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EXECUTION COPY
EXHIBIT 10.1
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EXCHANGE APPLICATIONS, INC.
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SECURITIES PURCHASE AGREEMENT
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MARCH 18, 1997
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SECURITIES PURCHASE
AGREEMENT dated as March 18, 1997, by
and among EXCHANGE APPLICATIONS, INC., a
Delaware corporation (the
"CORPORATION"), GRANT & PARTNERS LIMITED
PARTNERSHIP, a Delaware limited
partnership ("GPLP"), CYRK, INC., a
Delaware corporation ("CYRK"; and
together with GPLP, the "EXISTING
INVESTORS"), INSIGHT VENTURE PARTNERS I,
L.P., a Delaware limited partnership
("IVP I"), GAP COINVESTMENT PARTNERS,
L.P., a New York limited partnership
("GCP"), WEXFORD INSIGHT LLC, a Delaware
limited liability company ("Wexford";
and together with IVP I and GCP, the
"INSIGHT INVESTORS"; and together with
the Existing Investors, the
"INVESTORS").
The Corporation desires to sell to each Insight Investor, and each
Insight Investor desires to purchase from the Corporation, shares of the capital
stock of the Corporation, on the terms and subject to the conditions set forth
herein. In addition, the Corporation desires to repurchase from the Existing
Investors, and the Existing Investors desire to sell to the Corporation, the
Subject Indebtedness (as defined below). The Corporation and the Investors are
referred to herein collectively as the "PARTIES."
ACCORDINGLY, in consideration of the representations, warranties,
agreements, covenants and conditions contained in this Agreement, the Parties
hereby agree as follows:
SECTION 1. FILING OF THE CERTIFICATES.
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(a) Prior to the Closing (as defined below), the Corporation
shall file with the Secretary of State of the State of Delaware a Certificate of
Amendment, in the form of EXHIBIT A hereto (the "CERTIFICATE OF AMENDMENT"),
pursuant to which its Certificate of Incorporation as in force and effect
immediately prior thereto shall then be amended such that the Conversion Price
(as defined therein) applicable to any outstanding shares of the Corporation's
Series A Convertible Preferred Stock, $.001 par value (the "OLD PREFERRED
STOCK"), shall be fixed at $3.01333.
(b) Prior to the Closing, but after making the filing described
in SECTION 1(a), the Corporation shall file with the Secretary of State of the
State of Delaware an Amended and
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Restated Certificate of Incorporation, in the form of EXHIBIT B hereto (the
"AMENDED AND RESTATED CERTIFICATE"), that, among other things, (i) authorizes
10,544,444 shares of Common Stock, $.001 par value (the "COMMON STOCK"), (ii)
authorizes 5,455,556 shares of Preferred Stock, $.001 par value (the "PREFERRED
STOCK"), of which (A) 2,900,000 shares shall be designated Series A Preferred
Stock (the "SERIES A PREFERRED STOCK"), and (B) 2,555,556 shares shall be
designated Series B Convertible Preferred Stock (the "SERIES B PREFERRED
STOCK"), and (iii) sets forth the terms, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of the Common Stock and the
Preferred Stock.
SECTION 2. AUTHORIZATION AND RESERVATION; ISSUANCE AND SALE; REPURCHASE;
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CLOSING.
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2.1. AUTHORIZATION AND RESERVATION.
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Subject to the terms and conditions hereof, the Corporation has
authorized (i) the issuance of 2,900,000 shares of Series A Preferred Stock (the
"CYRK/GPLP PREFERRED SHARES") to the Existing Investors at the Closing, (ii) the
issuance and sale of 2,555,556 shares of Series B Preferred Stock (the "INSIGHT
PREFERRED SHARES") to the Insight Investors at the Closing, and (iii) the
reservation of an aggregate of 2,555,556 shares of Common Stock (the "RESERVED
SHARES") for issuance upon the conversion of the Insight Preferred Shares.
2.2. ISSUANCE AND SALE OF THE INSIGHT PREFERRED SHARES.
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(a) At the Closing, on and subject to the terms and conditions
contained herein, the Corporation shall issue, sell and deliver to IVP I, and
IVP I shall purchase from the Corporation, upon the terms and subject to the
conditions hereinafter set forth, 1,154,775 Insight Preferred Shares for an
aggregate purchase price of $1,807,222.88 in cash (or a purchase price of $1.565
per share).
(b) At the Closing, on and subject to the terms and conditions
contained herein, the Corporation shall issue, sell and deliver to GCP, and GCP
shall purchase from the Corporation, upon the terms and subject to the
conditions hereinafter set forth, 246,006 Insight Preferred Shares for an
aggregate purchase price of $384,999.39 in cash (or a purchase price of $1.565
per share).
(c) At the Closing, on and subject to the terms and conditions
contained herein, the Corporation shall issue, sell and deliver to Wexford, and
Wexford shall purchase from the Corporation, upon the terms and subject to the
conditions hereinafter set forth, 1,154,775 Insight Preferred Shares for an
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aggregate purchase price of $1,807,222.88 in cash (or a purchase price of $1.565
per share).
2.3. REPURCHASE OF THE SUBJECT INDEBTEDNESS
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(a) The Parties acknowledge that the aggregate outstanding
indebtedness of the Corporation to the Existing Investors as of the date hereof,
together with accrued interest thereon, is set forth on SCHEDULE 2.3 hereto (the
"SUBJECT INDEBTEDNESS"), which consists of (i) the indebtedness assumed by the
Corporation pursuant to Section 2(b) of the Assignment and Assumption Agreement
dated as of November 15, 1996, between the Corporation and GPLP, (ii) the
indebtedness evidenced by two promissory notes issued by the Corporation to
CYRK, one dated November 15, 1996 and the other dated December 13, 1996 and each
in the original principal amount of $200,000 (collectively, the "CYRK NOTES"),
and (iii) the indebtedness evidenced by a promissory note issued by the
Corporation to GPLP dated November 15, 1996 and in the original principal amount
of $301,260 (the "GPLP NOTE").
(b) At the Closing, on and subject to the terms and conditions
contained herein, the Corporation shall repurchase from GPLP, and GPLP shall
sell to the Corporation, all of the Subject Indebtedness set forth on SCHEDULE
2.3 as being owed to GPLP by the Corporation, in exchange for the issuance and
delivery by the Corporation to GPLP, and the receipt by GPLP from the
Corporation, of 377,408 CYRK/GPLP Preferred Shares.
(c) At the Closing, on and subject to the terms and conditions
contained herein, (i) the Corporation shall pay to CYRK in cash $1,000,000 to be
applied (A) FIRST, against the accrued and unpaid interest constituting the
amount of the Subject Indebtedness set forth on SCHEDULE 2.3 as being owed to
CYRK by the Corporation, and (B) SECOND, against the outstanding principal
amount of the Subject Indebtedness set forth on SCHEDULE 2.3 as being owed CYRK
by the Corporation and (ii) the Corporation shall repurchase from CYRK, and CYRK
shall sell to the Corporation, all of the remaining Subject Indebtedness set
forth on SCHEDULE 2.3 as being owed to CYRK by the Corporation, in exchange for
the issuance and delivery by the Corporation to CYRK, and the receipt by CYRK
from the Corporation, of 2,522,592 CYRK/GPLP Preferred Shares.
(d) The Corporation's payment of $1,000,000 to CYRK as
described in SECTION 2.3(c)(i) and its issuance and delivery of the CYRK/GPLP
Preferred Shares to the Existing Investors, in each case at the Closing pursuant
to this SECTION 2, shall be in full satisfaction and payment of any and all
obligations or liabilities of the Corporation with respect to the Subject
Indebtedness and, upon such issuance, delivery and payment, the Subject
Indebtedness shall be deemed to be discharged and satisfied in full.
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2.4. DELIVERIES AT CLOSING.
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(a) At the Closing, the Corporation shall deliver to each
Insight Investor stock certificates representing the Insight Preferred Shares
being acquired by such Insight Investor at the Closing, registered in the name
of such Insight Investor, against receipt by the Corporation of a certified or
official bank check payable to the Corporation or a wire transfer of immediately
available funds to an account designated by the Corporation in an aggregate
amount equal to the purchase price for the Insight Preferred Shares being
purchased by such Insight Investor hereunder.
(b) At the Closing, (i) the Existing Investors shall (A)
deliver to the Corporation the CYRK Notes and the GPLP Note, each of which shall
have been marked "PAID IN FULL" prior to such delivery, and (B) execute and
deliver to the Corporation the Pay-off Agreement dated as of the Closing Date by
and among the Corporation, GPLP and CYRK (the "PAY-OFF AGREEMENT"),
substantially in the form of EXHIBIT C hereto, against (ii) receipt by (A) the
Existing Investors of stock certificates delivered by the Corporation
representing the CYRK/GPLP Preferred Shares being acquired by the Existing
Investors at the Closing and (B) CYRK of certified or official bank checks or
wire transfers of immediately available funds to an account designated by CYRK
in the aggregate amount of $1,000,000.
2.5. CLOSING.
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The closing (the "CLOSING") hereunder with respect to the issuance, sale
and delivery of the Insight Preferred Shares and the issuance and delivery of
the CYRK/GPLP Preferred Shares and the consummation of the related transactions
contemplated by this Agreement and the Related Agreements shall, subject to the
satisfaction or waiver of the conditions set forth in SECTIONS 6 and 7, take
place at the offices of X'Xxxxxxxx Graev & Karabell, LLP, 00 Xxxxxxxxxxx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000 on a business day (the "CLOSING DATE") designated by
the Corporation, IVP I and CYRK, which date shall be no later than five Business
Days after the date on which all such conditions shall have been satisfied to
the satisfaction of, or otherwise waived by, the Parties whose obligations are
subject thereto. As used in this Agreement, the term "BUSINESS DAY" means any
day that is not a Saturday, Sunday, legal holiday or other day on which banks
are required to be closed in New York, New York or Boston, Massachusetts.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
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The Corporation hereby represents and warrants to the Investors as set
forth in the following SECTIONS 3.1 through 3.5 and to the Insight Investors as
set forth in the following SECTIONS 3.6 through 3.25:
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3.1. ORGANIZATION; GOOD STANDING; QUALIFICATIONS.
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(a) The Corporation is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted. The
Corporation has all requisite corporate power and authority to enter into this
Agreement and the Related Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Corporation is duly qualified and in good
standing to do business in the Commonwealth of Massachusetts and every
jurisdiction in which such qualification is necessary because of the nature of
the property owned, leased or operated by it or the nature of the business
conducted by it therein, except where the failure to so qualify would not have a
material adverse effect (a "MATERIAL ADVERSE EFFECT") on the business,
operations, assets, condition (financial or otherwise), operating results,
liabilities, employee relations or business prospects of the Corporation and its
Subsidiaries (if any) taken as a whole (each of which jurisdictions is listed on
SCHEDULE 3.1 hereto). The Corporation has not conducted its business under any
fictitious or other names except those names listed on SCHEDULE 3.1. True and
complete copies of the Corporation's Certificate of Incorporation and By-Laws,
in each case as amended to and in effect on the date hereof, are attached hereto
as SCHEDULE 3.1.1 hereto and SCHEDULE 3.1.2 hereto, respectively. The
Corporation has in all material respects performed all of the obligations
required to be performed by it to date under its Certificate of Incorporation
and By-Laws, in each case as amended to and in effect on the date hereof, and
there exists no default, or any event which upon the giving of notice or the
passage of time, or both, would give rise to a claim of a default in the
performance by the Corporation of its obligations thereunder.
(b) As used herein, the term "GOVERNMENTAL AUTHORITY" means any
court, department, commission, board, bureau, agency or commission or other
governmental authority or instrumentality, domestic or foreign, federal, state
or local; the term "ORDER" means any judgments, writs, decrees, injunctions,
orders, compliance agreements or settlement agreements of any Governmental
Authority; and the term "LAWS" means federal, state, local or foreign laws,
statutes, rules, directives, ordinances requirements, regulations and Orders of
any Governmental Authority.
3.2. AUTHORITY OF THE CORPORATION.
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(a) The execution, delivery and performance of this Agreement
and the Related Agreements to which the Corporation is a party and the
consummation by the Corporation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary action on the
part of the
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Corporation and its stockholders, and this Agreement and the Related Agreements
to which the Corporation is a party have been duly and validly executed by the
Corporation and are valid and binding obligations of the Corporation,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar Laws now or hereafter in effect, public policy and general principles of
equity. The execution, delivery and performance of this Agreement and the
Related Agreements to which the Corporation is a party, the consummation by the
Corporation of the transactions contemplated hereby and thereby, including the
reservation, issuance, sale and delivery, as the case may be, of the GPLP Common
Shares (as defined below), CYRK/GPLP Preferred Shares, the Insight Preferred
Shares and the Reserved Shares, and the compliance by the Corporation with all
of the provisions hereof and thereof shall not (i) conflict with or result in a
breach of any provision of the Certificate of Incorporation or By-Laws of the
Corporation, in each case as amended to and in effect on the date hereof, (ii)
cause a default or give rise to any right of termination, cancellation or
acceleration (whether upon the giving of notice or the lapse of time or both)
under any of the terms, conditions or provisions of any note, bond, lease,
mortgage, indenture, license or other instrument or agreement to which the
Corporation is a party or by which the Corporation or any of its properties or
assets is or may be bound or affected, except where such defaults, terminations,
cancellations or accelerations taken as a whole would not have a Material
Adverse Effect on the Corporation and its Subsidiaries (if any) taken as a
whole, or (iii) violate any Law applicable to the Corporation or any of its
properties or assets. As used herein, the term "PERSON" shall be construed
broadly and shall include an individual, corporation, association, partnership,
joint venture or entity, organization or Governmental Authority; and the term
"SUBSIDIARY" means any Person (other than a natural Person) with respect to
which a specified Person (or a Subsidiary thereof) has the power to vote or
direct the voting of sufficient securities to elect a majority of the board of
directors or similar governing body.
3.3. AUTHORIZATION OF PREFERRED SHARES AND RESERVED SHARES.
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The reservation, issuance, sale and delivery, as the case may be, of the
GPLP Common Shares, the CYRK/GPLP Preferred Shares, the Insight Preferred Shares
and the Reserved Shares have been duly authorized by all requisite board,
stockholder and other corporate action on the part of the Corporation. As of the
Closing, the GPLP Common Shares, the CYRK/GPLP Preferred Shares and the Insight
Preferred Shares, and, upon their issuance in accordance with the Amended and
Restated Certificate, the Reserved Shares, shall be validly issued and
outstanding, fully paid and nonassessable, with no personal liability attaching
to the ownership thereof, and, except as contemplated by the Related Agreements,
not subject to any Encumbrances or any preemptive
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rights, rights of first refusal or other similar rights of the stockholders of
the Corporation.
3.4. NO CONSENT OR APPROVAL REQUIRED.
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No consent or approval by, or any notification of or filing with, any
Person (governmental or private) is required in connection with the execution,
delivery and performance by the Corporation of this Agreement and the Related
Agreements to which the Corporation is a party or the consummation by the
Corporation of the transactions contemplated hereby and thereby, including the
valid reservation, issuance, sale and delivery, as the case may be, of the GPLP
Common Shares, the CYRK/GPLP Preferred Shares, the Insight Preferred Shares and
the Reserved Shares, except for stockholder approval of the filings of the
Certificate of Amendment and the Amended and Restated Certificate as described
in SECTION 1, the filing of any notices subsequent to the Closing that may be
required under applicable Federal or state securities Laws (which notices shall
be filed on a timely basis following the Closing as so required) and those other
consents, approvals, notifications and filings set forth on SCHEDULE 3.4 hereto,
which, except as otherwise set forth on SCHEDULE 3.4, have been made or will be
obtained prior to the Closing.
3.5. CAPITALIZATION.
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(a) Immediately upon the consummation at the Closing of the
transactions contemplated by this Agreement, the authorized capital stock of the
Corporation shall consist of:
(i) 10,544,444 shares of Common Stock, of which:
(A) 3,867,750 shares shall be validly issued and
outstanding, fully paid and nonassessable, with no personal liability
attaching to the ownership thereof;
(B) 2,555,556 shares shall be duly reserved for
issuance upon conversion of the Series B Preferred Stock; and
(C) 1,848,388 shares shall be duly reserved for
issuance upon the grant of such shares, or the exercise of options
granted therefor, pursuant to the 1996 Stock Incentive Plan of the
Corporation, as amended to and in effect on the Closing Date; and
(ii) 5,455,556 shares of Preferred Stock, of which:
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(A) 2,900,000 shall have been duly designated as
Series A Preferred Stock, all of which shares shall have been validly
issued and shall be outstanding, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof; and
(B) 2,555,556 shares shall have been duly
designated as Series B Preferred Stock, all of which shares shall have
been validly issued and shall be outstanding, fully paid and
nonassessable, with no personal liability attaching to the ownership
thereof; and
all such outstanding shares in each case being owned of record by the Persons
identified on SCHEDULE 3.5 hereto in the amounts set forth thereon.
(b) SCHEDULE 3.5 contains a list, as of the date hereof and
assuming the consummation at the Closing of all transactions contemplated by
this Agreement and the Related Agreements, of all outstanding warrants, options,
agreements, convertible securities or other commitments pursuant to which the
Corporation or, to the Best Knowledge of the Corporation, any stockholder
thereof is or may become obligated to issue, sell or otherwise transfer any
shares of capital stock or other securities of the Corporation, which list names
all Persons entitled to receive such shares or other securities, indicates
whether or not such securities are entitled to any anti-dilution or similar
adjustments upon the issuance of additional securities of the Corporation or
otherwise and sets forth the shares of capital stock or other securities
required to be issued thereunder (calculated after giving effect to all such
anti-dilution and other similar adjustments resulting from the issuance of the
GPLP Common Shares, the CYRK/GPLP Preferred Shares and the Insight Preferred
Shares and the consummation of the transactions contemplated by this Agreement
and the Related Agreements).
(c) Except as set forth on SCHEDULE 3.5 or as contemplated by
the Related Agreements, immediately upon consummation at the Closing of the
transactions contemplated by this Agreement and the Related Agreements,
including the delivery of each of the instruments described in SECTIONS 6 and 7,
there shall be, (i) no preemptive or similar rights to purchase or otherwise
acquire any shares of the capital stock or other securities of the Corporation
pursuant to any provision of Law, the Corporation's Certificate of Incorporation
or By-Laws, in each case as amended to and in effect on the date hereof, or any
agreement to which the Corporation or, to the Best Knowledge of the Corporation,
any stockholder thereof is a party; and (ii) with respect to the sale or voting
of any shares of capital stock or other securities of the Corporation (whether
outstanding or issuable upon the conversion, exercise or exchange of outstanding
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securities), no Encumbrance or other restriction (such as a right of first
refusal, right of first offer, proxy, voting trust, voting agreement, etc.),
except, in the case of shares of Common Stock previously issued to officers,
directors and employees of the Corporation, in favor of the Corporation. As used
herein, the term "ENCUMBRANCES" means any of the following: security interests,
liens, pledges, claims, charges, escrows, encumbrances, options, rights of first
refusal, mortgages, indentures, security agreements, judgments, or other
agreements, arrangements, contracts, commitments, understandings or obligations,
whether written or oral and whether or not relating in any way to credit or the
borrowing of money.
(d) All shares of the capital stock and other securities issued
by the Corporation prior to the Closing have been issued in transactions exempt
from registration under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), and the rules and regulations promulgated thereunder and all applicable
state securities or "BLUE SKY" Laws. The Corporation has not violated the
Securities Act or any applicable state securities or "BLUE SKY" Laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing.
3.6. EQUITY INVESTMENT.
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The Corporation has never owned, nor does it presently own, any capital
stock or other equity interest in any corporation, association, trust,
partnership, joint venture or other person.
3.7. FINANCIAL STATEMENTS.
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(a) SCHEDULE 3.7 hereto contains the following financial
statements: the audited balance sheet (the "LATEST BALANCE SHEET") of the
Corporation dated as of December 31, 1996 (the "LATEST BALANCE SHEET DATE") and
the related audited statements of income, retained earnings and cash flows for
the fiscal year ended December 31, 1996, together with the accompanying
supplementary information and report of the auditor thereof (collectively, the
"FINANCIAL STATEMENTS").
(b) Each of the Financial Statements (A) has been prepared in
accordance with the books and records of the Corporation (which have been
maintained in accordance with good business practices and are true and complete,
in each case in all material respects), (B) is materially true and correct, (C)
fairly presents the financial condition, results of income, retained earnings
and cash flow which it purports to present as of the date thereof and for the
periods indicated thereon and (D) except as described therein or in the
footnotes thereto, has been prepared in accordance with United States generally
accepted accounting principles consistently applied ("GAAP") throughout the
periods covered thereby. Except as set forth in the
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Financial Statements or in the footnotes thereto or as required by applicable
Law or GAAP, there has been no change in (i) any accounting principle, procedure
or practice followed by the Corporation or (ii) the method of applying any such
principle, procedure or practice.
3.8. ABSENCE OF UNDISCLOSED LIABILITIES AND OBLIGATIONS.
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The Corporation has no liabilities or obligations on the date hereof not
disclosed on or reflected in the Latest Balance Sheet, except for (i)
liabilities or obligations incurred after the Latest Balance Sheet Date in the
ordinary course of business consistent with past practice (none of which relates
to any breach of contract, default, breach of warranty, tort, infringement,
violation of Law or Proceeding) none of which has had, or is reasonably likely
to have, a Material Adverse Effect on the Corporation and its Subsidiaries (if
any) taken as a whole, (ii) liabilities or obligations which would not be
required to be disclosed on or reflected in a balance sheet prepared in
accordance with GAAP on the date hereof, and (iii) liabilities or obligations
incurred after the Latest Balance Sheet Date and set forth on SCHEDULE 3.8
hereto. All reserves set forth on the Latest Balance Sheet were adequate for the
purposes indicated therein at the Latest Balance Sheet Date, and, to the Best
Knowledge of the Corporation, continue to be adequate for the purposes indicated
therein as of the date hereof. There are no "LOSS CONTINGENCIES" (as such term
is used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) that are not adequately
provided for on the Latest Balance Sheet.
3.9. EVENTS SUBSEQUENT TO THE LATEST BALANCE SHEET.
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(a) Except as set forth on SCHEDULE 3.9 hereto and the
transactions contemplated by this Agreement and the Related Agreements, since
the Latest Balance Sheet Date, the Corporation has been operated in the ordinary
course of business consistent with past practice and there has not been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, earnings, business or
prospects of the Corporation;
(ii) any obligation, liability or indebtedness (whether
absolute, accrued, contingent or otherwise and whether due or to become
due) in excess of $10,000 incurred, or any transaction, contract or
commitment entered into, amended or terminated, with respect to the
Corporation, other than items incurred or entered into on an arms' length
basis in the ordinary course of business of the Corporation and
consistent with past practice;
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(iii) any acceleration, payment, discharge or satisfaction by the
Corporation of any liability, obligation, claim, lien or encumbrance
(whether fixed or contingent, matured or unmatured) in excess of $10,000,
except on an arms' length basis in the ordinary course of business and
consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of the
Corporation, or any direct or indirect redemption, purchase or other
acquisition of any thereof, or any other payments of any nature to any
Affiliate of the Corporation whether or not on or with respect to the any
shares of capital stock of the Corporation owned by such Affiliate;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock of the Corporation or
securities convertible into or exercisable or exchangeable for such
capital stock, except commitments by the Corporation to employees thereof
to issue options to purchase shares of Common Stock pursuant to the
Corporation's 1996 Stock Incentive Plan, as set forth in the offer
letters from the Corporation to such employees copies of which have been
delivered by the Corporation to the Insight Investors;
(vi) any license, sale, transfer, pledge, mortgage, or other
disposition of any tangible or intangible asset of the Corporation,
except on an arms' length basis in the ordinary course of business and
consistent with past practice;
(vii) any extraordinary increase in the compensation paid or
payable to any stockholder, director, officer, employee, agent or
Affiliate of, or consultant to, the Corporation, or any loan to any of
the foregoing Persons, or any agreement or commitment therefor (other
than advances to such Persons in the ordinary course of business
consistent with past practice in connection with travel and
travel-related expenses);
(viii) any change in the Tax or other accounting methods or
practices followed by the Corporation or any change in depreciation or
amortization policies or rates previously adopted;
(xi) any damage, destruction or loss (whether or not covered by
insurance) in excess of $10,000 affecting any asset or property of the
Corporation; or
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(x) any agreement, whether in writing or otherwise, to take any
of the actions specified in the foregoing CLAUSES (ii) through (viii).
(b) As used herein, the term "AFFILIATE" means a Person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, any other Person.
3.10. TITLE TO ASSETS, PROPERTIES AND RIGHTS.
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The Corporation has good and marketable title to all the properties and
interests in properties and assets, whether personal or mixed, reflected as
being owned by the Corporation on the Latest Balance Sheet or acquired
subsequent thereto (except for those properties or interests subsequently
disposed of in the ordinary course of business), free and clear of all
Encumbrances, except for (i) those Encumbrances set forth on SCHEDULE 3.10
hereto, (ii) liens for current taxes, assessments and other governmental charges
not yet due and payable or being contested in good faith by appropriate
proceedings and for which there are adequate reserves on the books and records
of the Corporation, and (iii) mechanics', landlord's, materialman's, supplier's,
vendor's or similar liens arising in the ordinary course of business securing
amounts that are not delinquent. The assets, properties and rights of the
Corporation reflected as being owned on the Latest Balance Sheet or acquired
after the date thereof or leased for use by the Corporation are in all material
respects in good operating condition and repair (normal wear and tear excepted),
are suitable in all material respects for the uses for which they are used in
the Corporation's business, are not subject to any condition which interferes
with the use thereof in any material respect, and constitute all assets,
properties and rights necessary to permit the Corporation to carry on its
business after the Closing as generally conducted by the Corporation prior
thereto.
3.11. INTELLECTUAL PROPERTY.
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(a) Except as set forth on SCHEDULE 3.11 hereto:
(i) the Corporation owns, has the right to use, sell,
license and dispose of, and has the right to bring actions for the
infringement of, all Intellectual Property Rights necessary or required
for the conduct of the business of the Corporation (collectively, the
"OWNED REQUISITE RIGHTS"), other than those Intellectual Property Rights
for which the Corporation has a valid license (collectively, the
"LICENSED REQUISITE RIGHTS"; and together with the Owned Requisite
Rights, the "REQUISITE RIGHTS");
(ii) the Requisite Rights are sufficient in all material
respects for the conduct of the business of the
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Corporation as currently conducted or as contemplated to be conducted;
(iii) to the Best Knowledge of the Corporation, there are
no royalties, honoraria, fees or other payments payable by the
Corporation to any Person by reason of the ownership, use, license, sale
or disposition of the Requisite Rights;
(vi) to the Best Knowledge of the Corporation, no
activity, service or procedure currently conducted or proposed to be
conducted by the Corporation violates or shall violate any contract,
instrument, license, commitment, lease or similar document of the
Corporation with any third Person relating to any Intellectual Property
Rights, or infringe any Intellectual Property Rights of any other Person;
(v) the Corporation has taken reasonable and practicable
steps (including, without limitation, entering into confidentiality and
nondisclosure agreements with all officers, directors and employees of
and consultants to the Corporation and other Persons with access to or
knowledge of confidential information of the Corporation) designed to
safeguard and maintain (i) the secrecy and confidentiality of
confidential information of the Corporation and (ii) the proprietary
rights of the Corporation in all Requisite Rights;
(vi) to the Best Knowledge of the Corporation, the
Corporation has not interfered with, infringed upon, misappropriated or
otherwise come into conflict in any material respect with any
Intellectual Property Rights of any Person or committed any acts of
unfair competition, and the Corporation has not received from any Person
any written notice, charge, complaint, claim or assertion thereof, and no
such claim is impliedly threatened by an offer to license from another
Person under a claim of use; and
(vii) the Corporation has not sent to any Person or
otherwise communicated to any Person, any written notice, charge,
complaint, claim or other assertion of any present, impending or
threatened infringement by or misappropriation of, or other conflict
with, any Intellectual Property Rights of the Corporation by such other
Person or any acts of unfair competition by such other Person with
respect to the Corporation, nor, to the Best Knowledge of the
Corporation, is any such infringement, misappropriation, conflict or act
of unfair competition occurring or threatened.
(b) 3.11 contains a true and complete list of all applications,
filings and registrations pursuant to
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any Laws and any licenses made, taken or obtained by the Corporation, in each
case to acquire, perfect, or protect its interest in its Intellectual Property
Rights, including, without limitation, all patents, patent applications,
trademarks, trademark applications, servicemarks and servicemark applications.
(c) As used herein, the term "INTELLECTUAL PROPERTY RIGHTS"
means all industrial and intellectual property rights, including, without
limitation, patents, patent applications, patent rights, trademarks, trademark
applications, tradenames, servicemarks, servicemark applications, copyrights,
know-how, trade secrets, proprietary processes and formulae, confidential
information, franchises, licenses, inventions, trade dress and logos.
(d) To the Best Knowledge of the Corporation, the Corporation's
VALEX software product shall function without any material interruption or
required updates caused by the necessity to compare date information prior to
and after the change of the century (PROVIDED, HOWEVER, no representation or
warranty is being made by the Corporation pursuant to this SECTION 3.11(d) as to
any operating system on which the VALEX software product may be used or any
component part of the VALEX software product not developed by the Corporation).
3.12. DIRECTORS, OFFICERS, EMPLOYEES AND CONSULTANTS.
----------------------------------------------
Except as set forth on SCHEDULE 3.12 hereto, to the Best Knowledge of the
Corporation, no third party has asserted or threatened to assert any valid claim
against the Corporation or any present stockholder, director, officer or
employee of, or consultant to, the Corporation, involving (i) the employment by,
or association with, the Corporation, of any of the foregoing Persons or (ii)
the use, in connection with the business of the Corporation or any of the
foregoing Persons of any information which the Corporation or any such Persons
would be prohibited from using under any prior agreements or arrangements or any
legal considerations applicable to unfair competition, trade secrets or
proprietary information.
3.13. ERISA PLANS AND CONTRACTS.
-------------------------
(a) Corporation does not maintain nor is it a party to (or ever
maintained or was a party to) any "EMPLOYEE WELFARE BENEFIT PLAN", as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any other written, unwritten, formal or informal plan or agreement
involving direct or indirect compensation other than workers' compensation,
unemployment compensation and other government programs, under which the
Corporation has any present or future obligation or liability. The Corporation
does not maintain nor is it a party to (or ever maintained or was a party to)
any "EMPLOYEE PENSION BENEFIT PLAN", as defined in Section
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3(2) of ERISA, and the Corporation does not contribute to any "MULTIEMPLOYER
PLAN" as defined in Section 3(37) of ERISA.
(b) There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Corporation that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible by reason of Section 280G of the Internal Revenue Code of 1986, as
amended (the "CODE") (other than potentially on the acceleration of stock
options or the vesting of restricted stock upon a change of control).
3.14. AGREEMENTS, ETC.
---------------
(a) SCHEDULE 3.14 hereto contains a true and complete list and
brief description of all contracts, agreements, commitments and other
instruments (whether written or oral) to which the Corporation is a party (other
than this Agreement and the Related Agreements) and (x) which were entered into
or made outside the ordinary course of business or (y) which were entered into
or made in the ordinary course of business and are described in CLAUSES (i)
through (xvi) of this SECTION 3.14. Except as set forth on SCHEDULE 3.14, the
Corporation is not a party to any of the following, whether written or oral:
(i) distributorship, dealer, sales, advertising, agency,
manufacturer's representative or other contract relating to the payment
of aggregate commissions in excess of $10,000;
(ii) contract for the future purchase of products,
equipment or services which is not terminable by the Corporation without
aggregate cost, forfeiture or other liability in excess of $30,000
individually or $100,000 in the aggregate for all such contracts;
(iii) contract or commitment for the employment of any
officer, employee or consultant or any other type of contract or
understanding with any officer, employee or consultant relating to the
payment of aggregate consideration or severance in excess of $50,000
(other than the Employment Agreement dated as of November 15, 1996,
between the Corporation and Xxxxxx X. Xxxxxxx and offer letters from the
Corporation to employees thereof (which are listed on SCHEDULE 3.14 and
copies of which have been delivered by the Corporation to the Insight
Investors);
(iv) formal or informal profit sharing, bonus, stock
option, pension, retirement, disability, stock purchase, hospitalization,
insurance or similar plan or agreement providing benefits to any current
or former director, officer, employee or consultant, whether or not
subject to ERISA;
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(v) indenture, mortgage, promissory note, loan
agreement, pledge agreement, guarantee or other agreement or commitment
for the borrowing of money, for a line of credit or for a leasing
transaction of a type required to be capitalized in accordance with
Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board;
(vi) contract or commitment for capital expenditures in
excess of $10,000 (excluding contracts or commitments for the purchase of
office equipment and personal computers in the ordinary course of
business);
(vii) agreement or arrangement for the sale of any assets,
properties or rights other than the sale of services or products in the
ordinary course of business;
(viii) lease or other agreement pursuant to which it is a
lessee of or holds or operates any machinery, equipment, motor vehicles,
office furniture, fixtures, products, merchandise or similar personal
property owned by any other Person;
(ix) contract with respect to the lending or investing of
funds in excess of $10,000;
(x) confidentiality or nondisclosure contract with any
Person (other than an Investor) who or which has (i) made or proposed to
make a financial investment in the Corporation in order to receive from
the Corporation goods, services, technology, expertise or other value in
addition to a monetary return on any such financial investment or (ii)
proposed to acquire the Corporation through a Sale of the Corporation (as
defined in the Stockholders Agreement);
(xi) contract or commitment to issue or sell any
securities of the Corporation (excluding any offer letter from the
Corporation to an employee thereof a copy of which has been delivered by
the Corporation to the Insight Investors);
(xii) contract which restricts the Corporation from
engaging in any aspect of its business anywhere in the world;
(xiii) contract or group of related contracts with the same
Person (excluding purchase orders entered into in the ordinary course of
business which are to be completed within three months of entering into
such purchase orders) for the purchase or sale of products or services
under which the undelivered balance of such products and services has a
selling price in excess of $10,000;
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(xiv) contract (x) that is not terminable by either party
thereto without penalty upon not more than 30 days' advance notice and
involves aggregate consideration in excess of $20,000 or (y) that
involves aggregate consideration in excess of $25,000 (excluding in the
case of CLAUSES (x) and (y) above any purchase order entered into in the
ordinary course of business which is to be completed within six months of
entering into such purchase order);
(xv) contract with any Affiliate of the Corporation; or
(xvi) other contract material to the business of the
Corporation.
(b) To the Best Knowledge of the Corporation, all items listed
on SCHEDULE 3.14 are in full force and effect, constitute legal, valid and
binding obligations of the respective parties thereto, and are enforceable in
accordance with their respective terms. The Corporation has in all material
respects performed all of the obligations required to be performed by it to
date, and there exists no default, or any event which upon the giving of notice
or the passage of time, or both, would give rise to a claim of a default in the
performance by the Corporation or any other party to any of the foregoing of
their respective obligations thereunder, except where such actual or potential
default has not had, and in the future is not reasonably likely to have, a
Material Adverse Effect on the Corporation and its Subsidiaries (if any) taken
as a whole. The Corporation has previously furnished to the Insight Investors
true, complete and correct copies of all written items listed on SCHEDULE 3.14
and SCHEDULE 3.14 contains complete descriptions of all oral items listed on
SCHEDULE 3.14. No consent or approval by, or any notification or filing with,
any party to any of the agreements listed on SCHEDULE 3.14 is required in
connection with the execution, delivery and performance by the Corporation of
this Agreement or any of the Related Agreements or the consummation by the
Corporation of the transactions contemplated hereby or thereby, except for those
consents, approvals, notifications or filings set forth on SCHEDULE 3.14, which,
except as set forth on SCHEDULE 3.14, have been or shall be made or obtained
prior to the Closing.
3.15. COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS.
---------------------------------------
(a) The Corporation (i) has complied with, and is in compliance
with, in all respects all Laws (including all Environmental and Safety
Requirements) applicable to it and its business (including, but not limited to,
any and all Laws relating in any manner to the environment or the generation,
treatment, storage, recycling, transportation, release or disposal of any
materials into the environment), except where such noncompliance has not had,
and is reasonably likely not to have, a Material Adverse Effect on the
Corporation and its
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Subsidiaries (if any) taken as a whole, and (ii) has all federal, state, local
and foreign governmental licenses and permits (collectively, "PERMITS") used or
necessary in the conduct of its business. Such Permits are in full force and
effect, no violations with respect to any thereof have occurred or are or have
been recorded, no Proceeding is pending or, to the Best Knowledge of the
Corporation, threatened to revoke or limit any thereof. SCHEDULE 3.15 hereto
contains a true and complete list of (i) all such Permits and (ii) all Orders
under which the Corporation is operating or bound. The Corporation has performed
in all material respects all of the obligations required to be performed by it
to date under all applicable Laws, Permits and Orders, and there exists no
condition, or any event which upon the giving of notice or the passage of time,
or both, would constitute a violation of any of such Laws, Permits or Orders,
except where such violation is not reasonably likely to have a Material Adverse
Effect on the Corporation and its Subsidiaries (if any) taken as a whole.
(b) The Corporation is not responsible, or potentially
responsible, for the remediation or cost of remediation of wastes, substances or
materials at, on or beneath any facilities or at, on or beneath any land
adjacent thereto or in connection with any site or location, wherever located
(including any well, tank, pit, sump, pond, lagoon, tailings pile, spoil pile,
impoundment, ditch, trench, drain, landfill, warehouse or waste storage
container), where pollutants, contaminants or hazardous or toxic wastes,
substances or materials have been deposited, stored, treated, reclaimed,
disposed of, placed or otherwise come to be located. The Corporation is not
liable, directly or indirectly, in connection with any release by it of
hazardous substance into the environment nor do there exist any facts upon which
a finding of such liability could be based.
(c) As used herein, the term "ENVIRONMENTAL AND SAFETY
REQUIREMENTS" means all Laws (including, but not limited to, common law), and
all contractual obligations concerning public health and safety, worker health
and safety, and pollution or protection of the environment, including, without
limitation, all those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or cleanup
of any hazardous materials, substances or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation,
including, but not limited to, the Solid Waste Disposal Act, as amended, the
Clean Air Act, as amended, 42 U.S.C. sec. 7401 et seq., the Federal Water
Pollution Control Act, as amended, 33 U.S.C. sec. 1251 et seq., the Emergency
Planning and Community Right-to-Know Act, as amended, 42 U.S.C. sec. 11001 et
seq., the Comprehensive Environmental Response, Compensation, and Liability Act,
as amended, the Hazardous Materials Transportation Uniform Safety Act, as
amended, 49 U.S.C. sec. 1804 et seq., the
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Occupational Safety and Health Act of 1970, as amended, and the rules and
regulations promulgated thereunder.
3.16. LABOR RELATIONS; EMPLOYEES.
Except as set forth on SCHEDULE 3.16 hereto, (i) the Corporation is not
delinquent in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to the date hereof or amounts required to be reimbursed to such employees,
(ii) there is no labor strike, dispute, slowdown or stoppage actually pending
or, to the Best Knowledge of the Corporation, threatened against or involving
the Corporation and (iii) the Corporation is not a party to or bound by any
collective bargaining agreement and neither any grievance nor any arbitration
Proceeding arising out of or under a collective bargaining agreement is pending
and, to the Best Knowledge of the Corporation, no such claim has been asserted.
To the Best Knowledge of the Corporation, the Corporation has not experienced,
and is not experiencing, any material labor relations problems.
3.17. LITIGATION.
Except as set forth on SCHEDULE 3.17 hereto, there are (i) no Proceedings
at law or in equity or by or before any Governmental Authority now pending or,
to the Best Knowledge of the Corporation, threatened against, or affecting the
assets or properties of, the Corporation, nor, to the Best Knowledge of the
Corporation, does there exist any basis for any such pending or threatened
Proceedings; (ii) customer claims of any nature against the Corporation in
excess of $10,000, nor does there exist any basis therefor; or (iii) Orders of
any Governmental Authority identifying the Corporation. As used herein, the term
"PROCEEDING" means any action, suit, complaint, charge, hearing, inquiry,
investigation or legal or administrative or arbitration proceeding.
3.18. TAX MATTERS.
(a) Except as set forth on SCHEDULE 3.18 hereto, the
Corporation has (i) filed all returns, declarations of estimated Tax, Tax
reports, information returns and statements (collectively, the "RETURNS")
required to be filed by it prior to the Closing (other than those for which
extensions shall have been granted prior to the Closing) relating to any Taxes
with respect to any income, properties or operations of the Corporation prior to
the Closing; (ii) as of the time of filing, the Returns were complete and
correct in all material respects and the Corporation has paid all Taxes shown on
the Returns to be due; (iii) the Corporation has timely paid or made provisions
for all Taxes payable for any period that ended on or before the Closing and for
any period that began on or before the Closing and ends after the Closing, to
the extent such Taxes are
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attributable to the portion of any such period ending on the Closing; (iv) the
Corporation is not delinquent in the payment of any Taxes, nor has requested any
extension of time within which to file any Return, which Return has not since
been filed; (v) there are no pending Tax audits of any Returns of the
Corporation; (vi) no Tax liens have been filed and no deficiency or addition to
Taxes, interest or penalties for any Taxes with respect to any income,
properties or operations of the Corporation has been proposed, asserted or
assessed in writing against the Corporation; (vii) the Corporation has not
granted any extension of the statute of limitations applicable to any Return or
other Tax claim with respect to any income, properties or operations of the
Corporation; (viii) the Corporation has not been a personal holding company
within the meaning of Section 542 of the Code; and (ix) the Corporation has not
made any election under Section 341(f) of the Code.
(b) As used herein, the term "TAX" means any of the Taxes, and
the term "TAXES" means, with respect to any Person, (i) all income taxes
(including any tax on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings or
profits) and all gross receipts, sales, use, ad valorem, transfer, franchise,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property or windfall profits taxes, alternative or add-on minimum
taxes, customs duties and other taxes, fees, assessments or charges of any kind
whatsoever, together with all interest and penalties, additions to tax and other
additional amounts imposed by any taxing authority (domestic or foreign) on such
Person (if any) and (ii) any liability for the payment of any amount of the type
described in CLAUSE (i) above as a result of being a "TRANSFEREE" (within the
meaning of Section 6901 of the Code or any other applicable Law) of another
Person or a member of an affiliated or combined group.
3.19. RELATED TRANSACTIONS.
Except for this Agreement and the Related Agreements, except as set forth
on SCHEDULE 3.19 hereto and in the Financial Statements and the footnotes
thereto and except for compensation to regular employees of the corporation for
services rendered, no current or former Affiliate of the Corporation is
presently (i) a party to any transaction with the Corporation (including, but
not limited to, any contract, agreement or other arrangement providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring payments to, any such Affiliate) or (ii) to the Best
Knowledge of the Corporation, the direct or indirect owner of an interest in any
Person which is a present or potential competitor, supplier or customer of the
Corporation (other than non-affiliated holdings in publicly held companies),
nor, to the Best Knowledge of the Corporation, does any such Person receive
income from any source other than the Corporation which relates to the business
of, or should properly accrue to, the Corporation. Except as set forth on
SCHEDULE
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3.19, the Corporation is not a guarantor or otherwise liable for any
actual or potential liability or obligation, whether direct or indirect, of the
Corporation or any of its affiliates.
3.20. OFFERING EXEMPTION.
------------------
Based in part upon the accuracy of the representations of the Investors
in SECTION 4.2, the offering, sale, issuance and delivery, as the case may be,
of the GPLP Common Shares, the CYRK/GPLP Preferred Shares, the Insight Preferred
Shares and the Reserved Shares are, or, as of the date of issuance, shall be,
exempt from registration under the Securities Act and the rules and regulations
promulgated thereunder, and such offering, sale, issuance and delivery, as the
case may be, is, or, as of the date of issuance, shall be, also exempt from
registration under applicable state securities and "BLUE SKY" Laws. The
Corporation has made or shall make all requisite filings and has taken or shall
take all action necessary to be taken to comply with such state securities or
"BLUE SKY" Laws.
3.21. BROKERS.
-------
Neither the corporation nor any of its officers, directors, stockholders or
employees (or any Affiliate of the foregoing) has employed any broker or finder
or incurred any actual or potential liability or obligation, whether direct or
indirect, for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this agreement or any of the Related
Agreements.
3.22. REGISTRATION RIGHTS.
-------------------
Except as contemplated by the Registration Rights Agreement (as
defined below), no Person has any right to cause the Corporation to effect the
registration under the Securities Act of any shares of common stock or any other
securities (including debt securities) of the Corporation.
3.23. INSURANCE.
---------
All of the insurable properties of the Corporation are insured for its
benefit in amounts and against all risks that are normal and customary for
Persons conducting similar businesses and operating similar properties in the
localities where the business of the Corporation is conducted and the properties
of the Corporation are located, under policies in effect and issued by insurers
of recognized responsibility.
3.24. USE OF PROCEEDS.
---------------
Unless otherwise consented to by the Investors, of the proceeds received
by the Corporation from the sale of the Insight Preferred Shares, (i) at the
Closing, (w) $1,000,000 shall be
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paid by the Corporation to CYRK pursuant to SECTION 2.3(c)(i), FIRST, in
satisfaction of accrued and unpaid interest constituting the Subject
Indebtedness set forth on SCHEDULE 2.3 as being owed to CYRK by the Corporation,
and SECOND, in consideration of the Corporation's repurchase of outstanding
principal amount of the Subject Indebtedness set forth on SCHEDULE 2.3 as being
owed to CYRK by the Corporation, (x) $350,000 shall be disbursed by the
Corporation to Exchange Marketing Group, LLC, a Massachusetts limited liability
company ("NEWCO"), in accordance with the terms and conditions of the Newco Note
(as defined below), (y) up to $30,000 shall be paid by the Corporation in
accordance with the terms and conditions of SECTION 9(a)(ii) and (z) $250,000
shall be delivered by the Corporation to CYRK, by wire transfer, to be held as a
deposit by CYRK, in trust for the Corporation, to back up CYRK's reimbursement
obligations in respect of CYRK's letter of credit, in the face amount of
$250,000, securing the Office Lease dated as of July 9, 1996 and (ii) after the
Closing, the remainder of such proceeds shall be used for the general corporate
purposes of the Corporation, including the payment of expenses accrued in
connection with the consummation of the transactions contemplated hereby and by
the Related Agreements.
3.25. DISCLOSURE.
----------
Neither this Agreement or any of the Related Agreements or any of the SCHEDULES
or EXHIBITS thereto or thereto, nor any other written material delivered to the
Insight Investors, when taken together, contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained herein and therein, in light of the circumstances in which they were
made, not misleading. To the Best Knowledge of the Corporation, there is no
fact, circumstance or condition which has had, or in the future is reasonably
likely to have, a Material Adverse Effect on the Corporation and its
Subsidiaries (if any) taken as a whole which has not been set forth in this
Agreement, the Related Agreements or in the SCHEDULES or the EXHIBITS hereto or
thereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
-----------------------------------------------
Each Investor represents and warrants to the Corporation as to itself
severally, and not jointly as to the other Investors, as follows:
4.1. AUTHORIZATION OF THIS AGREEMENT AND THE RELATED AGREEMENTS.
----------------------------------------------------------
Such Investor has all requisite power to execute, deliver and perform
this Agreement and the Related Agreements to which such Investor is a party and
the transactions contemplated hereby and thereby, and the execution, delivery
and performance by such Investor of this Agreement and the Related Agreements to
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which such Investor is a party have been duly authorized by all requisite action
by such Investor and constitute valid and binding obligations of such Investor,
enforceable against such Investor in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar Laws now or hereafter in effect and
public policy and subject to general principles of equity.
4.2. INVESTMENT REPRESENTATIONS.
--------------------------
(a) Such Investor is acquiring the GPLP Common Shares, the
Insight Preferred Shares or CYRK/GPLP Preferred Shares to be acquired by such
Investor hereunder and, in the event that such Investor should acquire any
Reserved Shares, shall be acquiring such Reserved Shares, for its own account,
for investment and not with a view to the distribution thereof in violation of
the Securities Act or applicable state securities Laws.
(b) Such Investor understands that (i) the GPLP Common Shares,
the Insight Preferred Shares or CYRK/GPLP Preferred Shares to be acquired by
such Investor hereunder have not been, and that the Reserved Shares shall not
be, registered under the Securities Act or applicable state securities Laws, by
reason of their issuance by the Corporation in a transaction exempt from the
registration requirements of the Securities Act and applicable state securities
Laws and (ii) any GPLP Common Shares, Insight Preferred Shares, CYRK/GPLP
Preferred Shares or Reserved Shares acquired by such Investor must be held by
such Investor indefinitely unless a subsequent disposition thereof is registered
under the Securities Act and applicable state securities Laws or is exempt from
registration.
(c) Each Investor further understands that, with respect to any
GPLP Common Shares, Insight Preferred Shares, CYRK/GPLP Preferred Shares or
Reserved Shares acquired by such Investor, the exemption from registration
afforded by Rule 144 (the provisions of which are known to such Investor)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may only afford the basis for
sales only in limited amounts.
(d) Such Investor has not employed any broker or finder in
connection with the transactions contemplated by this Agreement or any of the
Related Agreements.
(e) Such Investor is an "ACCREDITED INVESTOR" (as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act). The
Corporation has made available to such Investor or its representatives all
agreements, documents, records and books that such Investor has requested
relating to an investment in the GPLP Common Shares, Insight Preferred Shares,
CYRK/GPLP Preferred Shares or Reserved Shares being acquired by such Investor.
Such Investor has had an opportunity to ask
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questions of, and receive answers from, a Person or Persons acting on behalf of
the Corporation, concerning the terms and conditions of this investment, and
answers have been provided to all of such questions to the full satisfaction of
such Investor. No oral representations have been made or furnished to, or relied
on by, such Investor or its representatives in connection with an investment in
any GPLP Common Shares, Insight Preferred Shares, CYRK/GPLP Preferred Shares or
Reserved Shares. Such Investor has such knowledge and experience in financial
and business matters that it is capable of evaluating the risks and merits of
this investment.
SECTION 5. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE EXISTING
---------------------------------------------------------
INVESTORS.
---------
Each Existing Investor represents and warrants to the Corporation as to
itself severally, and not jointly as to the other Existing Investor, as follows:
(a) Such Existing Investor is the lawful record and beneficial
owner of all of the Subject Indebtedness set forth on SCHEDULE 2.3 as being owed
to such Existing Investor by the Corporation, with good and marketable title
thereto, free and clear of any Encumbrances, with all other incidents of
ownership pertaining thereto, and has the absolute right and power to transfer,
in the case of GPLP, the GPLP Notes, and, in the case of CYRK, the CYRK Note, to
the Corporation and all rights and benefits incident to the ownership thereof.
(b) There are no outstanding options, warrants or rights to
purchase or acquire any of the Subject Indebtedness set forth on SCHEDULE 2.3 as
being owed to such Existing Investor by the Corporation. No interest in or
rights under any of the Subject Indebtedness set forth on SCHEDULE 2.3 as being
owed to such Existing Investor by the Corporation has been sold, assigned or
otherwise transferred by such Existing Investor to any other Person. After
giving effect to the transactions contemplated hereby and by the Related
Agreements to be consummated at the Closing, neither such Existing Investor nor
any Affiliate thereof shall have any claims against the Corporation in respect
of indebtedness for borrowed money (whether due or to become due) or any
interest on or fees or other amounts due in respect of any such indebtedness for
borrowed money.
(c) Such Existing Investor acquired, in the case of CYRK, the
CYRK Notes and, in the case of GPLP, the GPLP Note in one or more transactions
exempt from registration under the Securities Act and in compliance with all
applicable state securities Laws. Except as contemplated by the Related
Agreements, upon the consummation at the Closing of the transactions
contemplated by this Agreement, neither such Existing Investor nor any Affiliate
thereof shall have any right whatsoever to receive or acquire any additional
capital stock or other securities of the Corporation.
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SECTION 6. CONDITIONS PRECEDENT TO THE INVESTORS' OBLIGATIONS AT THE
---------------------------------------------------------
CLOSING.
-------
The several obligations of the Investors to perform this Agreement are
subject to the satisfaction of the following conditions precedent:
6.1. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) With respect to the Existing Investors, the representations
and warranties of the Corporation set forth in SECTIONS 3.1 through 3.5 shall
(i) if not qualified by materiality, be true and complete in all material
respects and (ii) if qualified by materiality, be true and complete in all
respects, in each case on the date hereof and at and as of the Closing Date as
though then made.
(b) With respect to the Insight Investors, the representations
and warranties of the Corporation set forth in SECTION 3 (i) which are not
qualified by materiality shall be true and complete in all material respects and
(ii) which are qualified by materiality shall be true and complete in all
respects, in each case on the date hereof and at and as of the Closing Date as
though then made.
6.2. PERFORMANCE OF OBLIGATIONS.
--------------------------
The Corporation shall have performed and complied in all material
respects with all agreements, obligations and conditions required to be
performed or complied with by the Corporation under this Agreement.
6.3. AUTHORIZATION.
-------------
All action necessary to authorize the execution, delivery and performance
by the Corporation of this Agreement and the Related Agreements, and the
consummation of the transactions contemplated hereby and thereby, shall have
been duly and validly taken, and the Corporation shall have full power and right
to consummate the transactions contemplated hereby and thereby.
6.4. OPINION OF COUNSEL.
------------------
The Investors shall have received an opinion dated the Closing Date and
addressed to the investors of Xxxxxxx, Xxxx & Xxxxx LLP, counsel to the
Corporation, in form and substance reasonably acceptable to the Investors.
6.5. CONSENTS AND APPROVALS.
----------------------
All corporate, stockholder and other proceedings to be taken and all
waivers, consents, approvals, qualifications and registrations required to be
obtained or effected in connection
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with the issuance, sale, execution, delivery and performance by the Corporation
of this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby, including the reservation, issuance, sale and delivery, as
the case may be, of the GPLP Common Shares, CYRK/GPLP Preferred Shares, the
Insight Preferred Shares and the Reserved Shares, shall have been taken,
obtained or effected (except for the filing of any notice subsequent to the
Closing that may be required under applicable Federal or state securities Laws,
which notice shall be filed on a timely basis following the Closing as so
required), and all documents incident thereto shall be satisfactory in form and
substance to the Investors. The Investors shall have received all such originals
or certified or other copies of such documents as have been reasonably
requested.
6.6. FILING OF THE CERTIFICATE OF AMENDMENT.
--------------------------------------
The Certificate of Amendment shall have been filed by the Corporation
with and accepted by the Secretary of State of the State of Delaware (and
evidence of such filing and acceptance, in form satisfactory to the Investors,
shall have been delivered to the Investors).
6.7. CONVERSION OF THE OLD PREFERRED STOCK.
--------------------------------------
Following the satisfaction of the condition precedent set forth in
SECTION 6.6 but prior to any subsequent amendment or modification of the
Corporation's Certificate of Incorporation, the Existing Investors shall have
delivered to the Corporation the stock certificate or certificates representing
all of the outstanding shares of Old Preferred Stock of which they are the
holders, duly endorsed or assigned in blank or to the Corporation (if required
by it), accompanied by written notice, in form and substance satisfactory to the
Corporation (and evidence of such satisfaction shall have been delivered to the
Insight Investors), stating that the Existing Investors thereby elect to
convert, effective immediately, all of such shares into shares (the "GPLP COMMON
SHARES") of Common Stock and, pursuant to the Corporation's Certificate of
Incorporation as amended to such time and then in full force and effect, such
conversion shall have been deemed to be effected.
6.8. FILING OF THE AMENDED AND RESTATED CERTIFICATE.
----------------------------------------------
Following the conversion by the Existing Investors of any outstanding
shares of Old Preferred Stock held by them into shares of Common Stock, the
Amended and Restated Certificate shall have been filed with and accepted by the
Secretary of State of the State of Delaware (and evidence of such filing and
acceptance, in form satisfactory to the Investors, shall have been delivered to
the Investors) and shall not in any respect have been amended or modified or
rescinded or revoked.
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6.9. RESIGNATIONS.
------------
The Corporation shall have received resignations from Xxxxxxx Xxxxxxx
("XXXXXXX") and each of the corporation's employees (together with Xxxxxxx,
collectively, the "Departing Employees") presently engaged in the provision of
marketing consulting services, who are listed on SCHEDULE 6.9, (and evidence of
such resignations, in form and substance satisfactory to the investors, shall
have been delivered to the investors).
6.10. AMENDMENT OF 1996 STOCK INCENTIVE PLAN.
--------------------------------------
The 1996 Stock Incentive Plan of the Corporation shall have been amended
to provide that, notwithstanding anything contained therein to the contrary,
subject to the completion of the Closing, the aggregate number of shares of
Common Stock that may be issued after the Closing pursuant thereto shall be
1,848,388.
6.11. GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC.
----------------------------------------
All consents, authorizations, orders and approvals of, filings or
registrations with and the expiration of all waiting periods imposed by, any
third party, including, without limitation, any Governmental Authority which are
required for or in connection with the execution and delivery by the Parties of
this Agreement and the Related Agreements to which they may be parties and the
consummation by the Parties of the transactions contemplated hereby and thereby
shall have been obtained or made, in form and substance satisfactory to the
Investors and shall be in full force and effect.
6.12. DUE DILIGENCE.
-------------
The Investors shall be satisfied in their sole discretion with the
results of their business, legal, environmental and accounting due diligence
investigation and review of the corporation and its business, properties and
assets.
6.13. LAWS; PROCEEDINGS.
-----------------
No Law shall have been enacted and no Proceeding shall be pending, the effect of
which would be to prohibit, restrict, impair or delay the consummation of the
transactions contemplated by this Agreement or any of the Related Agreements or
any of the conditions to the consummation of the transactions contemplated
hereby or thereby or to prohibit, restrict or otherwise impair the ability of
the investors to own equity Interests in the Corporation.
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6.14. BOARD AND GENERAL PARTNER APPROVALS.
-----------------------------------
The Investors each shall have obtained all requisite approvals from any
governing body thereof for the execution, delivery and performance of this
Agreement and the Related Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby.
6.15. RELATED AGREEMENTS.
------------------
Each of the following agreements (the "RELATED AGREEMENTS") shall have
been executed and delivered by the parties thereto (excluding any Investor a
party thereto whose execution and delivery of such agreement would otherwise be
a condition precedent to the performance of its own obligations hereunder) and
the transactions contemplated by the Related Agreements consummated or effected,
as the case may be, in accordance with the terms thereof:
(a) the Registration Rights Agreement dated as of the Closing
Date (the "REGISTRATION RIGHTS AGREEMENT"), among the Corporation and the
Investors (as defined therein), substantially in the form of EXHIBIT D hereto;
(b) the Stockholders Agreement dated as of the Closing Date
(the "STOCKHOLDERS AGREEMENT"), among the Corporation and the Stockholders (as
defined therein), substantially in the form of EXHIBIT E hereto;
(c) the Operating Agreement of Newco, dated as of the Closing
Date, among the persons named on Schedule A thereto, in form and substance
reasonably acceptable to the Corporation and the Investors;
(d) the Promissory Note dated as of the Closing Date (the
"NEWCO NOTE"), issued by Newco to the Corporation in the original principal
amount of $350,000, in form and substance reasonably acceptable to the
Corporation and the Investors;
(e) the Intellectual Property License Agreement dated as of the
Closing Date, between GPLP and Newco, in form and substance reasonably
acceptable to the Corporation and the Investors;
(f) the Consulting Agreement dated as of the Closing Date,
between the Corporation and Newco, in form and substance reasonably acceptable
to the Corporation and the Investors;
(g) the Non-Recourse Pledge Agreement dated as of the Closing
Date, among Xxxxxxx and the Corporation, in form and substance reasonably
acceptable to the Corporation and the Investors;
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(h) a Termination and Release Agreement dated as of the Closing
Date, by each Departing Employee in favor of the Corporation, in form and
substance reasonably acceptable to the Corporation and the Investors;
(i) the Pay-off Agreement; and
(j) a Nondisclosure Agreement dated as of the Closing Date,
among the Corporation and each of the Investors, in form and substance
reasonably acceptable to the Corporation and such Investor.
6.16. RELATED CERTIFICATES.
--------------------
Each of the following certificates (the "RELATED CERTIFICATES") shall
have been executed and/or delivered, as the case may be, by the Person who or
which is the subject thereof:
(i) certificate of the secretary of the Corporation,
certifying (i) that true and complete copies of the Corporation's
Certificate of Incorporation and By-Laws as amended to and in effect on
the Closing Date are attached thereto, (ii) as to the incumbency and
genuineness of the signatures of each officer of such Person executing
this Agreement or any of the Related Agreements on behalf of the
Corporation; and (iii) the genuineness of the resolutions of the board of
directors of the Corporation (the "BOARD") authorizing the execution,
delivery and performance of this Agreement and the Related Agreements and
the consummation of the transactions contemplated hereby and thereby;
(ii) certificates of the secretaries of state of the
States of Delaware and Massachusetts dated as of the Closing Date,
certifying as to the corporate good standing of the Corporation;
(iii) a certificate signed by a principal executive
officer of the Corporation, on behalf of the Corporation, dated as of the
Closing Date, addressed to the Existing Investors and certifying as to
the fulfillment of the conditions set forth in SECTION 6.1(a), SECTIONS
6.2 through 6.10 and SECTIONS 6.15 and 6.16 (but not as to the execution
and delivery by any of the Investors of any Related Agreements); and
(iv) a certificate signed by a principal executive
officer of the Corporation, on behalf of the Corporation, dated as of the
Closing Date, addressed to the Insight Investors and certifying as to the
fulfillment of the conditions set forth in SECTIONS 6.1(b) through 6.10
and SECTIONS 6.15 and 6.16 (but not as to the execution and delivery by
any of the Investors of any Related Agreements).
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SECTION 7. CONDITIONS PRECEDENT TO THE CORPORATION'S OBLIGATIONS AT THE
------------------------------------------------------------
CLOSING.
-------
The obligation of the Corporation to issue and sell Preferred Shares to
each Investor at the Closing is subject to the following conditions precedent:
7.1. REPRESENTATIONS AND WARRANTIES.
------------------------------
The representations and warranties made by such Investor and set forth in
SECTIONS 4 or 5, as the case may be, shall (i) if not qualified by materiality,
be true, correct and complete in all material respects and (ii) if qualified by
materiality, be true, correct and complete in all respects, in each case on the
date hereof and at and as of the Closing Date as though then made.
7.2. PERFORMANCE OF OBLIGATIONS.
--------------------------
Such Investor shall have performed and complied in all material respects
with all agreements, obligations and conditions required to be performed or
complied with by such Investor under this Agreement.
7.3. RELATED AGREEMENTS.
------------------
Each of the Related Agreements shall have been executed and delivered by
the parties thereto (other than the Corporation) and the transactions
contemplated thereby consummated or effected, as the case may be, in accordance
with the terms thereof.
7.4. RELATED CERTIFICATES.
--------------------
Each of the Related Certificates shall have been executed and/or
delivered, as the case may be, by the Person (other than the Corporation) who or
which is the subject thereof.
SECTION 8. ADDITIONAL AGREEMENTS OF THE PARTIES.
------------------------------------
8.1. EFFORTS TO CONSUMMATE.
---------------------
Each Party shall use reasonable efforts to take or cause to be taken all
actions and do or cause to be done all things required under applicable Laws, in
order to consummate the transactions contemplated by this Agreement and the
Related Agreements.
8.2. FINANCIAL INFORMATION.
---------------------
(a) The Corporation shall furnish to each Investor the
following reports:
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(i) As soon as practicable after the end of each fiscal
year of the Corporation, and in any event within 90 days thereafter,
consolidated balance sheets of the Corporation and its Subsidiaries (if
any) as of the end of such fiscal year, and consolidated statements of
income and consolidated statements of changes in cash flow of the
Corporation and its Subsidiaries for such fiscal year, prepared in
accordance with GAAP and setting forth in each case in comparative form
the figures for the previous fiscal year and the budgeted figures for the
current fiscal year, all in reasonable detail and audited by independent
public accountants of national standing commonly known as "BIG 6"
accountants selected by the Corporation.
(ii) As soon as practicable after the end of the first,
second and third quarterly accounting periods in each fiscal year of the
Corporation and in any event within 45 days thereafter, a consolidated
balance sheet of the Corporation and its Subsidiaries (if any) as of the
end of each such quarterly period, and consolidated statements of income
and consolidated statements of changes in cash flow of the Corporation
and its Subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with GAAP (other than for accompanying
notes), subject to changes resulting from normal year-end audit
adjustments, and setting forth in each case in comparative form the
figures for the same periods of the previous fiscal year and the budgeted
figures for the current periods, all in reasonable detail and signed by
the principal financial or accounting officer of the Corporation.
(b) The Corporation shall, and shall cause its Subsidiaries (if
any) to, maintain a system of accounting sufficient to enable the Corporation's
independent certified public accountants to render the reports specified in
SECTION 8.2(a).
(c) The Corporation shall submit to the Board at least 60 days
prior to the beginning of each fiscal year, a budget (the "ANNUAL OPERATING
BUDGET") for the Corporation and its Subsidiaries (if any) that contains, at
least with respect to such fiscal year, annual, quarterly and monthly detail,
including, but not limited to, limitations on capital expenditures, operating
expenditures and the incurrence of unsecured, secured and aggregate
indebtedness, and shall be subject to the approval of the Board.
8.3. ADDITIONAL INFORMATION.
----------------------
The Corporation shall deliver or provide to each Investor (i) as soon as
practicable after the end of each month and in any event within 45 days
thereafter an unaudited consolidated balance sheet and statements of income and
cash flow of the Corporation and its Subsidiaries (if any) for such month
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and for the year to date (in each case compared to the Annual Operating Budget
and to the corresponding period of the prior year), (ii) the Annual Operating
Budget as soon as practicable prior to the beginning of the next fiscal year,
(iii) other budgets or financial plans prepared by the Corporation and presented
to the Board, as soon as they are made available to the Board, (iv) a monthly
letter from the management of the Corporation discussing in reasonable detail
(A) the operations of the Corporation for the previous month period and (B) any
deviations in the actual performance for the previous month period of the
Corporation and its Subsidiaries from the projected performance of the
Corporation and its Subsidiaries set forth in the Annual Operating Budget, and
(v) with reasonable promptness, (A) all financial statements, reports, notices
and other documents sent by the Corporation to its stockholders generally or
released to the public and copies of all regular and periodic reports, if any,
filed by the Corporation with the Securities and Exchange Commission, (B) all
reports prepared for or delivered to the management of the Corporation and its
Subsidiaries by its accountants, and (C) such other information and data,
including access to books and records of the Corporation and its Subsidiaries as
any such Investor may from time to time reasonably request.
8.4. EMPLOYEE COMPENSATION.
---------------------
Within 60 days after the Closing Date, the Corporation shall submit to
the Board a compensation plan (the "APPROVED COMPENSATION PLAN") acceptable to
the Board, (i) the eligible participants (the "ELIGIBLE PARTICIPANTS") of which
shall be limited to the senior management and key employees of the Corporation
(as determined by the Board in its sole discretion), (ii) the terms of which
shall be consistent with the compensation plans of other software and consulting
companies similar in size and development to the Corporation and the commitments
made by the Corporation to Eligible Participants prior to the date hereof, and
(iii) which shall provide that all future compensation (including bonuses) to
which any Eligible Participant may be entitled (other than pursuant to existing
commitments by the Corporation to Eligible Participants) shall be subject to the
prior, written approval of the Compensation Committee (as defined in the
Stockholders Agreement) in its sole discretion. The Corporation shall not
provide any compensation (including bonuses) to any Eligible Participant
(whether in respect of such Eligible Participant's services during the
Corporation's fiscal year ended December 31, 1996 or any other fiscal year)
other than (i) in accordance with either existing commitments by the Corporation
to Eligible Participants or the terms and conditions of the Approved
Compensation Plan, or (ii) upon the prior approval of the Compensation
Committee.
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8.5. RIGHTS OF INSPECTION.
--------------------
Each Investor shall have the right, at its expense, to visit and inspect
any of the properties of the Corporation or any of its Subsidiaries and to
discuss their affairs, finances and accounts with their officers, all at such
reasonable times during normal business hours and as often as may be reasonably
requested.
8.6. INSURANCE.
---------
The Corporation shall use its commercially reasonable efforts, and shall
cause its Subsidiaries (if any) to use their commercially reasonable efforts, to
obtain within 90 days after the Closing Date and to maintain thereafter such
other insurance, including director and officer insurance and error and omission
insurance, with such coverages and in such amounts as shall be required to
protect such Persons and their respective directors, officers and employees
against all risks usually insured against by Persons conducting similar
businesses and operating similar properties in the localities where the business
of the Corporation and its Subsidiaries is conducted under policies issued by
national insurers of recognized responsibility.
8.7. USE OF PROCEEDS.
---------------
The Corporation shall use the proceeds from the sale of the Insight
Preferred Shares in the manner specified in SECTION 3.24.
8.8. LITIGATION.
----------
The Corporation, promptly upon becoming aware thereof, shall notify each
Investor in writing of any Proceeding in which it or any of its Subsidiaries is
involved and which might, if determined adversely, materially and adversely
effect the Corporation or any of its Subsidiaries.
8.9. COMPLIANCE WITH LAWS.
--------------------
The Corporation shall, and shall cause its Subsidiaries (if any), each
to, (i) in carrying out its business to comply in all material respects with all
Laws applicable to it, its business and the ownership of its assets and (ii)
shall obtain and maintain in full force and effect all Permits material to and
necessary in the conduct of its business and such Permits shall be maintained in
full force and effect.
8.10. TAXES.
-----
The Corporation shall, and shall cause each of its Subsidiaries to, pay
and discharge all Taxes imposed upon it or upon its income or profits, or upon
any property belonging to it,
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prior to the date on which penalties attach thereto, and all lawful claims
which, if unpaid, might become an Encumbrance upon its property, unless
contested in good faith by proceedings authorized by the Board.
8.11. TERMINATION.
-----------
Upon the closing of an Initial Public Offering (as defined in the
Stockholders Agreement), the provisions of SECTIONS 8.1 through 8.10 shall
terminate and shall be of no further force or effect and shall not be binding
upon the Corporation.
SECTION 9. FEES.
----
(a) The Corporation will pay, and save the Investors harmless
against all liability for the payment of, (i) all costs and other expenses
incurred from time to time by the Corporation in connection with the
Corporation's performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with (including the
reasonable cost and expenses of counsel for the Corporation incurred in
connection with the review of this Agreement and the Related Agreements), and
(ii) the costs and expenses incurred by IVP I in connection with the
transactions contemplated by this Agreement and the Related Agreements,
including fees and charges of X'Xxxxxxxx Graev & Karabell, LLP, special counsel
to IVP I, for services in connection with the consummation of transactions
contemplated by this Agreement and the Related Agreements, which fees and
charges relating to the transactions contemplated hereby and thereby shall be
paid by the Corporation at the Closing (PROVIDED, HOWEVER, that the
Corporation's obligations under this CLAUSE (ii) shall not exceed $30,000).
(b) The Corporation further agrees that it shall pay, and will
save the Investors harmless from, any and all liability with respect to any
stamp or similar taxes which may be determined to be payable in connection with
the execution and delivery and performance of the Agreement and the Related
Agreements or any modification, amendment or alteration of the terms or
provisions of this Agreement or any of the Related Agreements, and that it shall
similarly pay and hold the Insight Investors harmless from all issue taxes in
respect of the issuance of the Reserved Shares to the Insight Investors.
SECTION 10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, ETC.
-----------------------------------------------------------
(a) All statements contained in this Agreement, any Related
Agreement, any Related Certificate or any other closing certificate (each, an
"OTHER CERTIFICATE") delivered by the Corporation to any Investor, pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement or any of the Related Agreements shall constitute representations
-34-
36
and warranties by the Corporation under this Agreement to the Investors
identified as being the subject thereof and shall survive the Closing and the
consummation of the transactions contemplated hereby and thereby for a period of
18 months after the Closing Date; PROVIDED, HOWEVER, that the representations
and warranties of the Corporation to the Investors set forth in SECTION 3.1
through SECTION 3.5 shall survive indefinitely and the representations and
warranties of the Corporation to the Insight Investors set forth in SECTIONS
3.13, 3.15, 3.18 and 3.20 shall survive until the expiration of the respective
statutes of limitations applicable to the matters covered thereby.
(b) All statements contained in this Agreement, any Related
Agreement, any Related Certificate or any Other Certificate delivered by any
Investor to the Corporation pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement or any of the Related Agreements
shall constitute representations and warranties by such Investor to the
Corporation under this Agreement and shall survive the Closing and the
consummation of the transactions contemplated hereby and thereby for a period of
18 months after the Closing Date; PROVIDED, HOWEVER, that the representations
and warranties of any Investor to the Corporation set forth in SECTION 4.1 and,
in the case of any Existing Investor, SECTION 5, shall survive indefinitely, and
the representations and warranties of any Investor to the Corporation set forth
in SECTION 4.2 shall survive until the expiration of the respective statutes of
limitations applicable to the matters covered thereby.
(c) All agreements contained herein shall survive indefinitely
until, by their respective terms, they are no longer operative.
(d) Anything in this Agreement express or implied to the
contrary notwithstanding, all (if any) representations and warranties made or
deemed made by the Corporation to the Existing Investors under this Agreement,
any Related Agreement, any Related Certificate or any other closing certificate
(other than pursuant to SECTIONS 3.1 through 3.5 of this Agreement) shall
terminate for all purposes upon the Closing.
SECTION 11. INDEMNIFICATION.
---------------
(a) The Corporation shall indemnify, defend and hold each
Investor harmless against all liability, loss or damage (including diminution in
value of the Insight Preferred Shares, CYRK/GPLP Preferred Shares or GPLP Common
Shares issued to such Investor pursuant to this Agreement or any Reserved Shares
issued upon the conversion of the Insight Preferred Shares), together with all
reasonable costs and expenses (including legal and accounting fees and expenses)
related thereto or incurred in enforcing this SECTION 11(a) (collectively,
"INVESTOR LOSSES"), (i) subject to SECTION 10, arising from the untruth,
inaccuracy
-35-
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or breach of any of the representations or warranties of the Corporation made to
such Investor contained in this Agreement or any Related Agreement, Related
Certificate or Other Certificate or any facts or circumstances constituting any
such untruth, inaccuracy or breach, (ii) subject to SECTION 10, arising from the
untruth or inaccuracy of any information delivered to such Investor pursuant to
the terms of this Agreement or any Related Agreement, Related Certificate or
Other Certificate, (iii) arising from the breach of any covenant or agreement of
the Corporation contained in this Agreement or any Related Agreement, Related
Certificate or Other Certificate or any facts or circumstances constituting such
breach, (iv) arising from any claim, demand, assessment, judgment, order,
decree, action, cause of action, litigation, suit, investigation or other
Proceeding by a third party (whenever made) arising out of or in connection with
(A) the status or conduct of the Corporation, (B) the execution, performance and
delivery of this Agreement or any Related Agreement, Related Certificate or
Other Certificate, or (C) any actions taken by or omitted to be taken by any of
the Investors in connection with this Agreement or any Related Agreement,
Related Certificate or Other Certificate, in each case by virtue of such
Investor's acquisition of shares of Preferred Stock or Common Stock or such
Investor or any Affiliate thereof acting as an adviser to the Corporation
(unless the act or omission giving rise to such Claim resulted primarily out of
or was based primarily upon the gross negligence, fraud or willful misconduct of
such Investor or Affiliate), or (v) with respect to any liability for any
brokers' or finders' fees or compensation owing or alleged to be owing in
connection with the transactions contemplated by this Agreement or any of the
Related Agreements due to the engagement by, or any other act of, the
Corporation.
(b) Each Investor severally as to itself only and not jointly
with or as to any other Investor, shall indemnify, defend and hold the
Corporation harmless against all liability, loss or damage, together with all
reasonable costs and expenses (including legal and accounting fees and expenses)
related thereto or incurred in enforcing this SECTION 11(b) (collectively,
"CORPORATION LOSSES"), arising from (i) the untruth, inaccuracy or breach of any
of the representations, warranties, covenants or agreements of such Investor
made to the Corporation contained in this Agreement or any Related Agreement,
Related Certificate, instrument or other writing delivered by or on behalf of
such Investor pursuant to or in connection with the consummation of the
transactions contemplated by this Agreement or any of the Related Agreements,
(ii) arising out of or relating to, in the case of GPLP, the GPLP Note, and in
the case of CYRK, either of the CYRK Notes, or any promissory note issued by
GPLP in connection with the Revolving Credit Agreement dated March 28, 1995 to
which GPLP and CYRK are parties, not being canceled or marked "PAID IN FULL".
(c) Notwithstanding the foregoing provisions of this SECTION
11, (i) the maximum liability of the Corporation to indemnify an Investor
pursuant to SECTION 11(a) for all Investor
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Losses arising under CLAUSES (I), (II) and (III) of SECTION 11(A) shall not
exceed an amount equal to the aggregate Original Issuance Price (as defined in
the Amended and Restated Certificate) of the shares of Preferred Stock acquired
by such Investor pursuant to this Agreement, plus, in the case of GPLP, $517,500
(but excluding from such amount any Investor Losses arising under CLAUSE (i) of
SECTION 11(a) by reason of the untruth, inaccuracy or breach of any of the
representations or warranties of the Corporation made to such Investor contained
in SECTION 3.5 of this Agreement), and (ii) the maximum liability of any
Investor to indemnify the Corporation pursuant to SECTION 11(b) for all
Corporation Losses arising under SECTION 11(b) shall not exceed the amount of
the maximum liability of the Corporation to indemnify such Investor pursuant to
the foregoing CLAUSE (i), plus, in the case of CYRK, $1,000,000.
SECTION 12. REMEDIES.
--------
The Parties shall each have and retain all rights and remedies existing
in their favor under this Agreement, at law or equity, including rights to bring
actions for specific performance and injunctive and other equitable relief
(including, without limitation, the remedy of rescission) to enforce or prevent
a breach or any violation of this Agreement. All such rights and remedies shall
be cumulative and the existence, assertion, pursuit or exercise of any thereof
by a Party shall not preclude the assertion, pursuit or exercise by such Party
of any other rights or remedies available to it. Without limiting the generality
of the foregoing, the Parties hereby agree that in the event the Corporation
fails to convey, in accordance with the provisions of this Agreement, to any
Investor any GPLP Common Shares, Insight Preferred Shares, CYRK/GPLP Preferred
Shares or Reserved Shares being acquired by such Investor, such Investor's
remedy at law may be inadequate. In such event, such Investor shall have the
right, in addition to all other rights and remedies it may have, to specific
performance of the obligation of the Corporation to convey the GPLP Common
Shares, Insight Preferred Shares, CYRK/GPLP Preferred Shares or Reserved Shares
in accordance with the provisions of this Agreement.
SECTION 13. SUCCESSORS AND ASSIGNS.
----------------------
Except as otherwise provided herein, this Agreement will bind and inure
to the benefit of and be enforceable by the Corporation and its successors and
assigns and the Investors and any subsequent holders of GPLP Common Shares,
Insight Preferred Shares, CYRK/GPLP Preferred Shares or Reserved Shares and the
respective successors and assigns of each of them, so long as they hold GPLP
Common Shares, Insight Preferred Shares, CYRK/GPLP Preferred Shares or Reserved
Shares.
SECTION 14. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Related Agreements, embodies the
complete agreement and understanding among the
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Parties with respect to the subject matter hereof and thereof and supersede and
preempt any prior understandings, agreements or representations by or among the
Parties, written or oral, which may have related to the subject matter hereof or
thereof in any way.
SECTION 15. NOTICES.
-------
All notices, consents or other communications which are required or
otherwise delivered hereunder shall be in writing and shall be deemed to have
been duly given if (i) personally delivered or sent by telecopier, (ii) sent by
nationally recognized overnight courier or (iii) sent by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Corporation, to:
Exchange Applications, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
with a copy to:
Xxxxxxx, Xxxx & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, Esq.
If to an Investor, to it at its address set forth on SCHEDULE
I hereto;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) when delivered, if
personally delivered or sent by telecopier, (ii) on the first Business Day after
dispatch, if sent by nationally recognized, overnight courier guaranteeing next
Business Day delivery and (iii) on the fifth Business Day following the date on
which the piece of mail containing such communication is posted, if sent by
mail.
SECTION 16. MODIFICATIONS; AMENDMENTS; AND WAIVERS.
--------------------------------------
The terms and provisions of this Agreement may not be modified or amended, nor
may any provision applicable to the Investors be waived, except pursuant to a
writing signed by the corporation and those investors which or who hold in the
aggregate at least 50% of the shares of Series B Preferred Stock issued and sold
pursuant to this Agreement and the shares of
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Common Stock issued or issuable upon the conversion of the foregoing; Provided,
However, that any such modification or amendment that would adversely affect
the rights of any Investor (including the Existing Investors) without similarly
affecting the rights hereunder of all Investors hereunder shall not be
effective as to such Investor without its prior written consent. The failure of
any party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
SECTION 17. COUNTERPARTS.
------------
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
SECTION 18. INTERPRETATION CONSTRUCTION.
---------------------------
The term "THIS AGREEMENT" means this agreement together with all
schedules and exhibits hereto, as the same may from time to time be amended,
modified, supplemented or restated in accordance with the terms hereof. In this
Agreement, the term "BEST KNOWLEDGE" of any Person means (i) the actual
knowledge of such Person and (ii) that knowledge which should have been acquired
by such Person after making such due inquiry and exercising such due diligence
as a prudent businessperson would have made or exercised in the management of
his or her business affairs, including due inquiry of those key employees and
professional advisers (including attorneys, accountants and consultants) of the
Person who could reasonably be expected to have actual knowledge of the matters
in question. When used in the case of the Corporation, the term "BEST KNOWLEDGE"
shall include the Best Knowledge of the Corporation and its Subsidiaries (if
any). The use in this Agreement of the term "INCLUDING" means "INCLUDING,
WITHOUT LIMITATION." The words "HEREIN", "HEREOF", "HEREUNDER", "HEREBY",
"HERETO", "HEREINAFTER", and other words of similar import refer to this
Agreement as a whole, including the schedules and exhibits, as the same may from
time to time be amended, modified, supplemented or restated, and not to any
particular article, section, subsection, paragraph, subparagraph or clause
contained in this Agreement. All references to articles, sections, subsections,
clauses, paragraphs, schedules and exhibits mean such provisions of this
Agreement and the schedules and exhibits attached to this Agreement, except
where otherwise stated. The title of and the article, section and paragraph
headings in this Agreement are for convenience of reference only and shall not
govern or affect the interpretation of any of the terms or provisions of this
Agreement. The use herein of the masculine, feminine or neuter forms shall also
denote the other forms, as in each case the
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context may require. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party. Accounting terms used but not
otherwise defined herein shall have the meanings given to them under GAAP.
SECTION 19. GOVERNING LAW.
-------------
All questions concerning the construction, interpretation and validity of
this Agreement shall be governed by and construed and enforced in accordance
with the domestic laws of the Commonwealth of Massachusetts, without giving
effect to any choice or conflict of law provision or rule (whether in the
Commonwealth of Massachusetts or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the Commonwealth of
Massachusetts. In furtherance of the foregoing, the internal law of the
Commonwealth of Massachusetts will control the interpretation and construction
of this Agreement, even if under such jurisdiction's choice of law or conflict
of law analysis, the substantive law of some other jurisdiction would ordinarily
apply. Notwithstanding the foregoing provisions of this SECTION 19, those
provisions of this Agreement that relate to the internal governance of the
Corporation shall be governed by and construed and enforced in accordance with
the internal laws of the State of Delaware.
SECTION 20. MUTUAL WAIVER OF JURY TRIAL.
---------------------------
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
SECTION 21. COUNTERPARTS.
------------
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
* * * * *
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IN WITNESS WHEREOF, each of the undersigned has caused this Securities
Purchase Agreement to be executed as of the date first written above.
EXCHANGE APPLICATIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxx X. Xxxxxxx
President
43
INVESTORS:
----------
CYRK, INC.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President
GRANT & PARTNERS LIMITED PARTNERSHIP
BY: GRANT & PARTNERS, INC.,
its general partner
By: /s/ Xxxxx X.X. Xxxxx
-----------------------------------------
Name: Xxxxx X.X. Xxxxx
Title: President
INSIGHT VENTURE PARTNERS I, L.P.
BY: INSIGHT VENTURE ASSOCIATES, LLC,
its general partner
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxx
Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Managing Member
WEXFORD INSIGHT LLC
BY: WEXFORD MANAGEMENT LLC,
its investment manager
By: SIGNATURE UNREADABLE
-----------------------------------------
Name:
Title:
44
ATTACHMENTS
EXHIBITS
--------
Exhibit A - Certificate of Amendment
Exhibit B - Amendment and Restated Certificate
Exhibit C - Form of Pay-off Agreement
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Stockholders Agreement
SCHEDULES
---------
Schedule 2.3 - Subject Indebtedness
Schedule 3.1 - Organization; Good Standing; Qualifications
Schedule 3.1.1 - Certificate of Incorporation
Schedule 3.1.2 - By-Laws
Schedule 3.4 - No Consent or Approval Required
Schedule 3.5 - Capitalization
Schedule 3.7 - Financial Statements
Schedule 3.8 - Absence of Undisclosed Liabilities
Schedule 3.9 - Events Subsequent to the Latest Balance Sheet
Schedule 3.10 - Title to Assets, Properties and Rights
Schedule 3.11 - Intellectual Property
Schedule 3.12 - Directors, Officers, Employees and Consultants
Schedule 3.14 - Agreements, Etc.
Schedule 3.15 - Permits and Orders
Schedule 3.16 - Labor Relations; Employees
Schedule 3.17 - Litigation
Schedule 3.18 - Tax Matters
Schedule 3.19 - Related Transactions
Schedule 6.9 - Departing Employees
45
SCHEDULE I
----------
INVESTORS
CYRK, Inc.
0 Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy:(000) 000-0000
Attention: Xxx Xxxxxxx
with a copy to:
Xxxxxx, Hall & Xxxxxxx
Exchange Place
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx, III, Esq.
Grant & Partners Limited Partnership
c/o Grant & Partners, Inc.
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxx Xxxxx
with a copy to:
Xxxxxx, Hall & Xxxxxxx
Exchange Place
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx, III, Esq.
Insight Venture Partners, L.P.
c/o Insight Venture Associates, LLC
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxxxxxxxxx
00
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
GAP Coinvestment Partners, L.P.
0 Xxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
Wexford Insight LLC
c/o Wexford Management LLC
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxx 00000
Telephone:(000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx Xxxx
with a copy to:
Wexford Insight LLC
c/o Wexford Management LLC
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxx 00000
Telephone:(000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx Xxxxxxxx, Esq.
