EXHIBIT 10.5
ITEX Corporation
[Letterhead]
PURCHASE AGREEMENT
This Agreement, made in Virginia this 18th day of February, 1998, when
signed by both parties, will serve as an agreement between ITEX CORPORATION, a
Nevada Corporation whose address is 00000 Xxxxxxxxx Xxxxxxxxx Xxxx, Xxxxx 000,
Xxxxxxxx, Xxxxxx 00000 (hereinafter referred to as "ITEX") [BY ITS DULY
AUTHORIZED AGENT ITEX USA, Inc., a Virginia Corporation, hereinafter referred to
as "ITEX USA"] and ALTERNATIVE ENTERTAINMENT, INC. (hereinafter referred to as
"SELLER"), with its principal offices at: 0000 Xxxxxxxxx Xxxxxx, Xxxxx 000, Xx
Xxxxx, Xxxxxxxxxx 00000, Contact: Xx. Xxxxx Xxxxx, President. Tel: (619)
000-0000 XXX: (000) 000-0000.
1. PURCHASE AND SALE OF STOCK.
Subject to the terms and conditions of this Agreement, ITEX agrees to
purchase, and SELLER agrees to sell and issue to ITEX, 100,000 shares of
SELLER's Common Stock (THE "STOCK") in exchange for $5.30 per share for a total
of $530,000 ITEX CASH EQUIVALENT CREDIT (THE "CASH CREDIT"). The Cash Equivalent
Credit may be redeemed by SELLER in accordance with the terms and conditions of
this Agreement as partial payment toward the purchase of various merchandise,
goods and services offered by and through ITEX.
2. XXXX OF SALE.
This Agreement is considered by the parties to be a Xxxx of Sale, whereby
SELLER hereby warrants and represents it is the rightful owner of the Stock,
free and clear of any encumbrance, and title to the Stock is hereby conveyed
from SELLER to ITEX.
3. SELLER'S USE OF CASH CREDIT.
The Cash Credit that SELLER has earned hereunder, may be used at any time
after the signing hereof by SELLER toward the purchase of a very wide array of
goods and/or services through ITEX, in accordance with ITEX's reasonable
instructions based on the nature of the goods and/or services requested and the
industries from which those goods and/or services are to be secured. Over the
life of the Cash Credit, Seller shall in good faith submit to ITEX written
purchase requests which total the amount of the Cash Credit issued herein to
Seller.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 2
4. PURCHASE REQUESTS.
To utilize its Cash Credit, SELLER must identify to ITEX, in writing, those
specific Stock and /or services it wishes to purchase. All said purchase
requests must be forwarded only to ITEX's duly authorized Agent ITEX USA. ITEX
must take prompt and timely action to carry out its obligations under this
Agreement.
FORWARD ALL PURCHASE REQUESTS ONLY TO:
ITEX USA, INC.
000 Xxxxxxxxx Xxxxxx
Xxxxx Xxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
FAX: (000) 000-0000
5. THE PURCHASE REQUEST MEMORANDUM ("PRM").
ITEX will provide SELLER with ITEX Purchase Request Memorandums ("PRM") for
use by SELLER in its submission of its written purchase requests. A reasonable
and legitimate purchase request should include as much detail as possible to
assist ITEX in completing said purchase requests on behalf of SELLER, including:
quantity, brands, delivery or storage requirements, delivery timing, model
numbers, current verifiable price, current bids or quotes, current or preferred
vendor's name and other vendor information if needed by ITEX. SELLER understands
that ITEX cannot begin its efforts to fulfill SELLER's purchase request(s) until
such time as SELLER provides ITEX with this information. Since time is of the
essence in transactions involving ITEX Cash Credit, SELLER agrees to provide
ITEX with as much lead time as possible to work on SELLER's PRMs. ITEX will
assist SELLER by reviewing each such PRM and providing SELLER in a timely
fashion notice of any further information needed by ITEX to fulfil the request.
6. BENCHMARK PRICE.
The purchase prices of the goods/services requested by SELLER will be
determined by the lowest price that is verified in written form as available to
SELLER through its third party vendors, suppliers or sources (the "Benchmark
Price"). SELLER agrees to provide ITEX with that information or documentation
asked of SELLER by ITEX in its effort to perform under its obligation to SELLER
to successfully complete any legitimate purchase request. Any purchase request
not accompanied by that information or documents and /or forms needed by ITEX
does not constitute a reasonable or legitimate purchase request as contemplated
by this Agreement.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
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7. PERCENTAGE OF CASH AND ITEX CASH CREDIT.
SELLER understands that the purchases made by SELLER with its Cash Credit
will require a certain percentage of U.S. Dollars as part of the total purchase
price of the merchandise, goods and/or services requested by SELLER. ITEX cannot
warrant or represent that it has the ability to complete each and every purchase
request made by SELLER and SELLER understands that the actual percentage of U.S.
Dollars required in each purchase made by SELLER with Cash Credit could vary
widely from one purchase to another. ITEX will exert best efforts to accomplish
as many purchase requests that are acceptable to SELLER as are reasonably
possible with regard to the use of SELLER's Cash Credit and SELLER agrees that
it will carry out its obligations under this Agreement in good faith. ITEX will
not unreasonably delay taking action upon Seller's PRM's.
8. SELLER'S FAILURE TO MAKE PURCHASE REQUESTS.
SELLER understands that the successful redemption of the SELLER's Cash
Credit earned hereunder relies directly upon SELLER's obligation and
responsibility to make purchase requests of ITEX by the submission of PRMs to
ITEX under this Agreement. Any failure by SELLER to make purchase requests, or
to submit PRMs to ITEX in accordance with the terms and conditions set forth
herein, will under no circumstances, at any time or in any way inure to the
detriment of ITEX.
9. LIFE OF THE CASH CREDIT.
ITEX's obligation to SELLER, represented in this Agreement, will expire
fully and finally sixty (60) months from the date hereof, or at such earlier
time as SELLER's Cash Credit is fully exhausted by charges in accordance with
the terms and conditions of this Agreement. Notwithstanding the foregoing, in
the event SELLER has, prior to expiration of the sixty (60) month term,
submitted to ITEX Purchase Request Memoranda which would, if fulfilled, result
in the use of $100,000 of the Cash Credit, then the balance of the Cash Credit
shall remain available for spending by SELLER for an additional sixty (60)
months.
10. TRANSACTION FEE.
When SELLER transfers, assigns, utilizes or spends any of its Cash Credit
earned hereby, SELLER agrees to pay a transaction fee to ITEX in an amount equal
to twelve percent (12%) of the amount of Cash Credit transferred, assigned,
utilized, or spent. This transaction fee will be payable to ITEX's duly
authorized Agent, ITEX USA, payable net upon receipt of ITEX USA's invoice or as
required of SELLER in the PRM Acceptance Memorandum.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 4
11. CLOSING.
The purchase and sale of the shares of SELLER's Common Stock being
purchased by ITEX shall take place at the office of ITEX USA, Inc., 000
Xxxxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxxx 00000, and simultaneously at the office
of Alternative Entertainment, 0000 Xxxxxxxxx Xxxxxx, Xxxxx 000, Xx Xxxxx,
Xxxxxxxxxx 00000, upon execution of this Agreement (which time, date, and place
are referred to in this Agreement as THE "CLOSING"). Upon execution of this
Agreement, SELLER shall issue in the name of ITEX Corporation the certificates
representing the shares of the Stock that ITEX is purchasing, and shall deliver
the same by forwarding the Stock Certificates to ITEX USA, Inc., c/o Xxxx X.
Xxxxxxxxx, Attorney at Law, Escrow Agent, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxx,
Xxxxxxxx 00000, by one day overnight air express. In consideration and payment
for the Stock, the sufficiency of which is hereby acknowledged, ITEX does hereby
agree to credit SELLER with an ITEX Cash Credit in an amount equal to the
purchase price of the Stock.
12. REPRESENTATIONS AND WARRANTIES OF SELLER.
SELLER hereby makes the following representations and warranties to ITEX:
12.1. ORGANIZATION AND STANDING. SELLER is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada,
has all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted, and is duly qualified as a foreign
corporation and is in good standing in all other jurisdictions in which such
qualification is required; provided, however, that SELLER need not be qualified
in a jurisdiction in which its failure to qualify would not have a material
adverse effect on its operation or financial condition. On or prior to Closing,
SELLER shall provide ITEX with a Certificate of Good Standing from the Secretary
of State for the State of Nevada.
12.2. CAPITALIZATION. The authorized capital of SELLER consists of
approximately 3,100,000 shares of Common Stock outstanding prior to the Closing
of an intended Merger to become a Publicly Traded Company. SELLER intends to
proceed with a Rule 504 Offering to raise $1,000,000 and will subsequently
undertake additional Offerings as needed. Such offerings will result in dilution
of the Common Shares of stock and to the ITEX Shareholders.
12.3. RIGHTS. There are no options, warrants, conversion privileges,
preemptive rights or other rights which will interfere to the detriment of ITEX
with the fulfillment of this Agreement.
12.4. HOLDERS. A list of the holders of SELLER's outstanding Common Stock
shall be delivered to counsel for ITEX. Such a list shall be a complete and
correct list of the record
STOCK PURCHASE AGREEMENT
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owners and (to the best of SELLER's knowledge) beneficial owners of all of
SELLER's outstanding capital stock (including the amounts of Common Stock owned
by each such owner) as of the date of this Agreement.
12.5. SUBSIDIARIES. SELLER does not presently own or control, directly or
indirectly, any other corporation, association, joint venture, partnership, or
other business entity, with the exception of Boys Toys Cabarets, Inc., a
California corporation, which is a wholly owned subsidiary of SELLER.
12.6. AUTHORIZATION. All corporate action on the part of SELLER and its
officers, directors, and shareholders necessary for the authorization,
execution, delivery, and performance of all obligations of SELLER under this
Agreement and for the authorization, issuance, and delivery of the Stock being
sold under this Agreement has been (or will be) taken prior to the Closing. This
Agreement, when executed and delivered, shall constitute a valid and legally
binding obligation of SELLER enforceable in accordance with its terms.
12.7. VALIDITY OF STOCK. The Stock, when issued, sold, and delivered in
accordance with the terms of this Agreement, shall be duly and validly issued,
fully paid, and nonassessable.
12.8. GOVERNMENTAL CONSENTS. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with any federal or state governmental authority on the part of
SELLER required in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained prior to, and be
effective as of, the Closing, except that any notices of sale required to be
filed with the Securities and Exchange Commission pursuant to Regulation D
promulgated under the Securities Act of 1933 or any state securities law
authority pursuant to applicable blue sky laws may be filed within the
applicable periods therefor.
12.9. COMPLIANCE WITH OTHER INSTRUMENTS. SELLER is not in violation of any
provisions of its Articles of Incorporation or Bylaws as amended and in effect
on and as of the Closing, or, in any material respect, of any provision of any
material mortgage, indenture, agreement, instrument or contract to which it is a
party, or, to the best of its knowledge, of any provision of any federal or
state judgment, writ, decree, order statute, rule or governmental regulation
applicable to SELLER. The execution, delivery and performance of this Agreement
will not result in any such violation or be in conflict with or constitute a
default under any such provision. There is not such provision that materially
and adversely affects, or in the future may (so far as SELLER can now foresee)
materially and adversely affect, SELLER's business, prospects, conditions,
affairs, operations, properties or assets.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
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12.10. MISLEADING STATEMENTS. No representation or warranty by SELLER in
this Agreement or in any written statement or certificate furnished or to be
furnished to ITEX pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, when taken together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements made not misleading.
12.11. LITIGATION. There is no action, proceeding or investigation pending
or threatened against SELLER or any of its employees before any court or
administrative agency (or any basis therefore known to SELLER), that might
result, either individually or in the aggregate, in any material adverse change
in the business, prospects, condition, affairs, operations, properties or assets
of SELLER or in any material liability on the part of SELLER. The foregoing
includes, without limiting its generality, actions pending or threatened (or any
basis therefor known to SELLER) involving the prior employment of any of
SELLER's employees or their use in connection with SELLER's business of any
information or techniques allegedly proprietary to any of their former
employers.
12.12. PATENTS; TRADEMARKS. To the best of its knowledge (but without
having conducted any special investigation or patent search), SELLER owns or
possesses, has access to, or can become licensed on reasonable terms under, all
patents, inventions, trademarks, trade names, copyrights, licenses, information,
proprietary rights and processes necessary for the lawful conduct of its
business as now conducted and as proposed to be conducted, without any
infringement of or conflict with the rights of others. SELLER has not received
any notice of infringement of or conflict with the asserted rights of others.
12.13. TAXES. SELLER has accurately prepared and timely filed all United
States income tax returns and all state and municipal tax returns that are
required to be filed by it and has paid or made provision for the payment of all
taxes that have become due pursuant to such returns, with the exception of
unpaid taxes in the amount of $16,000. The United States income tax returns of
SELLER have not been audited by the Internal Revenue Service. Except as set
forth above, no deficiency assessment or proposed adjustment of SELLER's United
States income tax or state or municipal taxes is pending and SELLER has no
knowledge of any proposed liability for any tax to be imposed upon its
properties or assets for which there is not an adequate reserve reflected in the
Financial Statements.
12.14. EMPLOYEES. SELLER does not have any employment contracts with any of
its employees not terminable at will and does not have any collective bargaining
agreements covering any of its employees. Other than as disclosed to ITEX in
writing, there have been no, nor are there proposed to be any, material
transactions between SELLER and any of its officers,
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
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directors or holders of five percent (5%) or more of any class or series of its
capital stock or any of their affiliates.
12.15. INSURANCE. SELLER has fire and casualty insurance policies, with
extended coverage, sufficient in amount (subject to reasonable deductibles) to
allow it to replace any of its properties that might be damaged or destroyed.
13. REPRESENTATIONS AND WARRANTIES OF ITEX.
ITEX hereby makes the following representations and warranties to SELLER:
13.1. ORGANIZATION AND STANDING. ITEX is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada,
has all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted, and is duly qualified as a foreign
corporation and is in good standing in all other jurisdictions in which such
qualification is required; provided, however, that ITEX need not be qualified in
a jurisdiction in which its failure to qualify would not have a material adverse
effect on its operation or financial condition.
13.2. AUTHORIZATION. All corporate action on the part of ITEX and its
officers, directors, and shareholders necessary for the authorization,
execution, delivery, and performance of all obligations of ITEX under this
Agreement and for the purchase and receipt of the Stock being sold under this
Agreement has been (or will be) taken prior to the Closing. This Agreement, when
executed and delivered, shall constitute a valid and legally binding obligation
of SELLER enforceable in accordance with its terms.
13.3. MISLEADING STATEMENTS. No representation or warranty by ITEX in this
Agreement or in any written statement or certificate furnished or to be
furnished to SELLER pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, when taken together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements made not misleading.
14. FEDERAL AND OTHER SECURITIES LAWS.
14.1. INVESTMENT REPRESENTATION.
14.1.1. This Agreement is made with ITEX in reliance upon ITEX's
representation to SELLER, which by its acceptance hereof ITEX confirms, that the
shares of the Stock to be received by it will be acquired for investment for its
own account, not as a nominee or agent,
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 8
and not with a view to the sale or distribution of any part thereof, and that it
has no present intention of selling, granting participations in, or otherwise
distributing the same, but subject nevertheless to any requirement of law that
the disposition of its property shall at all times be within its control. By
executing this Agreement, ITEX further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person, or to any third person, with
respect to any of the shares of the Stock.
14.1.2. ITEX understands that the Stock is not registered under the 1933
Act on the ground that the sale provided for in this Agreement and the issuance
of securities hereunder is exempt from registration under the 1933 Act pursuant
to section 4(2) thereof, and that SELLER's reliance on such exemption is
predicated on ITEX's representations set forth herein. ITEX realizes that the
basis for the exemption may not be present if, notwithstanding such
representations, ITEX has in mind merely acquiring shares of the Stock for a
fixed or determinable period in the future, or for a market rise, or for sale if
the market does not rise. ITEX has no such intention.
14.1.3. ITEX represents that it is experienced in evaluating and investing
in companies such as SELLER, is able to fend for itself in the transactions
contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment, and has the ability to bear the economic risks of its investment.
ITEX further represents that it has had access, during the course of the
transaction and prior to its purchase of its shares of the Stock, to the same
kind of information that would be provided in a registration statement filed by
SELLER under the 1933 Act and that it has had, during the course of the
transaction and prior to its purchase of its shares of the Stock, the
opportunity to ask questions of, and receive answers from, SELLER concerning the
terms and conditions of the offering and to obtain additional information (to
the extent SELLER possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access.
14.1.4. ITEX understands that the Stock may not be sold, transferred or
otherwise disposed of without registration under the 1933 Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Stock or an available exemption from registration under the 1933
Act, the Stock must be held indefinitely. In particular, ITEX is aware that the
Stock may not be sold pursuant to Rule 144 promulgated under the 1933 Act unless
all of the conditions of that Rule are met. Among the conditions for use of Rule
144 is the availability of current information to the public about SELLER. Such
information is not now available and SELLER has no present plans to make such
information available.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
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14.1.5. ITEX agrees not to make, without the prior written consent of
SELLER, any public offering or sale of the Stock, although permitted to do so
pursuant to Rule 144(k) promulgated under the Securities Act, until the earlier
of (i) the date on which SELLER effects its initial registered public offering
pursuant to the Securities Act or (ii) the date on which it becomes a registered
SELLER pursuant to Section 12(g) of the Securities Exchange Act of 1934.
14.2. LEGENDS; STOP TRANSFER.
14.2.1. All certificates for shares of the Stock may bear, at SELLER's
option, the following legend:
These securities have not been registered under the United States
Securities Act of 1933, as amended, and may not be sold, transferred,
assigned, pledged or hypothecated absent an effective registration thereof
under such Act or compliance with Rule 144 promulgated under such Act, or
unless Alternative Entertainment, Inc., has received an opinion of counsel,
satisfactory to Alternative Entertainment, Inc., and its counsel, that such
registration is not required.
14.2.2. The certificates for shares of the Stock shall also bear any legend
required by any applicable state securities law.
14.2.3. In addition, SELLER shall make a notation regarding the
restrictions on transfer of the Stock in its stockbooks, and shares of the Stock
shall be transferred on the books of SELLER only if transferred or sold pursuant
to an effective registration statement under the 1933 Act covering such shares
or pursuant to and in compliance with the provisions of this Agreement.
15. REGISTRATION RIGHTS.
15.1. CERTAIN DEFINITIONS. For purposes of this Section, the following
terms shall have the meanings set forth below:
i. "Closing" shall mean the date of the sale of the Common Stock which is
the subject of this Agreement.
ii. "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
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iii. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
iv. "Holder" shall mean any Investor who holds Registrable Securities and
any holder of Registerable Securities to whom the registration rights conferred
by this Agreement have been transferred in compliance with this Agreement.
v. "Investor" shall mean ITEX, its successors and permitted assigns.
vi. "Other Stockholders" shall mean persons other than Holders who, by
virtue of agreements with the SELLER, are entitled to include their securities
in certain registrations hereunder.
vii. "Registerable Securities" shall mean (i) shares of Common Stock
issued pursuant to this Agreement and (ii) any Common Stock issued as a
dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) above, provided, however, that
Registerable Securities shall not include any shares of Common Stock which
have previously been registered or which have been sold to the public.
viii. The term "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
ix. "Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursement of counsel for the SELLER, blue sky fees and expenses, and
expenses of any regular or special audits incident to or required by any such
registration, but shall not include Selling Expenses and fees and disbursements
of counsel for the Holders (but excluding the compensation of regular employees
of the SELLER, which shall be paid in any event by the SELLER).
x. "Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
xi. "Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
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xii. "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
xiii. "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of the Registerable Securities and all fees
and disbursements of counsel for any Holder (other than the fees and
disbursements of counsel included in Registration Expenses).
xiv. "Shares" shall mean the SELLER's Common Stock.
15.2. SELLER REGISTRATION.
If the SELLER shall determine to register any of its securities either for
its own account or the account of a security holder or holders exercising their
demand registration rights, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration from that does not permit
secondary sales, the SELLER will:
i. Promptly give to each Holder written notice thereof; and
ii. Include in such registration (and any related qualification under blue
sky laws or other compliance), and in any underwriting involved therein, all of
the Registerable Securities issued pursuant to this Agreement.
15.3. UNDERWRITING. If the registration of which the SELLER gives notice is
for a registered public offering involving an underwriting, the SELLER shall so
advise the Holders as a part of the written notice given pursuant to the
foregoing Subparagraph. In such event, the right of any Holder to registration
pursuant to this Subparagraph shall be conditioned upon such Holder's
participation in such underwriting. All Holders proposing to distribute their
securities through such underwriting shall (together with the SELLER and the
other holders of securities of the SELLER with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the SELLER.
15.4. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section hereof shall be borne by the SELLER.
15.5. REGISTRATION PROCEDURES. In the case of any registration effected by
the SELLER pursuant to this Section, the SELLER will keep each Holder advised in
writing as to the
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initiation of each registration and as to the completion thereof. At its
expense, the SELLER will use its best efforts to:
i. Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the SELLER;
ii. Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement;
iii. Furnish such numbered prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a
Holder from time to time may reasonably request;
iv. Notify each seller of Registerable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or incomplete in the light of
the circumstances then existing, and at the request of any such seller,
prepare and furnish to such seller a reasonable number of copies of a
supplement to or any amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading or incomplete in the light of the
circumstances then existing;
v. Cause all such Registerable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the SELLER are then listed;
vi. Provide a transfer agent and registrar for all Registerable
Securities registered pursuant to such registration statement, in each case
not later than the effective date of such registration; and
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vii. Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
15.6. INDEMNIFICATION.
i. The SELLER will indemnify each Holder, each of its officers, directors
and partners, legal counsel, and accountants and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification, or compliance has been effected pursuant to
this Paragraph, and each underwriter, if any, and each person who controls,
within the meaning of Section 15 of the Securities Act, any underwriter, against
all expenses, claims, losses, damages, and liabilities (or actions, proceedings
or settlements) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular, or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the SELLER of the Securities Act or
any rule or regulation thereunder applicable to the SELLER and relating to
action or inaction required of the SELLER in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors, partners, legal counsel and accountants and
each person controlling such Holder, each such underwriter, and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability or action, provided that the SELLER will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the SELLER by such Holder
or underwriter and stated to be specifically for use therein. It is agreed that
the indemnify agreement contained in this Subparagraph shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the SELLER (which consent
has not been unreasonably withheld).
ii. Each Holder will, if Registerable Securities held by him are included
in the securities as to which such registration, qualification or compliance is
being effected, indemnify the SELLER, each of its directors, officers, partners,
legal counsel and accountants and each underwriter, if any, of the SELLER's
securities covered by such a registration statement, each person who controls
the SELLER or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder and Other Stockholder, and each of their
officers,
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 14
directors and partners, and each person controlling such Holder or Other
Stockholder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the SELLER and such Holders, Other Stockholders, directors, officers, partners,
legal counsel and accountants, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the SELLER by such Holder;
provided, however, that the obligations of such Holder hereunder shall not apply
to amounts paid in settlement of any such claims, losses, damages or liabilities
(or actions in respect thereof) if such settlement is made without the consent
of such Holder (which consent shall not be unreasonably withheld).
iii. Each party entitled to indemnification under this Subparagraph (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified party (whose approval shall not
unreasonably be withheld), and the Indemnified party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section, to the extent such
failure is not prejudicial. No Indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
iv. If the indemnification provided for in this Subparagraph is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 15
by such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
v. Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
15.7. INFORMATION BY HOLDER. Each Holder of Registrable Securities shall
furnish to the SELLER such information regarding such Holder and the
distribution proposed by such Holder as the SELLER may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section.
15.8. LIMITATION ON REGISTRATION OF ISSUES OF SECURITIES. From and after
the date of this Agreement, the SELLER shall not, without the prior written
consent of a majority in interest of the Holders, enter into any agreement with
any holder or prospective holder of any securities of the SELLER giving such
holder or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holders hereunder.
15.9. TRANSFER OF REGISTRATION RIGHTS. The registration rights of ITEX
under this Section may be transferred to any transferee who acquires at least
five percent (5%) of the Shares or an equivalent amount of Registrable
Securities; provided, however, that the SELLER is given written notice by the
Holder at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which the rights under
this Paragraph are being assigned.
15.10. LOCKUP AGREEMENT. The parties hereby agree to lockup the shares
acquired by ITEX Corporation in accordance with the provisions of "THE AGREEMENT
TO LOCKUP STOCKHOLDINGS" shown as Exhibit A attached hereto and incorporated by
reference here.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 16
15.11. DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section.
15.12. TERMINATION OF THE SELLER'S OBLIGATIONS. The SELLER's obligations
pursuant to this Section shall expire three (3) years after the SELLER first
becomes subject to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934.
16. COVENANTS OF THE SELLER.
16.1. ANNUAL SEC REPORTS. From the date Seller becomes subject to the
reporting requirements of the Exchange Act (which shall include any successor
federal statute), SELLER shall deliver to ITEX copies of its annual reports on
Form 10-K and its quarterly reports on Form 10-Q, respectively.
16.2. TRADE SECRETS AND CONFIDENTIAL INFORMATION. Nothing in this Agreement
shall confer upon ITEX the right to have access to any trade secrets or
classified information of the SELLER. ITEX hereby agrees to hold in confidence
and trust and not to misuse or disclose any confidential information provided
pursuant to this Agreement. The SELLER shall not be required to comply with
Sections 16(d) if the SELLER reasonably determines ITEX to be a competitor or an
officer, employee, director or greater than 10% stockholder of a competitor.
16.3. PROMPT PAYMENT OF TAXES, ETC. The SELLER will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the SELLER or any subsidiary; provided,
however, that any such tax, assessment charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the SELLER shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the SELLER will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The SELLER will promptly pay or cause to be paid when due, or in
conformance with customary trade terms or otherwise in accordance with policies
related thereto adopted by the SELLER's Board of Directors, all other
indebtedness incident to operations of the SELLER.
16.4. MAINTENANCE OF PROPERTY AND LEASES. The SELLER will keep its
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the SELLER and its subsidiaries will at all times comply with each
material provision of all leases to which any of them is a party or under which
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 17
any of them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise, or
operations of the SELLER.
16.5. INSURANCE. Except as otherwise decided in accordance with policies
adopted by the SELLER's Board of Directors, the SELLER will keep its assets and
those of its subsidiaries which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
SELLER's line of business, and the SELLER will maintain, with financially sound
and reputable insurers, insurance against other hazards and risks and liability
to persons and property to the extent and in the manner customary for companies
in similar businesses similarly situated.
16.6. ACCOUNTS AND RECORDS. The SELLER will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
16.7. COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The SELLER
and all its subsidiaries shall duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their properties or assets.
16.8. MAINTENANCE OF CORPORATE EXISTENCE, ETC. The SELLER shall maintain in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights in or to use patents, processes, licenses, trademarks,
trade names or copyrights owned or possessed by it or any subsidiary and deemed
by the SELLER to be necessary to the conduct of their business.
16.9. PROPRIETARY INFORMATION AND INVENTION AGREEMENTS. The SELLER will
cause each person now or hereafter employed by it or any subsidiary with access
to confidential information to enter into a proprietary information and
inventions agreement substantially in the form approved by the Board of
Directors.
16.10. EMPLOYEE AND OFFICER STOCK ARRANGEMENTS. The SELLER will not,
without the approval of the Board of Directors, issue any of its capital stock,
or grant an option or rights to subscribe for, purchase or acquire any of its
capital stock, to any employee, consultant, officer or director of the SELLER or
a subsidiary except for (a) the issuance of shares of Common Stock pursuant to
any currently outstanding stock options. Each acquisition of any shares of
capital stock of the SELLER or any option or right to acquire any shares of
capital stock of the SELLER by an employee, officer or director of the SELLER
will be conditioned upon the execution and delivery by the SELLER and such
employee, officer or director of an agreement substantially in a form approved
by the Board of Directors of the SELLER.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 18
16.11. TERMINATION OF COVENANTS. The covenants set forth in this Section 16
shall terminate and be of no further force and effect after the time of
effectiveness of the SELLER's first firm commitment underwritten public offering
registered under the Securities Act.
17. MUTUAL FORCE MAJEURE.
Should either party hereto be unable to provide Stock (if SELLER) or goods
and/or services (if ITEX) to the other hereunder by reason of: acts of God,
labor or materials shortages, Stock breakdown, air or ground delays or other
traffic problems, fires, explosions, breakdown of facilities, strikes, or civil
authority or any other causes which are beyond the control of either party,
hereinafter referred to as "Force Majeure", ITEX or SELLER shall give prompt
notice to the other party, and the obligations of the party giving notice
hereunder will be suspended to the extent made necessary by such Force Majeure.
Said party shall use its best efforts to eliminate and correct the effect of
such Force Majeure as completely as is reasonably possible or practicable, and
shall use its best efforts to make up any deficiencies in the delivery of said
Stock or goods, and/or services caused thereby, as soon as possible after the
termination of the Force Majeure.
18. ITEX USA, INC. SUPPORTS ITEX OBLIGATIONS UNDER THIS AGREEMENT.
ITEX has contracted with ITEX USA, Inc., a Virginia Corporation, with its
principal offices at 000 Xxxxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxxx 00000-0000, to
act as ITEX's duly authorized agent hereunder in all communication, interaction
and liaison between ITEX and SELLER on behalf of ITEX. ITEX USA will provide all
of the contract management and logistical support of ITEX's performance
obligations under this Agreement, including but not limited to, the re-sale of
the Stock purchased from SELLER by ITEX, the issuance to SELLER of the shipping
instructions of the Stock, the servicing of SELLER's PRMs and Cash Credit
spending activity, the billing and collection of ITEX Transaction Fees and other
U.S. Dollar amounts due to ITEX, and any enforcement of ITEX's rights and
interests hereunder. ITEX USA under its Exclusive Agency Agreement with ITEX, is
authorized to sign this Agreement on behalf of ITEX and to bind ITEX to the
terms and conditions hereunder as ITEX's "duly authorized agent".
19. MISCELLANEOUS.
19.1. HEADINGS. Section and subsection headings are for convenience of
reference only and shall not affect the meanings or interpretation of the
contents hereof.
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 19
19.2. COMPLETE UNDERSTANDING. This Agreement represents the complete
understanding between the parties hereto with respect to the subject matter
hereof and thereof and supersede all prior negotiations, representations,
warranties, statements or agreements, either written or oral, as to the subject
matter hereof and thereof. This Agreement may be amended only by a written
instrument signed by the party to be charged. No requirement, obligation, remedy
or provision of this Agreement shall be deemed to have been waived, unless so
waived expressly in writing or waived pursuant to other provisions of this
Agreement, and any such waiver of any such provision shall not be considered a
waiver of any right to enforce such provision thereafter.
19.3. NOTICES. All notices authorized or required herein shall be in
writing and shall be delivered by hand and evidenced by a written receipt or
sent by Express Mail or other similar overnight delivery service and evidenced
by written receipt, with provision made for payment by the sender, or by
certified mail, return receipt requested and postage prepaid, to SELLER and to
ITEX at their respective addresses as set forth above or to such other address
as may be designated by notice duly given. Notices shall be deemed to have been
given when received, if delivered by hand or by overnight delivery service, or
48 hours after mailing, if mailed.
19.4. APPLICABLE LAW. This transaction occurs in the Commonwealth of
Virginia and this Agreement will be interpreted and construed in accordance with
the laws of the Commonwealth of Virginia.
19.5. COVENANTS BINDING. The covenants, agreements and conditions herein
contained shall apply to and bind the successors of the parties hereto and inure
to the permitted assigns of ITEX and SELLER.
19.6. REPRESENTATIONS. The representations, warranties, covenants and
agreements contained herein shall be deemed to be material and to have been
relied upon by the party to whom they have been made.
19.7. NON-MERGER. Except as otherwise specifically provided herein, the
provisions of this Agreement shall survive the Closing hereunder, and the
execution and delivery of the Stock, and shall not be merged therein.
19.8. COUNTERPART ORIGINALS. This Agreement may be executed in multiple
original counterparts, each of which shall be an original, but all of which
shall constitute one and the same contract.
19.9. LITIGATION. In the event that any party is required to resort to
litigation to enforce its rights under this Contract, ITEX and SELLER agree that
any judgment awarded to the
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 20
prevailing party may include all litigation expenses of the prevailing party,
including, without limitation, actual attorneys' fees and court costs. The
Circuit Court of the City of San Diego or the U.S. District Court for the
Southern District of California (San Diego Division) shall have exclusive
jurisdiction over any litigation arising out of or in any way relating to the
enforcement or construction of this Agreement. Process shall be served in
accordance with California law. In the event SELLER shall initiate litigation,
SELLER shall forward a complete copy of the suit and all attachments by
certified mail, return receipt requested, postage prepaid, to ITEX USA, Inc.,
000 Xxxxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxxx 00000. Notice by mail to ITEX USA,
Inc., shall be in addition to and not in lieu of service of process upon ITEX
Corporation under California law.
19.10. GOOD FAITH AND FAIR DEALING. In carrying out their respective
obligations under this Agreement, the parties shall act in good faith and deal
fairly with one another.
19.11. MULTIPLE ORIGINALS. This Agreement may be signed in one or more
original counterparts each of which shall be deemed on original instrument and
together shall constitute the entire Agreement.
19.12. PARTIAL INVALIDITY. Should any provision of this Agreement become or
be deemed invalid, the same shall not invalidate the entire agreement, but only
that particular clause or provision involved.
19.13. HEADINGS. Headings of this Agreement are inserted solely for the
purposes of convenience of reference, and are in no manner to be construed as
part of this Agreement.
In witness whereof, the parties have duly executed this Agreement on the
date and year first written above.
AGREED, UNDERSTOOD, AND ACCEPTED
SELLER:
ALTERNATIVE ENTERTAINMENT, INC.,
By: /s/ Xxxxx Xxxxx (SEAL)
--------------------------------------
Title: President
-----------------------------------
Date: 2/28/98
------------------------------------
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 21
ITEX CORPORATION
BY ITS DULY AUTHORIZED AGENT
ITEX, USA, INC.
By: /s/ Xxxxxxx X. Xxxxxx (SEAL)
--------------------------------------
Title: Executive V.P.
-----------------------------------
Date: 3-23-98
------------------------------------
ATTACHMENT TO PURCHASE AGREEMENT OF FEBRUARY 18, 1998
EXHIBIT A
AGREEMENT TO LOCK-UP STOCKHOLDINGS
THIS AGREEMENT TO LOCK-UP STOCKHOLDINGS (the "Agreement") is entered into
this 18th day of February 1998 by and between ITEX Corporation, a Nevada
corporation, with principal offices at 00000 Xxxxxxxxx Xxxxxxxxx Xxxx, Xxxxx
000, Xxxxxxxx, Xxxxxx 00000 ("Stockholder") and Alternative Entertainment, Inc.,
a Nevada corporation, with principal offices at 0000 Xxxxxxxxx Xxxxxx Xxxxx 000,
Xx Xxxxx, Xxxxxxxxxx 00000 (the "Company").
WHEREAS:
A. The Company and Stockholder are parties to that certain Purchase
Agreement, dated February 18, 1998 (the "Purchase Agreement").
B. Subject to the terms and conditions of the Purchase Agreement,
Stockholder is acquiring One Hundred Thousand (100,000) shares (the
"Shares") of the Company's Common Stock (par value $0.01).
C. The Company anticipates that it will complete a tax-free
reorganization which will result in the Company becoming a publicly-held
company with trading planned on the Over-The-Counter Electronic Bulletin
Board.
D. The Company seeks to establish an orderly market in connection with
the planned trading of its common stock (the "Common Stock").
E. Both the Stockholder and the Company acknowledge and agree that the
parties believe that the Shares have a value of Five Dollars ($5.00) per
Share.
F. Stockholder is willing, subject to the terms and conditions of this
Agreement, to deposit the Shares and forego any opportunity to sell,
transfer, or assign the Shares as provided by this Agreement.
1
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1.00 LOCK-UP OF SHARES BY STOCKHOLDER. In consideration of the Company's
undertakings to Stockholder as set forth in the Purchase Agreement, together
with other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Stockholder hereby agrees that neither the Stockholder
nor any entity controlled by Stockholder will sell, contract to sell or make any
other disposition of, or grant any purchase option for the sale of, any of the
Shares. Stockholder's right to sell, transfer, assign, or dispose of the Shares
shall be limited as follows:
1.01. AFTER EXPIRATION OF FIFTEEN MONTHS. After the expiration of fifteen
(15) months from and after the date at which the Company completes a
reorganization and merger with a publicly-held company (the "Merger Date"),
Stockholder shall have the right to sell or transfer up to twenty-five
percent (25%) of the Shares;
1.02. AFTER THE EXPIRATION OF EIGHTEEN MONTHS. After the expiration of
eighteen (18) months from and after the date at which the Company completes
a reorganization and merger with a publicly-held company (the "Merger
Date"), Stockholder shall have the right to sell or transfer up to an
additional twenty-five percent (25%) of the Shares;
1.03. AFTER THE EXPIRATION OF TWENTY-ONE MONTHS. After the expiration of
twenty-one (21) months from and after the date at which the Company
completes a reorganization and merger with a publicly-held company (the
"Merger Date"), Stockholder shall have the right to sell or transfer up to
an additional twenty-five percent (25%) of the Shares; and
1.04. AFTER THE EXPIRATION OF TWENTY-FOUR MONTHS. After the expiration of
twenty-four (24) months from and after the date at which the Company
completes a reorganization and merger with a publicly-held company (the
"Merger Date"), Stockholder shall have the right to sell or transfer up to
an additional twenty-five percent (25%) of the Shares.
2
2.00 REPRESENTATIONS OF STOCKHOLDER RE: DOCUMENTS PROVIDED STOCKHOLDER.
Stockholder acknowledges and agrees that prior to Stockholder's execution of
this Agreement, Stockholder received the following information from the Company:
1.) a copy of the Company's Business Plan, dated Jan 1998;
2.) a copy of the Company's unaudited financial statements, dated
12/31/97;
3.) a copy of the Agreement for the Purchase of Common Stock between
the Company and the shareholders of Xxxx Corp.;
4.) a copy of the Company's prospectus, dated July 3, 1996; and
5.) a copy of any other information, documents, and materials about
the Company requested by Stockholder.
3.00 FACTORS THAT MAY AFFECT THE VALUE OF THE STOCK TO BE ACQUIRED BY
STOCKHOLDER. Stockholder acknowledges and agrees that he understands and fully
appreciates that its purchase of the Shares is subject to certain risks,
including:
3.01 DEVELOPMENT STAGE COMPANY. Stockholder understands fully that the
Company is a development-stage company. There can be no assurance that the
Company will generate any revenues, or if revenues are generated, that the
Company can sustain revenues for any period of time or otherwise achieve or
maintain profitability.
3.02 USE OF PROCEEDS. Stockholder understands that upon the Company's
receipt of goods and services to be invested by Stockholder will be used
for the construction of a planned gentlemen's club in San Francisco,
California. In the event that the Company is not successful in raising
significant and substantial amounts of additional capital, any proceeds
received by the Company from the sale of other securities and the Shares
issued to Stockholder will be of little value to Stockholder.
3.03 NO MINIMUM OFFERING, NO ESCROW ACCOUNT & NO FIRM COMMITMENT.
Stockholder understands that there is no minimum offering and no escrow
account is or will be established in connection with the sale of the Shares
to Stockholder or the funds that the Company receives, if any, from any
other offering of securities. Any funds the Company receives from the sale
of the Shares or other securities to other investors will be immediately
released to the Company. The Company does not have any firm commitment of
any underwriter for the sale of any securities and there can be no
assurance that the Company will be successful in obtaining any firm
commitment from any underwriter to raise any capital.
3
3.04. LACK OF INDEPENDENT EVALUATION OF BUSINESS PLAN & PROPOSED STRATEGY.
Stockholder acknowledges that he understands that the Company has not
obtained any independent evaluation of the Company's Business Plan and the
Company's proposed business strategy. There can be no assurance that the
Company's planned business or proposed strategy will generate any revenues,
or if revenues can be generated, that they can be generated at a level to
maintain profitability.
3.05 LACK OF EXPERIENCED MANAGEMENT. Stockholder understands that the
Company's sole officer, Xxxxx X. Xxxxx, has no substantial recent
experience in acquiring, establishing, developing, or operating clubs that
feature female exotic dance entertainment. In the event that the Company is
successful in raising sufficient additional capital, the Company will need
to secure the services of others who possess the management skill,
experience, and industry knowledge needed to implement the Company's
Business Plan. There can be no assurance that the Company can secure and
retain the necessary management to complete these efforts.
3.06 PRIOR SALE OF SECURITIES & POTENTIAL LIABILITIES. The Company has,
since inception, issued nearly two million dollars ($2,000,000) in
securities. While these securities were sold upon claims of exemption from
the registration requirement and otherwise upon claims that each of them
have been offered and sold in conformity with the requirements of state and
federal securities laws, there can be no assurance that the Company's prior
offering and sale of securities did not comply with the obligations imposed
under state and federal securities laws, all investors in this Note
Offering may lose all or nearly of their investment.
3.07 DILUTION. Stockholder acknowledges that upon purchase of the Shares
issued hereby, Stockholder will incur immediate and substantial dilution
equal to more than 90% of its investment.
3.08 SUBORDINATE TO CURRENT & FUTURE INDEBTEDNESS. Stockholder acknowledges
that the Shares are subordinate to the claims of the Company's existing and
future creditors.
3.09 DEPENDENCE UPON XXXXX X. XXXXX, LIMITED MANAGEMENT, & ABSENCE OF
INSURANCE. Stockholder acknowledges that the Company's success will depend,
to a significant extent, on the efforts and abilities of Xxxxx X. Xxxxx.
The Company has no other full time staff or management. The Company has no
"key man" insurance on the life of Xxxxx X. Xxxxx. The loss of Xx. Xxxxx
could have a material adverse effect on the Company. The Company also does
not have any property, casualty, general liability, or workers'
compensation insurance.
4
In the event that the Company loses the services of Xx. Xxxxx or otherwise
incurs uninsured losses, the Company will likely incur substantial and
protracted losses thereby.
3.10 CONTROL BY MANAGEMENT. In the event that the Company is successful in
raising a sufficient amount of additional capital to implement its business
plan, control of the Company will likely remain in the hands of its current
officer and directors.
3.11 NO PLANNED DIVIDENDS. The Company does not anticipate that it will pay
any dividends on the Company's Common Stock at any time in the foreseeable
future.
3.12 NO ESTABLISHED TRADING MARKET & LOW-PRICED STOCKS. Upon the Company's
completion of its planned merger and reorganization with an existing public
company, the Company seeks to commence trading in the Company's common
stock. As a result, prior to commencement of trading in the Company's
Common Stock, there has existed no established trading market for the
Company's Common Stock and there can be no assurance that a liquid market
for the Company's Common Stock will ever develop. Trading in the Company's
Common Shares, if at all, will likely be very limited. Consequently, a
shareholder may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities. In the absence of
a security being quoted on NASDAQ, or the Company having $2,000,000 in net
tangible assets, trading in the Common Stock is covered by Rule 3a51-1
promulgated under the Securities Exchange Act of 1934 for non-NASDAQ and
non-exchange listed securities. Under such rules, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of
$5,000,000 or individuals with net worth in excess of $1,000,000 or an
annual income exceeding $200,000 or $300,000 jointly with their spouse)
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities are also exempt from this rule if the market price is at least
$5.00 per share, or for warrants, if the warrants have an exercise price of
at least $5.00 per share. The Securities Enforcement and Xxxxx Stock Reform
Act of 1990 requires additional disclosure related to the market for xxxxx
stocks and for trades in any stock defined as a xxxxx stock. The Commission
has recently adopted regulations under such Act which define a xxxxx stock
to be any NASDAQ or non-NASDAQ equity security that has a market price or
exercise price of less than $5.00 per share and allow for the enforcement
against violators of the proposed rules.
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In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a xxxxx stock, of a disclosure schedule prepared by
the Commission explaining important concepts involving a xxxxx stock
market, the nature of such market, terms used in such market, the
broker/dealer's duties to the customer, a toll-free telephone number for
inquiries about the broker/dealer's disciplinary history, and the
customer's rights and remedies in case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities, and, if the broker/dealer is the sole market-maker, the
broker/dealer must disclose this fact and its control over the market.
Monthly statements must be sent disclosing recent price information for the
xxxxx stock held in the account and information on the limited market in
xxxxx stocks. While many NASDAQ stocks are covered by the proposed
definition of xxxxx stock, transactions in NASDAQ stock are exempt from all
but the sole market-maker provision for (i) issuers who have $2,000,000 in
tangible assets ($5,000,000 if the issuer has not been in continuous
operation for three years), (ii) transactions in which the customer is an
institutional accredited investor and (iii) transactions that are not
recommended by the broker/dealer. In addition, transactions in a NASDAQ
security directly with the NASDAQ market-maker for such securities, are
subject only to the sole market-maker disclosure, and the disclosure with
regard to commissions to be paid to the broker/dealer and the registered
representatives. Finally, all NASDAQ securities are exempt if NASDAQ raised
its requirements for continued listing so that any issuer with less than
$2,000,000 in net tangible assets or stockholder's equity would be subject
to delisting. These criteria are more stringent than the proposed increase
in NASDAQ's maintenance requirements. The Company's securities are subject
to the above rules on xxxxx stocks and the market liquidity for the
Company's securities could be SEVERELY AFFECTED by limiting the ability of
broker/dealers to sell the Company's securities.
3.13 GOVERNMENT REGULATION & EXOTIC ENTERTAINMENT INDUSTRY. The Company
seeks to operate establishments that offer "female exotic entertainment."
This business routinely suffers severe and unfavorable regulatory burdens,
adverse zoning ordinances, and other oppressive government regulations
which may result in the Company incurring substantial losses and
significant delays in connection with the development of any establishment.
3.14 LACK OF DIVERSIFICATION. The Company's proposed business involving the
proposed operation of establishments offering "female exotic entertainment"
will not provide any diversification. If the Company is successful, all of
the Company's business and assets will be concentrated in the same
industry.
3.15 QUESTIONS & RESPONSES TO STOCKHOLDER. Stockholder has personally met
with the Company's President and has had an opportunity to ask questions of
and receive answers to questions regarding the Company's affairs, the
Company's proposed business, and all other aspects of the Company's current
and proposed operations.
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3.16 STATUS OF STOCKHOLDER. Stockholder is a sophisticated and experienced
in venture capital and investments. Stockholder understands that the
representations contained herein are made for the purpose of satisfying the
Company that it understands and is capable of understanding the merits and
risks inherent in making the Investment. In connection with this Investment
Agreement, Stockholder has been advised and understands that immediately
prior to the offer and purchase of the Shares pursuant to this Agreement:
3.16.01 Stockholder had such knowledge and experience in financial and
business matters that the subscriber was capable of evaluating the
merits and risks of the prospective investment; and
3.16.02 Stockholder is able to bear the economic risk of the
investment;
3.16.03 Stockholder has consulted with such legal, tax, and other
counsel, each of whom it has found necessary to consult concerning
this transaction, and such consultation has included an examination of
applicable documents and an analysis of all tax, financial, corporate,
and securities law aspects. Stockholder, its counsel, its advisors,
and such other persons with whom he found it necessary to consult,
have sufficient knowledge and experience in such matters to evaluate
the information and the risks of the investment and to make an
informed investment decision with respect thereto; and
3.16.04 With respect to the tax aspects of its investment, Stockholder
is relying solely upon the advice of its own personal tax advisors and
upon its own knowledge with respect thereto. Stockholder is aware that
any Federal Income Tax benefits which may be available to it may be
lost through adoption of new laws or regulations, amendments to
existing laws and regulations, or changes in the interpretation of
existing laws and regulations.
4.00. MISCELLANEOUS.
4.01 NOTICE TO COMPANY & FURTHER ASSURANCES. Each of the parties shall
hereafter execute all documents and do all acts reasonably necessary to
effect the provisions of this Agreement. Stockholder agrees to promptly
inform the Company of any proposed transfer, sale, assignment, or
disposition of the Shares and to cooperate with the Company to allow for an
orderly sale of the Shares without unnecessary interruption of the trading
of the Company's Common Stock.
4.02 SUCCESSORS. The provisions of this Agreement shall be deemed to
obligate, extend to and inure to the benefit of the successors, assigns,
transferees, grantees, and indemnitees of each of the parties to this
Agreement.
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4.03 INDEPENDENT COUNSEL. Each of the parties to this Agreement
acknowledges and agrees that it has been represented by independent counsel
of its own choice throughout all negotiations which preceded the execution
of this Agreement and the transactions referred to in this Agreement, and
each has executed this Agreement with the consent and upon the advice of
said independent counsel. Each party represents that he or it fully
understands the provisions of this Agreement, has consulted with counsel
concerning its terms and executes this Agreement of his or its own free
choice without reference to any representations, promises or expectations
not set forth herein.
4.04 INTEGRATION. This Agreement with the Purchase Agreement, after full
execution, acknowledgment and delivery, memorializes and constitutes the
entire agreement and understanding between the parties and supersedes and
replaces all prior negotiations and agreements of the parties, whether
written or unwritten. Each of the parties to this Agreement acknowledges
that no other party, nor any agent or attorney of any other party has made
any promises, representations, or warranty whatsoever, express or implied,
which is not expressly contained in this Agreement; and each party further
acknowledges that he or it has not executed this Agreement in reliance upon
any belief as to any fact not expressly recited hereinabove.
4.05 ATTORNEYS FEES. In the event of a dispute between the parties
concerning the enforcement or interpretation of this Agreement, the
prevailing party in such dispute, whether by legal proceedings or
otherwise, shall be reimbursed immediately for the reasonably incurred
attorneys' fees and other costs and expenses by the other parties to the
dispute.
4.06 INTERPRETATION. Wherever the context so requires: the singular number
shall include the plural; the plural shall include the singular; and the
masculine gender shall include the feminine and neuter genders.
4.07 CAPTIONS. The captions by which the sections and subsections of this
Agreement are identified are for convenience only, and shall have no effect
whatsoever upon its interpretation.
4.08 SEVERANCE. If any provision of this Agreement is held to be illegal or
invalid by a court of competent jurisdiction, such provision shall be
deemed to be severed and deleted; and neither such provision, nor its
severance and deletion, shall affect the validity of the remaining
provisions.
4.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts.
4.10 EXPENSES ASSOCIATED WITH THIS AGREEMENT. Each of the parties hereto
agrees to bear its own costs, attorneys fees and related expenses
associated with this Agreement.
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4.11 ARBITRATION. Any dispute or claim arising to or in any way related to
this Agreement shall be settled by arbitration in San Diego, California.
All arbitration shall be conducted in accordance with the rules and
regulations of the America Arbitration Association ("AAA"). AAA shall
designate an arbitrator from an approved list of arbitrators following
both parties' review and deletion of those arbitrators on the approved
list having a conflict of interest with either party. Each party shall pay
its own expenses associated with such arbitration (except as set forth in
Section 4.05 Above).
A demand for arbitration shall be made within a reasonable time after the
claim, dispute or other matter has arisen and in no event shall such demand
be made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by
the applicable statutes of limitations. The decision of the arbitrators
shall be rendered within 60 days of submission of any claim or dispute,
shall be in writing and mailed to all the parties included in the
arbitration. the decision of the arbitrator shall be binding upon the
parties and judgement in accordance with that decision may be entered in
any court having jurisdiction thereof.
4.12 POWER TO BIND. A responsible officer of the Stockholder has read and
understands the contents of this Agreement and is empowered and duly
authorized on behalf of the Company to execute it.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
FOR THE COMPANY: FOR STOCKHOLDER:
ITEX CORPORATION
By Its duly authorized Agent
ITEX USA, Inc.
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxxxx X. Xxxxxx
----------------------------- --------------------------------
Xxxxx X. Xxxxx
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