits, dividends, combinations, recapitalizations and the like where all
holders of Common Stock participate on a pro rata basis); provided, however,
that no person or entity may be assigned any of the foregoing rights unless the
Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further, that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement (including all terms
and conditions governing the duration and termination of rights of the
Investor).
10. Exclusive Negotiation Period. Until the earlier of the Closing, April 30,
2000 or the date on which the Investor advises the Company in writing that the
Investor is terminating this Agreement, the Company shall immediately cease and
cause to be terminated any existing discussions or negotiations with any other
PC/OEM concerning transactions similar to those contemplated by this Agreement,
and during this period neither the Company nor any of its affiliates or its or
their agents, representatives or employees shall directly or indirectly (except
relating to the transaction between the Company and the Investor contemplated
hereby) initiate, solicit, consider or engage in any discussions or negotiations
or enter into or endorse any agreement, understanding or arrangement with any
PC/OEM concerning any transactions similar to those contemplated herein.
11. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
assigns of the parties.
(b) Governing Law. This Agreement will be governed by and construed under
the internal laws of the State of New York.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(d) Headings. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
22
(e) Notices. Any notice required or permitted under this Agreement shall
be given in writing, shall be effective when received, and shall in any event be
deemed received and effectively given upon personal delivery to the party to be
notified or three business days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid, or one business day
after deposit with a nationally recognized courier service such as FedEx for
next business day delivery under circumstances in which such service guarantees
next business day delivery, or upon electronic confirmation of receipt of
facsimile sent to the facsimile number indicated for such party on the signature
page hereof or at such other address as the Investor or the Company may
designate by giving at least ten days advance written notice pursuant to this
Section 11(e).
(f) Amendments and Waivers. This Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investor, which may be withheld in either
of their sole and absolute discretion.
(g) Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
(h) Entire Agreement. This Agreement, and all exhibits and schedules
hereto (including the Disclosure Schedule), which are hereby incorporated by
reference into and made an integral part of this Agreement, together with the
Confidentiality Agreement between the Company and the Investor dated October 1,
1999 (the "Confidentiality Agreement"), constitute the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersede any and all prior negotiations, correspondence, agreements,
understandings duties or obligations between the parties with respect to the
subject matter hereof.
(i) Further Assurances. From and after the date of this Agreement upon
the request of the Company or the Investor, the Company and the Investor will
execute and deliver such instruments, documents or other writings, and take such
other actions, as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
(j) Meaning of Include and Including; Article and Section References.
Whenever in this Agreement the word "include" or "including" is used, it shall
be deemed to mean "include, without limitation" or "including, without
limitation," as the case may be, and the language following "include" or
"including" shall not be deemed to set forth an exhaustive list. All "Article",
"Section", "subsection", "paragraph" and "Clause" references herein are
references to Articles, Sections, subsections, paragraphs and clauses,
respectively, of this Agreement unless otherwise specified.
(k) Fees, Costs and Expenses. All fees, costs and expenses (including
attorneys' fees and expenses) incurred by either party hereto in connection with
the preparation, negotiation and execution of this Agreement and the
consummation of the transactions contemplated hereby and thereby (including the
costs associated with any filings with, or compliance with any of the
requirements of, any governmental authorities), shall be the sole and exclusive
responsibility of such party.
(l) Competition. Subject to the terms of the Confidentiality Agreement,
nothing set forth herein shall be deemed to preclude, limit or restrict the
Company's or the Investor's ability to compete with the other.
(m) Stock Splits, Dividends and Other Similar Events. The provisions of
this Agreement (including the number of shares of Common Stock (including the
Purchased Shares) and other securities described herein) shall be appropriately
adjusted to reflect any stock split, stock dividend, reorganization or other
similar event that may occur with respect to the Company after the date hereof.
23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
XXXXXXX.XXX, INC. GATEWAY COMPANIES, INC.
By: /s/ Xxxx Xxxxxxxx By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------- ---------------------------------
Name: Xxxx Xxxxxxxx Name: Xxxxxxx X. Xxxxxxx
Title: Chief Executive Officer Title: Senior Vice President,
General Counsel and Secretary
Address: Address:
One Arizona Center 0000 Xxxxx Xxxxxx Xxxxx
000 Xxxx Xxx Xxxxx Xxx Xxxxx, Xxxxxxxxxx 00000
Xxxxxxx, Xxxxxxx 00000 Telephone No.: (000) 000-0000
Telephone No.: (000) 000-0000 Facsimile No.: (000) 000-0000
Facsimile No.: (000) 000-0000 Attn: General Counsel
Attn: President
with a copy to:
Xxxxxxx X. Xxxxxxx
Xxxxxxxxxx Xxxxx & Xxxxxx, P.C.
000 00xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
B - 1
