SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of November 21, 1999 by and between
Urban Cool Network, Inc., a Delaware corporation ("UCN") having an office at
0000 Xxx Xxxxxx, Xxxxxx, Xxxxx 00000 and Xxxxxxx Xxxxxxx ("Xxxxxxx") having an
address at 0000 Xxxxx Xxxxxx Xxx Xxxx, Xxx Xxxx 00000 and e-commerce Solutions,
Inc., a New York corporation (the "Company"), having an address at West 23rd
Street, New York, New York. UCN and Xxxxxxx are hereinafter sometimes
collectively referred to as the "Shareholders" and individually as a
"Shareholder."
W I T N E S S E T H:
WHEREAS, UCN is hereby acquiring sixty six and two thirds percent of
the common stock of the Company; and
WHEREAS, the Shareholders are the owners of all of the issued and
outstanding shares of common stock $.01 par value of the Company as set forth on
Exhibit A (the "Shares"); and
WHEREAS, the Shareholders desire to express their agreement
regarding the organization and management of the Company and to establish
procedures relating to the sale or other disposition of the Company's capital
stock, all in the manner and upon the terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereby agree as follows:
1. Governance. (a) The Board of Directors of the Company shall consist of
three members. Each Shareholder agrees that during the term of this Agreement
such Shareholder shall select and vote for one director and the two elected
directors shall select a third director.
(b) Each of the Shareholders agree that the individuals set forth below
shall hold the offices set forth opposite their respective names until such time
as the Board of Directors designate others individuals:
Xxxxx X. Xxxxx, III Chairman of the Board
Xxxxxxx Xxxxxxx President and Chief Executive Officer
Xxxxx X. Xxxxxx Secretary and Treasurer
2. Capital Contributions.
(a) UCN agrees to contribute (i) the sum of $100,000 to the Company within
two (2) days of the date hereof and $2,900,000 upon the consummation of a public
offering of UCN's securities provided that Xxxxxxx has completed the items set
forth on Schedule 2(a) to the reasonable satisfaction of UCN. In the event that
Xxxxxxx has not completed the items on Schedule 2(a) to the reasonable
satisfaction of UCN, then (i) UCN shall have no obligation to contribute any
additional amounts to the Company (ii) the Warrant to purchase 1,000,000 shares
of common stock of UCN shall be canceled and (iii) UCN shall have the right to
purchase Xxxxxxx'x shares for an aggregate purchase price of $1.00.
(b) Xxxxxxx agrees to contribute the sum of $50,000 to the Company within
two (2) days of the date hereof.
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3. Management of the Company. The Company and each Shareholder agree that
the following matters shall require not less than a 70% affirmative vote of all
outstanding Shares owned by the Shareholders for approval:
(a) any amendment to or restatement of the certificate of incorporation
or by-laws of the Company;
(b) any change to the number of directors of the Company;
(c) the liquidation or dissolution of the Company;
(d) except as otherwise expressly permitted by this Agreement, any
recapitalization, restatement of assets, redemption of shares, reduction of
capital or other change in the capitalization of the Company;
(e) except as otherwise expressly permitted by this Agreement, the
authorization, issuance, reassurance or sale, or the entering into of any
material agreement providing for the issuance or sale (contingent or otherwise)
of any equity securities of the Company or the issuance, sale or grant of any
security, option, warrant or right to acquire, convert into or otherwise dispose
of any equity securities of the Company (collectively, "Securities"), in any
case, whether or not authorized, issued or held in treasury;
(f) except as otherwise permitted by this Agreement, the direct or
indirect redemption, purchase or sale or other acquisition or disposition of any
of the Company's Securities;
(g) the entering into any business unrelated to the business purpose of
the Company as it is presently conducted if such business would have a material
affect on the Company, its business, operations or financial condition
notwithstanding the foregoing, the Company may
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pursue related businesses and the Company may make investments in related
businesses once every 12 months provided that such investment singly or in the
aggregate does not exceed $250,000;
(h) any change in the name of the Company or the use of another name by
the Company to carry on its business;
(i) any change in the salary of Xxxxxxx or any amendment to any
employment agreement between the Company and Xxxxxxx;
(j) except as expressly otherwise permitted by this Agreement, the
declaration or payment of any dividends or distributions in excess of $10,000 in
cash, property, securities or otherwise, upon any of the securities of the
Company;
(k) except for short-term borrowings in the ordinary course of business
and the incurrence, renewal, refinancing or nonscheduled payment or other
similar optional discharge of indebtedness for borrowed money in excess of the
aggregate amount of $50,000 during any calendar year by the Company other than
in the ordinary course of business.
(l) any change in the Company's independent certified public
accountant.
4. Transfers of Shares. Except as specifically permitted or required by this
Agreement, the Shareholders agree that they will not, directly or indirectly,
sell, assign, exchange or otherwise dispose of or transfer, including, without
limiting the generality of the foregoing, by gift, bequest, pledge,
hypothecation or otherwise, the Shares, whether presently owned or hereafter
acquired by stock dividend, split up, exchange, combination, reclassification,
reorganization, consolidation, merger or otherwise (collectively, a
"disposition"). Each Shareholder hereby agrees that he shall make no disposition
of the Shares otherwise than in compliance with the Securities Act of 1933, as
amended (the "Act").
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(a) The Company shall effect no transfer of Shares on its books and
records in violation of this Agreement.
(b) If any Shareholder (a "Shareholder Offeree") receives a bona fide
written offer ("Offer") from a potential transferee (the "Offeror") to purchase
any or all of the Shares owned by the Shareholder Offeree and such Shareholder
Offeree shall propose to accept such Offer, the Shareholder Offeree shall comply
with the appropriate provisions of this Paragraph 4 prior to taking any such
action.
(c) The Shareholder Offeree shall give a notice (the "Notice") to the
Company and the other Shareholders (the "Other Shareholders") stating that he
proposes to effect such transaction, the name and address of the Offeror, the
amount of Shares to be sold and the price to be paid by the Offeror (the
"Offeror Price"). The Notice shall be accompanied by copies of the documents or
other evidence hereinafter specified and no Shareholder Offeree shall have any
right to give Notice pursuant to this Paragraph 4(c) unless all of the following
conditions shall be met:
(i) The Offeror shall have delivered to the Shareholder Offeree
a copy of the Offer signed by the Offeror, offering to effect the
proposed transaction on or before a date ninety (90) days from the
date of the Offer;
(ii) The Offeror shall agree to execute a counterpart of this
Agreement and to be bound by the provisions hereof; and
(iii) The Offeror shall furnish reasonable evidence as to the
Offeror's financial ability to consummate the proposed purchase.
(d) The Company shall have a period of thirty (30) days after the
giving of the Notice (the "Company's Election Period") within which to exercise
its right to purchase all (but not
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less than all) of the Shares of the Shareholder Offeree at the Offeror Price and
on the terms and conditions set forth in the Offer. In the event that the
Company declines to exercise such right the Other Shareholders shall have a
period ending forty-five (45) days after the giving of the Notice (the "Election
Period") within which to exercise the options set forth in Paragraph 4(e).
(e) Each of the Other Shareholders shall, at its option, by so
notifying the Shareholder Offeree in writing during the Election Period, have
the right to purchase from such Shareholder Offeree all (but not less than all)
of the Shares of the Shareholder Offeree as provided in this Paragraph 4(e).
Such written notification shall operate as a binding commitment on such Other
Shareholders to purchase all (but not less than all) of the Shares covered by
the Offer. If more than one Other Shareholder elects to purchase such Shares
under this Paragraph 4, such Other Shareholders shall purchase such Shares in
proportion to the amount of Shares owned by such Other Shareholders at the time
the Notice was given, unless otherwise agreed among such Other Shareholders.
(f) Subject to Paragraph 4(g), if no effective election prior to the
expiration of the Election Period is made to purchase all (but not less than
all) of the Shares of the Shareholder Offeree under Paragraph 4(e), the
Shareholder Offeree may sell such Shares subject to the Offer at the Offeror
Price and on the other terms and conditions of the Offer within ninety (90) days
after the giving of the Notice. If such Shares are not sold in accordance with
the terms of the Offer within ninety (90) days of the date of the Offer, any
such sale shall again be subject to the terms and conditions of this Paragraph
4.
(g) Notwithstanding anything to the contrary in this Paragraph 4
with respect to any proposed sale of Shares by the Shareholder Offeree each of
the Other Shareholders shall have
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the right to participate in such sale by requiring the Offeror to purchase from
it as a part of the amount of Shares subject to the Offer either all such Other
Shareholder's Shares or, if the Offeror is not willing to purchase all such
Shares, an amount thereof owned by each such Other Shareholder equaling the
amount derived by multiplying the amount of each such Other Shareholder's Shares
by a fraction, the numerator of which is the total amount of the Shares of all
Shareholder Offeree's and each of the Other Shareholders to be purchased by the
Offeror and the denominator of which is the total amount of the Shares owned by
all Shareholder Offerees and each of the Other Shareholders exercising their
rights pursuant to this Paragraph 4(g). In the event a Participation Notice is
delivered during the time period required above, the Offeror shall purchase the
Shares subject thereto at the same time and on the same terms and conditions as
the Shareholder Offerees Shares are purchased pursuant to Paragraph 4(f). In the
event that the Offeror does not purchase the Other Shareholder's Shares on the
same terms and conditions, then the sale by the Shareholder Offeree to such
third party shall be invalid.
(h) The foregoing provision of this Paragraph 4 shall apply to any
direct or indirect sale of the Shares, but shall not apply to a transfer,
assignment of sale or Shares by any Shareholder to (A) another Shareholder (B) a
corporation wholly-owned by such Shareholder, (C) any successor of any of the
foregoing, (D) members of the immediate families of such individuals (E) any
trust (whether testamentary or inter vivos), the beneficiary of which is any
such individual or a member of his immediate family, (F) a transfer of shares by
UCN or Xxxxxxx to a limited partnership of which UCN or Xxxxxxx, as the case may
be, is a general partner; provided, however, that any such transferee, assignee
or purchaser shall take such Shares subject to all the limitations of this
Agreement.
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5. Legally Binding Obligation. The giving of any notice under Paragraph 4 and
the making or failing to make an election within the stated period, in each case
as provided in Paragraphs 4, shall create a legally binding obligation to buy or
sell, as the case may be, the subject Shares pursuant hereto.
6. Legends. Upon the execution of this Shareholders' Agreement each of the
Shareholders shall present to the Company the certificate or certificates
representing the Shares issued by the Company to them and the Company shall
affix upon the face or upon the reverse side thereof legends to the following
effect:
"The sale, assignment, transfer, pledge, encumbrance, hypothecation
or other disposition of the shares represented by this certificate
are subject to the terms of a Shareholders' Agreement dated as of
____________ 1999, a copy of which is on file at the office of the
Company."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may be
transferred only (a) pursuant to an effective registration statement
under the Act, or (b) in accordance with the Act and subject to
receipt of an opinion of counsel reasonably acceptable to the
Company that the proposed transaction is exempt from registration
under the Act."
7. Financial Information. The Company will furnish the following reports to
the Shareholders.
(a) As soon as practicable after the end of each calendar year, and in any
event within sixty (60) days thereafter, consolidated balance sheets of the
Company, as of the end of each twelve consecutive calendar month period ending
on December 31 of any year ("Fiscal Year"), and consolidated statements of
income and consolidated statements of changes in financial position of the
Company, for such year, prepared in accordance with generally accepted
accounting principles ("GAAP") and setting forth in each case in comparative
form the figures for the previous Fiscal
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Year, all in reasonable detail and certified by an independent accounting firm
approved by the directors of the Company;
(b) As soon as practicable after the end of each quarter and in any event
within thirty (30) days thereafter, consolidated and consolidating financial
statements of the Company, as at the end of such quarter, for the period
commencing at the beginning of the applicable Fiscal Year and ending with the
end of such quarter, (including a balance sheet, statements of income and
retained earnings and a cash flow statement) prepared in accordance with GAAP
(except for the absence of accompanying notes and subject to normal year end
adjustments).
(c) Such budgets, forecasts, projections and other information respecting
the business of the Company as any of the Shareholders may from time to time
reasonably request;
(d) All reports delivered to the Company by its accountants.
8. Covenants.
(a) The Company will keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and transactions in
relation to its business and activities and will permit the Shareholders and
representatives of the Shareholders to visit and inspect any of its properties,
to examine and make abstracts from any of its books and records and to discuss
its affairs, finances and accounts with its officers, employees and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired.
(b) The Company will pay and discharge at or before maturity, all of its
material obligations and liabilities, including, without limitation, tax
liabilities, except where the same may be contested in good faith by appropriate
proceedings, and will maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
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(c) The Company will comply in all material respects with all applicable
laws, ordinances, statutes, rules, regulations, and requirements of governmental
authorities except where the necessity of compliance therewith is contested in
good faith by appropriate proceedings.
(d) The Company shall maintain insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as may be required by law, or any other agreements to which it is a party,
and such other insurance to such extent and against such hazards and liabilities
as is comparable in amount and coverage (including, but not limited to, personal
injury, workmen's compensation, natural disaster, fire, liability and business
interruption) as is reasonable and customary.
9. Newly Formed Company. Xxxxxxx hereby represents that the company was
formed in October, 1999 and except for the software in development enabling the
Company to construct e-commence capable web sites, the Company has no other
assets and has no other liabilities as of the date hereof.
10. Additional Shares. This Shareholders' Agreement shall apply equally to any
additional shares of common stock of the Company acquired by the Shareholders
whether by stock dividend, stock split, reverse stock split, or recapitalization
or reorganization of any type or otherwise. All such shares shall be issued
bearing the endorsement set forth in Section 8.
11. Notices. All notices pursuant to this Agreement shall be given in writing
by registered or certified mail or overnight courier service or, if promptly
confirmed in writing so given, by telecopy or other electronic means. Each such
notice shall be delivered or sent to the addresses set forth above, or to such
other address as the person to whom such notice is to be given may have
indicated by notice given pursuant hereto to the person giving such notice at
least five calendar days
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prior thereto. All such notices shall be deemed to have been given on the third
calendar day after being deposited in the mail, if given by registered or
certified mail, on the next business day, if given by overnight courier or when
given or transmitted, if given by telecopier or other electronic means and
confirmed in the manner set forth above.
12. Amendment. This Agreement can be amended only by an instrument in writing
signed by all the Shareholders and the Company.
13. Binding Effect. This Agreement shall be binding upon all the parties
hereto, their heirs, legal representatives, successors and assigns.
14. Termination. This Agreement shall be effective as of the date hereof and
shall terminate upon the occurrence of any of the following events:
(a) Upon the registration of any of the Company's securities under the
Securities Act of 1933, as amended;
(b) The merger or consolidation of the Company into or with any other
corporation on terms and conditions which provide that the Company shall not be
the corporation surviving such merger or consolidation;
(c) The sale of all or substantially all of the assets of the Company;
(d) Bankruptcy of the Company, appointment by a court of a permanent
receiver for the Company, or dissolution of the Company;
(e) The acquisition of all of the outstanding capital stock of the Company
by any of the Shareholders.
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15. Governing Law. Except to the extent required by the certificate of
incorporation of the Company or otherwise under applicable law, this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York.
16. Assignment. This Agreement and all the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto, but this Agreement is not
intended to benefit any other person or party whatsoever including, without
limitation, any creditors of the Company or any liquidator or trustee in
bankruptcy and all rights and obligations hereunder may not be assigned without
the prior written consent of all the other parties hereto.
17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and which together shall be deemed to be
one and the same instrument.
18. Severability. The invalidity or unenforceability of any one or more
phrases, sentences, clauses or paragraphs contained in this Agreement shall not
affect the validity or enforceability of the remaining portions of this
Agreement, or any part thereof.
19. Specific Performance. If any Shareholder breaches or threatens to breach,
a provision of this Agreement, the other Shareholders shall have the right and
remedy of specific performance, to the extent permitted by applicable law, it
being agreed that any breach or threatened breach of a provision of this
Agreement would cause irreparable injury to the other Shareholders and that
money damages would not provide an adequate remedy to such Shareholders.
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IN WITNESS WHEREOF, the parties have executed this Shareholders' Agreement
as of the day and year first above written.
URBAN COOL NETWORK, INC.
By: /s/ Xxxxxxx Xxxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxxx
Title:
EXHIBIT A
No. of
Shares Percentage
------ ----------
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Schedule 2(a)
1. Open a checking account for the Company.
2. Hire at least 2 employees.
3. Open an office for the Company.
4. Prepare the infrastructure necessary to market e-commerce capable web
sites including, the capacity to sell 200-300 web sites per user by hiring
key personnel to execute the business plan.
5. Prepare a detailed business plan including, operating budges, sales
forecasts and a use of proceeds for $3,050,000 capital contribution.
6. Establish detailed procedures for training personnel.
7. Contribute $50,000 to the Company.
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