EXHIBIT 4.9
THINKBOX INC.
---------------------------------------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
---------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Series C Preferred Stock............................1
1.1 Sale and Issuance of Series C Preferred............................1
1.2 Initial Payment....................................................1
1.3 CompassLearning Payment............................................1
1.4 WRC Payments.......................................................2
1.5 Continued Funding Payments.........................................2
1.6 Post-Exercise Funding..............................................2
1.7 Termination of Funding.............................................3
1.8 Company Legal Fees.................................................3
2. WRC Option...............................................................4
2.1 WRC Option.........................................................4
2.2 Option Consideration...............................................4
2.3 Termination of WRC Option..........................................4
2.4 Merger Agreement...................................................4
3. Company Repurchase Option................................................4
4. Definitions..............................................................5
4.1 Company Material Adverse Effect.....................................5
4.2 Continued Funding...................................................5
4.3 Company Knowledge...................................................5
5. Representations and Warranties of the Company to WRC.....................5
5.1 Corporate Organization and Authority...............................5
5.2 Capitalization.....................................................6
5.3 Subsidiaries.......................................................7
5.4 Authorization......................................................7
5.5 Validity of Series C Preferred.....................................7
5.6 No Conflict with Other Instruments; Compliance with Laws...........8
5.7 Agreements; Actions................................................8
5.8 Litigation........................................................10
5.9 Title to Property and Assets; Leases..............................11
5.10 Patents and Other Proprietary Rights..............................11
5.11 Confidential Information and Intellectual Property Assignments....12
5.12 Registration Rights...............................................12
5.13 Brokers and Finders...............................................13
5.14 Governmental Consents.............................................13
5.15 Corporate Documents...............................................13
5.16 Minute Books......................................................13
-ii-
TABLE OF CONTENTS
(continued)
Page
----
5.17 Disclosure........................................................13
5.18 No Conflict of Interest...........................................13
5.19 Financial Statements; Undisclosed Liabilities; Absence
of Changes........................................................14
5.20 Taxes.............................................................14
5.21 Permits...........................................................16
5.22 Employee Benefits.................................................16
5.23 Employee and Labor Matters........................................17
5.24 Insurance.........................................................17
5.25 Effect of Transaction.............................................17
5.26 Operating Deficits................................................17
5.27 Information Supplied..............................................18
6. Representations and Warranties of WRC...................................18
6.1 Organization, Standing and Power..................................18
6.2 Authorization.....................................................18
6.3 Capital Structure.................................................18
6.4 Brokers and Finders...............................................19
6.5 Securities Laws...................................................19
6.6 Legends...........................................................20
6.7 Tax Advisors......................................................21
6.8 SEC Documents; WRC Financial Statements...........................21
6.9 No Material Adverse Change........................................22
6.10 Litigation........................................................22
6.11 Information Supplied..............................................22
7. Conditions of WRC's Obligations at the Closings.........................22
7.1 Representations and Warranties....................................22
7.2 Performance.......................................................22
7.3 Blue Sky Compliance...............................................23
7.4 Rights Agreement, Co-Sale Agreement...............................23
7.5 Proceedings Satisfactory..........................................23
7.6 Certified Charter Documents.......................................23
7.7 Amended and Restated Certificate of Incorporation.................23
7.8 Opinion of Company Counsel........................................23
7.9 Conversion Shares.................................................23
7.10 CompassLearning...................................................23
7.11 Voting Agreement..................................................23
7.12 No Litigation.....................................................23
7.13 Credit Agreement..................................................24
7.14 Delivery of Shares................................................24
-iii-
TABLE OF CONTENTS
(continued)
Page
----
8. Conditions of the Company's Obligations at the Closings.................24
8.1 Representations and Warranties....................................24
8.2 Rights Agreement, Right of First Refusal and Co-Sale..............24
8.3 Performance.......................................................24
8.4 Amended and Restated Certificate of Incorporation.................25
8.5 Blue Sky Compliance...............................................25
8.6 Payment of Purchase Price.........................................25
8.7 Weekly Reader.....................................................25
8.8 Voting Agreement..................................................25
9. Covenants of the Company................................................25
9.1 Access............................................................25
9.2 Conduct of Business...............................................25
9.3 Advise of Changes.................................................27
9.4 Use of Proceeds...................................................28
9.5 Effectiveness of the Merger Agreement.............................28
10. Indemnification.........................................................28
10.1 Indemnification...................................................28
10.2 Adjustment For Indemnification by the Company.....................29
10.3 Procedures Relating to Indemnification............................29
10.4 Reduction of Payments, Continued
Funding and Post-Exercise Funding.................................31
11. Additional Agreements...................................................31
11.1 Reasonable Best Efforts...........................................31
11.2 Frustration of Closing Conditions.................................31
12. Termination.............................................................31
12.1 Termination.......................................................31
12.2 Other Agreements; Material To Be Returned.........................32
12.3 Effect of Termination.............................................33
13. Miscellaneous...........................................................33
13.1 Entire Agreement; Successors and Assigns..........................33
13.2 Transfers and Assignments.........................................33
13.3 Governing Law.....................................................33
13.4 Counterparts......................................................33
13.5 Headings..........................................................34
13.6 Notices...........................................................34
13.7 Survival of Representations and Warranties........................34
-iv-
TABLE OF CONTENTS
(continued)
Page
----
13.8 Amendment of Agreement............................................34
13.9 Finders Fees......................................................34
13.10 Expenses..........................................................34
13.11 Aggregation of Stock..............................................34
13.12 Severability......................................................34
13.13 Attorneys' Fees and Expenses......................................35
13.14 Delays or Omissions...............................................35
13.15 Enforcement.......................................................35
13.16 Solicitation of Employees.........................................35
-v-
EXHIBITS
Exhibit A -- Schedule of Payments
Exhibit B -- Second Amended and Restated Certificate of Incorporation
Exhibit C -- First Amended and Restated Investors' Rights Agreement
Exhibit D -- First Amended and Restated Right of First Refusal
and Co-Sale Agreement
Exhibit E -- Form of Legal Opinion
Exhibit F -- Option Payment Schedule
Exhibit G -- Irrevocable Proxy and Voting Agreement
Exhibit H -- License Agreement
Exhibit I -- Amendment to Distribution Agreement
Exhibit J -- Merger Agreement
Exhibit K -- Form of Confidential Information and Intellectual
Property Assignment Agreement
Exhibit L -- Consent Solicitation and Information Statement
-vi-
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of May __, 2001 (the "Effective Date"), by and among ThinkBox Inc., a
Delaware corporation (the "Company"), and WRC Media Inc., a Delaware corporation
("WRC").
R E C I T A L S:
---------------
A. The Board of Directors of the Company has adopted the Second
Amended and Restated Certificate of Incorporation (the "Certificate") attached
hereto as Exhibit B, which, among other matters, establishes the rights,
preferences and privileges of the Company's Series C Preferred Stock ("Series C
Preferred").
B. The Company desires to sell shares of Series C Preferred to
WRC and WRC desires to purchase shares of Series C Preferred, on the terms and
subject to the conditions set forth in this Agreement.
C. In connection with the sale by the Company of shares of Series
C Preferred to WRC, the Company wishes to grant WRC and WRC wishes to acquire an
option to acquire the Company, on the terms and subject to the conditions set
forth in this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. Purchase and Sale of Series C Preferred Stock.
1.1 Sale and Issuance of Series C Preferred. The Company shall sell
to WRC and WRC shall purchase from the Company, the number of shares of Series C
Preferred set forth on Exhibit A in exchange for the payments set forth on
Exhibit A and the rights granted to the Company pursuant to the License
Agreement (the "License Agreement") attached hereto as Exhibit H, on the terms
and subject to the conditions set forth in this Agreement. The shares of Series
C Preferred sold to WRC are referred to as the "Shares."
1.2 Initial Payment. The initial purchase and sale of the Shares
shall take place on the initial closing date of the sale by the Company to WRC
of the Shares pursuant to this Agreement, or on such other date as the Company
and WRC mutually agree, but in no event later than three (3) business days from
the Effective Date (the "Initial Closing Date"). At the initial closing (the
"Initial Closing"), WRC shall deliver to the Company (a) an executed counterpart
of this Agreement and (b) a check, wire transfer or cancellation of indebtedness
(or any combination thereof) in the aggregate amount specified for the initial
payment pursuant to the Schedule of Payments attached as Exhibit A hereto.
1.3 CompassLearning Payment. In consideration for the Company
extending the distribution agreement dated September 15, 2000, between the
Company and CompassLearning Inc. (the "Distribution Agreement") as provided in
Section 7.10 of this Agreement, WRC has made a payment by cash or wire transfer
to the Company in the amount of $350,000 on March 16, 2001 (the "CompassLearning
Payment"). The Company shall issue to WRC 1,267,569 Shares at the Initial
Closing for the CompassLearning Payment.
1.4 WRC Payments. WRC shall make payments to the Company pursuant to
the Schedule of Payments attached as Exhibit A hereto (the "Payments"), and the
Company shall, on the dates and for the amounts set forth on Exhibit A (each
such payment being a "Monthly Payment Closing" and the date of each Monthly
Payment Closing being a "Monthly Payment Closing Date"), sell to WRC the number
of shares of Series C Preferred set forth on Exhibit A. All such sales shall be
made on the terms and conditions set forth in this Agreement. Any shares of
Series C Preferred sold pursuant to this Section 1.4 shall be deemed to be
"Shares" for all purposes under this Agreement. The Shares issued to WRC in
return for the Payments, the CompassLearning Payment and the Company Legal Fees
(as defined in Section 1.8) shall represent, in the aggregate, 38% of the
Capital Stock (as defined below) of the Company on a fully-diluted basis.
1.5 Continued Funding Payments. In exchange for any Continued
Funding (as defined in Section 4.2), no later than 14 months from the Effective
Date, the Company shall issue to WRC the number of additional shares of Series C
Preferred that will provide WRC with the additional percentage ownership of the
Company equal to (i) the aggregate Continued Funding divided by (ii) the total
value of the Company as determined by multiplying the consideration WRC would
pay in connection with the WRC Option and as set forth on Exhibit F hereto by
1.4925. Any shares of Series C Preferred sold pursuant to this Section 1.5 shall
be deemed to be "Shares" for all purposes under this Agreement.
1.6 Post-Exercise Funding. From the date of the Option Exercise to
the later of the date that is 12 months subsequent to the date of the Initial
Closing or the Option Closing Date (as defined in Section 2.1), WRC shall
continue to make monthly payments to the Company and to fund the projected
operating deficits of the Company, consistent with past practice and future
needs (the "Post-Exercise Funding"), as such payments and projected operating
deficits are mutually agreed to by WRC and the Company and detailed in Section
5.26 of the Company Disclosure Letter (as defined in Section 5) (each such
payment being a "Post-Exercise Funding Closing" and the date of each
Post-Exercise Funding Closing being a "Post-Exercise Funding Closing Date"). In
exchange for any Post-Exercise Funding, no later than 14 months from the
Effective Date, the Company shall issue to WRC the number of additional shares
of Series C Preferred that will provide WRC with the additional percentage
ownership of the Company equal to (i) the aggregate Post-Exercise Funding
divided by (ii) the total value of the Company as determined by multiplying the
consideration WRC would pay in connection with the WRC Option and as set forth
on Exhibit F hereto by 1.4925. Any shares of Series C Preferred sold pursuant to
this Section 1.6 shall be deemed to be "Shares" for all purposes under this
Agreement. Post-Exercise Funding shall terminate upon the termination of this
Agreement.
-2-
1.7 Termination of Funding.
(a) WRC Voluntary Termination. WRC may terminate the Payments,
Continued Funding or Post-Exercise Funding at any time upon fifteen (15) days'
prior written notice to the Company. Except as provided in Section 1.7(b), upon
such termination (i) WRC shall make a payment to the Company by cash or wire
transfer in the amount of $714,286 within ten (10) days of such termination;
(ii) the Company shall sell to WRC the shares of Series C Preferred equal to the
number of shares which it would receive in the aggregate at two Monthly Payment
Closings and (iii) except in the case of termination of Post-Exercise Funding,
the WRC Option (as defined in Section 2.1) shall terminate immediately.
(b) Termination for Breach. To terminate the Payments, Continued
Funding or Post-Exercise Funding for material breach by the Company of any of
its representations, warranties or covenants under this Agreement, WRC must
first provide written notice of such material breach (the "Notice of Breach").
If the Company has not cured such material breach within 30 days of receipt of
the Notice of Breach, WRC may terminate the Payments, Continued Funding or
Post-Exercise Funding without regard to clauses (i) and (ii) of Section 1.7(a);
provided, however, that WRC may suspend the Payments, Continued Funding or
Post-Exercise Funding pending the cure of such material breach by the Company.
In addition, except in the case of termination of Post-Exercise Funding, the WRC
Option (as defined in Section 2.1) shall not terminate if the Company cures such
material breach (i) within 60 days of receipt of the Notice of Breach or (ii)
within 90 days of receipt of the Notice of Breach, if such Notice of Breach is
received during the Option Term (as defined in Section 2.1) (each, a "Cure
Period"); provided, however, in the event that the Company determines within
five days of receipt of the Notice of Breach that the Company is incapable of
curing such material breach, the Company shall notify WRC in writing of such
determination within such five-day period and the WRC Option shall terminate (i)
30 days after receipt of the Notice of Breach or (ii) 60 days after receipt of
the Notice of Breach, if such Notice of Breach is received during the Option
Term.
1.8 Company Legal Fees. In addition to any other payments made by
WRC pursuant this Xxxxxxx 0, XXX shall pay to the Company an amount equal to the
fees and expenses of the Company's legal counsel, Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, P.C. and Xxxx Xxxxxxx LLP, incurred in connection with the Agreements
(as defined in Section 5.1(b)) and the transactions contemplated thereby, in the
amount of $200,000 (the "Company Legal Fees"). Such payment shall be paid to the
Company at the Initial Closing in accordance with Section 13.10 hereof. The
Company shall issue to WRC 724,325 Shares at the Initial Closing in connection
with WRC's payment of the Company Legal Fees.
-3-
2. WRC Option.
2.1 WRC Option. During the six-month term beginning October 15, 2001
and ending April 15, 2002, which term shall be extended by any Cure Period
pursuant to Section 1.7(b) (the "Option Term"), WRC shall have an option (the
"WRC Option") to acquire in a single transaction all of the then outstanding
shares of capital stock of the Company not already owned by WRC through a merger
of the Company with and into TBI Acquisition Corp., a Delaware corporation ("WRC
Sub") (or as otherwise structured by WRC as permitted under the Merger Agreement
(as defined in Section 2.4)) (the "Merger"), pursuant to the execution of the
Merger Agreement (the "Closing" as defined in the Merger Agreement being the
"Option Closing" on the "Option Closing Date"). The Merger is intended to be a
tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). To exercise the WRC Option, WRC
must have, on the date of exercise, (a) made all Payments as set forth on
Exhibit A; (b) provided uninterrupted Continued Funding if the Option is
exercised after October 15, 2001 and (c) provided written notice to the Company
of its election to exercise the WRC Option (the "Option Exercise"). Upon the
Option Exercise, Continued Funding shall cease and the Option Term shall end.
2.2 Option Consideration. The consideration to be paid by WRC in
connection with the Merger shall be in the form of WRC common stock, in the
amounts and pursuant to the table set forth on Exhibit F hereto.
2.3 Termination of WRC Option. WRC's rights under the WRC Option
shall terminate upon the earlier of the termination of Continued Funding or the
Payments, in each case pursuant to Section 1.7 above.
2.4 Merger Agreement. On the date hereof, the Agreement and Plan of
Reorganization (the "Merger Agreement") attached hereto as Exhibit J shall be
entered into by the Company, WRC, WRC Sub and the shareholders of the Company.
The execution and delivery of the Merger Agreement shall not become effective
until the Option Exercise.
3. Company Repurchase Option. If (i) the WRC Option is not exercised on
or before the last day of the Option Term, (ii) WRC fails to provide (except
pursuant to Section 1.7(b)) or terminates the Payments or any Continued Funding
pursuant to Section 1.7(a) or (iii) WRC terminates the Post-Exercise Funding
pursuant to Section 1.7(a) or fails to provide the Post-Exercise Funding within
30 days after receipt of written notice from the Company to WRC of such failure,
the Company shall have an option to repurchase (the "Repurchase Option") all
shares of the Company's capital stock then owned by WRC at the original purchase
price of such shares, plus 7% interest compounded annually. The Repurchase
Option shall be exercisable during the period beginning on the earlier of (i)
the day after the last day of the Option Term and (ii) the termination of the
WRC Option, and ending six months after the beginning of the term of the
Repurchase Option. A termination of Payments, Continued Funding or Post-Exercise
Funding for material breach pursuant to Section 1.7(b) shall not affect the
Repurchase Option if the Company cures such material breach within the
applicable 30-day period).
-4-
4. Definitions. For purposes of this Agreement:
4.1 Company Material Adverse Effect. "Company Material Adverse
Effect" shall mean an effect which is materially adverse as to (i) the business,
prospects, assets, condition (financial or otherwise) or results of operations
of the Company, (ii) the ability of the Company to perform its obligations under
this Agreement or (iii) the ability of the Company to consummate the Agreements
(as defined in Section 5.1(b)) and the transactions contemplated thereby.
4.2 Continued Funding. "Continued Funding" shall mean monthly
payments paid by WRC to the Company beginning November 15, 2001 through the end
of the Option Term in amounts equal to the monthly Payments, each such payment
being a "Monthly Continued Funding Closing" and, together with the Initial
Closing and the Monthly Payment Closings and the Post-Exercise Funding Closings,
the "Closings," and the date of each Monthly Continued Funding Closing being a
"Monthly Continued Funding Closing Date" and, together with the Initial Payment
Date and the Monthly Payment Dates and the Post-Exercise Funding Closing Dates,
the "Closing Dates."
4.3 Company Knowledge. "To the knowledge of the Company" or similar
phrases shall mean to the knowledge of Xxxxx X. Xxxxxx, after reasonable due
inquiry by Xx. Xxxxxx.
5. Representations and Warranties of the Company to WRC. Except as set
forth in the letter dated as of the date of this Agreement, from the Company to
WRC (the "Company Disclosure Letter"), the Company hereby represents, warrants
and covenants to WRC that:
5.1 Corporate Organization and Authority. The Company:
(a) is a corporation duly incorporated, validly existing,
authorized to exercise all its corporate powers, rights and privileges, and is
in good standing in the State of Delaware and has full corporate power and
authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, lease or otherwise
hold its properties and assets and to conduct its businesses as presently
conducted, other than such franchises, licenses, permits, authorizations and
approvals the lack of which, individually or in the aggregate, has not had and
could not reasonably be expected to have a Company Material Adverse Effect;
(b) has all requisite corporate power and corporate authority to
execute and deliver this Agreement, the First Amended and Restated Investors'
Rights Agreement (the "Rights Agreement") attached hereto as Exhibit C, the
First Amended and Restated Right of First Refusal and Co-Sale Agreement (the
"Co-Sale Agreement") attached hereto as Exhibit D, the Irrevocable Proxy and
Voting Agreement (the "Voting Agreement") attached hereto as Exhibit G, the
License Agreement and the Merger Agreement (this Agreement, the Rights
Agreement, the Co-Sale Agreement, the Voting Agreement, the License Agreement
and the Merger Agreement are collectively referred to as the "Agreements") and
consummate the transactions contemplated hereby and thereby and to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted; and
-5-
(c) is qualified as a foreign corporation and is in good
standing in each jurisdiction where the nature of its business or its ownership
or leasing of its properties make such qualification necessary or the failure to
so qualify has had or could reasonably be expected to have a Company Material
Adverse Effect.
5.2 Capitalization. Immediately prior to the Initial Closing, the
authorized capital of the Company shall consist of:
(a) Preferred Stock. 33,040,000 shares of Preferred Stock, par
value $0.001 per share ("Preferred Stock"); 1,750,000 of which are designated
Series A Preferred Stock ("Series A Preferred"), of which 973,947 are issued and
outstanding; 4,290,000 of which are designated Series B Preferred Stock ("Series
B Preferred"), of which 2,737,185 shares are issued and outstanding; and
27,000,000 of which are designated Series C Preferred Stock, none of which are
issued and outstanding.
(b) Common Stock. 45,000,000 shares of Common Stock par value
$0.001 per share ("Common Stock" and, together with the Preferred Stock,
"Capital Stock"), of which 9,912,390 shares are issued and outstanding. The
Company has reserved 1,500,000 shares of Common Stock for issuance pursuant to
the Stock Plan, 1,031,636 of which shares of Common Stock or options therefor
are issued and outstanding.
(c) Other. Except as set forth above and except as set forth in
Section 5.2 of the Company Disclosure Letter, no shares of Capital Stock or
other voting securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of Capital Stock are duly authorized,
validly issued, fully paid and nonassessable and not subject to or issued in
violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the General Corporation Law of the State of Delaware (the "DGCL"), the
Certificate, the Bylaws of the Company or any Contract (as defined in Section
5.6) to which the Company is a party or otherwise bound. There are not any
bonds, debentures, notes or other indebtedness of the Company having the right
to vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which holders of Common Stock may vote ("Voting
Company Debt"). Except as set forth above, as of the date of this Agreement,
there are not any options, warrants, rights, convertible or exchangeable
securities, "phantom" stock rights, stock appreciation rights, stock-based
performance units, commitments, Contracts, arrangements or undertakings of any
kind to which the Company is a party or by which it is bound (i) obligating the
Company to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of Capital Stock or other equity interests in, or any security
convertible or exercisable for or exchangeable into any Capital Stock of or
other equity interest in, the Company or any Voting Company Debt, (ii)
obligating the Company to issue, grant, extend or enter into any such option,
warrant, call, right, security, commitment, Contract, arrangement or undertaking
or (iii) that give any person the right to receive any economic benefit or right
similar to or derived from the economic benefits and rights occurring to holders
of Common Stock. As of the date of this Agreement, there are not any outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company. Section 5.2 of Company
Disclosure Letter sets forth the name of each registered holder of Capital Stock
and the number of shares of Common Stock and/or Preferred Stock owned by such
holder.
-6-
5.3 Subsidiaries. The Company does not own, have any investment in,
or control, directly or indirectly, any subsidiaries, associations or other
business entities. The Company is not a participant in any joint venture or
partnership.
5.4 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of, and performance of all obligations under the
Agreements, and for the issuance and delivery of the Shares and of the Common
Stock issuable upon conversion of the Shares, has been taken. The Agreements
constitute legally binding, valid obligations of the Company enforceable against
the Company in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) to the extent the indemnification
provisions contained in the Rights Agreement may be limited by applicable
federal or state securities laws. The Board of Directors of the Company has duly
and unanimously adopted resolutions (i) approving this Agreement and the other
transactions contemplated hereby and (ii) adopting this Agreement. The only vote
of holders of Company securities necessary to approve and adopt this Agreement
and the transactions contemplated hereby is the adoption of this Agreement and
the transactions contemplated hereby by (i) the holders of a majority of the
shares of Common Stock, voting as a separate class, (ii) the holders of a
majority of the shares of Series A Preferred, voting together as a separate
class and (iii) the holders of a majority of the shares of Series B Preferred,
voting together as a separate class.
5.5 Validity of Series C Preferred. The Shares, when issued, sold,
and delivered in accordance with the terms and for the consideration expressed
in this Agreement, shall be duly and validly issued (including, without
limitation, issued in compliance with applicable federal and state securities
laws), fully paid and non-assessable and free from any liens or encumbrances,
other than those accepted or imposed by the holders thereof, and applicable
state and federal securities laws restrictions on transfer to which such Shares
are subject. The Common Stock issuable upon conversion of the Shares, assuming
such Common Stock is issued to WRC or WRC Sub or qualified transferees, upon
issuance in accordance with the Certificate, shall be duly and validly issued
(including, without limitation, issued in compliance with all applicable federal
and state securities laws), fully paid and non-assessable and free from any
liens or encumbrances other than those accepted or imposed by the holders
thereof and the applicable state and federal securities laws restrictions on
transfer to which such Shares are subject.
-7-
5.6 No Conflict with Other Instruments; Compliance with Laws. The
execution, delivery and performance of the Agreements, and the consummation of
the transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof, will not result in any violation of, or be in conflict with,
or constitute a default under, with or without the passage of time or the giving
of notice, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements of any person
under, or result in the creation of any Lien (as defined in Section 5.9) upon
any of the properties or assets of the Company under, any provision of (i) its
Certificate or Bylaws, (ii) any contract, lease, license, indenture, note, bond,
agreement, permit, concession, franchise or other instrument (a "Contract") to
which the Company is a party or by which any of its properties or assets is
bound or (iii) subject to the filings and other matters referred to in Section
5.14, any judgment, order or decree ("Judgment") or statute, law (including
common law), ordinance, rule or regulation ("Applicable Law") applicable to the
Company or its properties or assets, other than any such items that,
individually or in the aggregate, have not had and could not reasonably be
expected to have a Company Material Adverse Effect.
(a) The Company is in compliance with all Applicable Laws,
including those relating to occupational health and safety or the environment
except where the failure to be in compliance has not had and could not
reasonably be expected to have a Company Material Adverse Effect. None of the
Company and its affiliates has received within the past two years any written or
oral communication from any person that alleges that the Company is not in
compliance in any material respect with any Applicable Law. This Section 5.6
does not relate to matters with respect to Taxes, which are the subject of
Section 5.20.
5.7 Agreements; Actions.
(a) There are no agreements, understandings, arrangements or
proposed transactions between the Company and any of its employees, officers,
directors, affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, arrangements or proposed transactions to which the Company is a party
or by which it is bound that involve any:
(i) obligations of, or payments to, the Company in excess of
$50,000;
(ii) covenant not to compete or other covenant of the
Company restricting the development, manufacture, marketing or distribution of
the products and services of the Company;
-8-
(iii) collective bargaining unit;
(iv) employment agreement or employment contract (written or
oral) that is not terminable by the Company by notice of not more than 30 days
without payment or penalty;
(v) Contract with (A) any shareholder or affiliate of the
Company or (B) any current or former officer, director or employee of the
Company or any of its affiliates (other than employment agreements covered by
clause (i) above), other than agreements entered in connection with the
Company's offerings of Preferred Stock between the Company and the purchasers of
such stock, copies of which have been delivered to WRC;
(vi) lease, sublease or similar agreement with any person
under which the Company is a lessor or sublessor of, or makes available for use
to any person, any portion of any premises occupied by the Company pursuant to
the lease of any real property by the Company (the "Lease") or otherwise;
(vii) license, sublicense, option or other agreement
relating in whole or in part to the Intellectual Property set forth in Section
5.10 of Company Disclosure Letter (including any license or other agreement
under which the Company is licensee or licensor of any such Intellectual
Property);
(viii) (A) Contract under which the Company has borrowed any
money from, or issued any note, bond, debenture or other evidence of
indebtedness to, any person or (B) other note, bond, debenture or other evidence
of indebtedness issued to any person;
(ix) Contract (including any so-called take-or-pay or
keepwell agreement) under which (A) any person has directly or indirectly
guaranteed indebtedness, liabilities or obligations of the Company or (B) the
Company has directly or indirectly guaranteed indebtedness, liabilities or
obligations of any other person (in each case other than endorsements for the
purpose of collection in the ordinary course of business);
(x) Contract under which the Company has, directly or
indirectly, made any advance, loan, extension of credit or capital contribution
to, or other investment in, any person;
(xi) a mortgage, pledge, security agreement, deed of trust
or other instrument granting a lien or other encumbrance upon any property or
asset of the Company;
(xii) Contract providing for indemnification of any person
with respect to liabilities relating to any current or former business of the
Company or any predecessor person;
-9-
(xiii) power of attorney (other than a power of attorney
given in the ordinary course of the Company's business with respect to routine
tax matters);
(xiv) confidentiality agreement, except for the agreements
referenced in Section 5.11 of this Agreement and all confidentiality agreements
entered into in the ordinary course of business and which do not relate to any
business combination transaction or sale of any material assets;
(xv) Contract for the sale of any asset (other than
inventory sales in the ordinary course of business) or the grant of any
preferential rights to purchase any asset or requiring the consent of any party
to the transfer thereof;
(xvi) Contract with or license by or from any Governmental
Entity (as defined in Section 5.14);
(xvii) currency exchange, interest rate exchange, commodity
exchange or similar agreement or instrument;
(xviii) Contract for any joint venture, partnership or
similar arrangement;
(xix) any other material agreement or agreement not in the
ordinary course of business.
(c) All agreements, contracts, leases, licenses and commitments
on instruments of the Company listed in Company Disclosure Letter (collectively
the "Company Contracts") are valid, binding and in full force and effect and are
enforceable by the Company in accordance with their terms. The Company has
performed all material obligations required to be performed by it under the
Company Contracts, and it is not (with or without the lapse of time or the
giving of notice, or both) in material breach or default in any respect
thereunder and, to the knowledge of the Company, no other party to any Company
Contract is (with or without the lapse of time or the giving of notice, or both)
in material breach or default in any respect thereunder. The Company has not
received any notice of the intention of any party to terminate any Company
Contract. Complete and correct copies of all Company Contracts, together with
all modifications and amendments thereto, have been delivered to WRC.
(d) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its Capital Stock, (ii) made any loans or advances to any person, other than
ordinary advances for travel expenses, (iii) sold, exchanged or otherwise
disposed of any of its material assets or rights or (iv) agreed to any of the
foregoing.
-10-
5.8 Litigation. There is no legal action, proceeding or
investigation pending or, to the Company's knowledge, threatened, that questions
the validity of the Agreements, or the right of the Company to enter into the
Agreements or to consummate the transactions contemplated hereby and thereby, or
that, as of the day hereof, relates to or involves more than $50,000 or that
could be reasonably excepted to have, either individually or in the aggregate, a
Company Material Adverse Effect, nor is the Company aware that there is any
basis for the foregoing. The Company has no current intention to commence
litigation against any other party, nor is the Company a party to any pending
litigation or arbitration. The Company is not a party or subject to or in
default under any Judgment. There is no pending or, to the knowledge of the
Company, threatened investigation of or affecting the Company or its business or
assets as of the date hereof or that could reasonably be expected to have a
Company Material Adverse Effect.
5.9 Title to Property and Assets; Leases. The Company has good and
marketable title to, or valid leasehold interests in, all its properties and
assets except for such as have been disposed of in the ordinary course of
business. All such assets and properties, other than assets and properties in
which the Company has leasehold interests, are free and clear of all mortgages,
liens, security interests, charges, easements, leases, subleases, covenants,
rights of way, options, claims, restrictions or encumbrances of any kind
(collectively, "Liens") other than (a) liens imposed by law and incurred in the
ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like and (b) liens for current taxes
not delinquent. This Section 5.9 does not relate to Intellectual Property, which
is the subject of Section 5.10. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
5.10 Patents and Other Proprietary Rights.
(a) All patents, trademarks (registered or unregistered), trade
names, service marks and copyrights and applications therefor and other
intellectual property and proprietary rights, whether or not subject to
statutory registration or protection (collectively, "Intellectual Property"),
owned, used, filed by or licensed to the Company (other than customary end-user
license agreements for commercially available software and except for such
Intellectual Property the failure of which to own, license or otherwise have the
right to use, individually or in the aggregate, could not reasonably be expected
to have a Company Material Adverse Effect) are set forth in a true and complete
list in Section 5.10 of the Company Disclosure Letter. Except as set forth in
Company Disclosure Letter, the Company owns, and the Company has the right to
use, execute, reproduce, display, perform, modify, enhance, distribute, prepare
derivative works of and sublicense, without payment to any other person, the
Intellectual Property and the consummation of the transactions contemplated
hereby will not conflict with, alter or impair any such rights. The Company has
all rights to Intellectual Property as are necessary in connection with the
business of the Company as presently conducted and as is proposed to be
conducted.
-11-
(b) The Company has not granted any options, licenses or
agreements of any kind relating to Intellectual Property listed in Section 5.10
of Company Disclosure Letter or the marketing or distribution thereof. The
Company is not a party to any options, licenses or agreements of any kind
relating to the Intellectual Property of any other person. Subject to the rights
of third parties set forth in Section 5.10 of Company Disclosure Letter, all
Intellectual Property owned by the Company and licensed by the Company is free
and clear of the claims of others and of all liens, security interests and
encumbrances whatsoever. The conduct of the business of the Company as presently
conducted does not, and to the Company's knowledge, the conduct of such business
as proposed to be conducted will not, violate, conflict with or infringe the
Intellectual Property of any other person. Except as set forth in Section 5.10
of Company Disclosure Letter, (i) no claims are pending or, to the knowledge of
the Company, threatened, against the Company by any person with respect to the
ownership, validity, enforceability, effectiveness or use of any Intellectual
Property and (ii) the Company has not received any communications alleging that
the Company has violated any rights relating to Intellectual Property of any
person. To the knowledge of the Company, no person has violated or infringed any
of the Company's rights relating to the Intellectual Property.
(c) The Intellectual Property has been maintained in confidence
in accordance with protection procedures customarily used in the industry of the
Company to protect rights of like importance. All former and current members of
management and key personnel of the Company, including all former and current
employees, agents, consultants and independent contractors who have contributed
to or participated in the conception and development of software or other
Intellectual Property (collectively, "Personnel"), have executed and delivered
to the Company a proprietary information agreement restricting such person's
right to disclose proprietary information of the Company. All former and current
Personnel either (i) have been party to a "work-for-hire" arrangement or
agreement with the Company, in accordance with applicable Federal and state law,
that has accorded the Company full, effective, exclusive and original ownership
of all tangible and intangible property thereby arising or (ii) have executed
appropriate instruments of assignment in favor of the Company as assignee that
have conveyed to the Company full, effective and exclusive ownership of all
tangible and intangible property thereby arising. No former or current Personnel
have any claim against the Company in connection with such person's involvement
in the conception and development of any Intellectual Property and no such claim
has been asserted or is threatened. None of the current officers and employees
of the Company have any patents issued or applications pending for any device,
process, design or invention of any kind now used or needed by the Company in
the furtherance of its business operations, which patents or applications have
not been assigned to the Company, with such assignment duly recorded in the
United States Patent Office.
5.11 Confidential Information and Intellectual Property Assignments.
Each employee of the Company has executed and delivered to the Company an
Confidential Information and Intellectual Property Assignment Agreement in
substantially the form attached as Exhibit K. The Company is not aware that any
of its employees are in violation thereof, and the Company will use commercially
reasonable efforts to prevent any such violation.
5.12 Registration Rights. Except as provided in the Rights
Agreement, the Company is under no contractual obligation to register under the
Securities Act of 1933, as amended (the "Securities Act"), any of its currently
outstanding securities or any of its securities that may subsequently be issued.
-12-
5.13 Brokers and Finders. The Company has not retained any
investment banker, broker or finder in connection with the sale of the Shares
and owes no advisement, broker's or finder's fee. The estimated fees and
expenses incurred and to be incurred by the Company in connection with the
Agreements and the other transactions contemplated thereby (including the fees
of the Company's legal counsel to be paid pursuant to Section 13.10) are set
forth in Section 5.13 of the Company Disclosure Letter.
5.14 Governmental Consents. No consent, approval, permit, order or
authorization ("Consent") of, or registration, qualification, designation,
declaration or filing with or permit from, any federal, state, local, provincial
or Foreign governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") on the part of the Company is required in connection with
the execution, delivery and performance of the Agreements or the consummation of
the transactions contemplated thereby, except for (i) qualification (or taking
such action as may be necessary to secure an exemption from qualification) under
the California Corporate Securities Laws and other applicable blue sky laws of
the Shares (and the shares of Common Stock issuable upon conversion thereof),
(ii) compliance with and filings under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), if applicable, (iii) any
applicable requirements of the Securities Act, (iv) such filings as may be
required in connection with the taxes described in Section 5.20, (v) the filing
and recordation of appropriate merger documents as required by the DGCL and (vi)
such other items as are set forth in Section 5.14 of Company Disclosure Letter.
5.15 Corporate Documents. The Company has delivered to WRC true and
complete copies of its Certificate and Bylaws.
5.16 Minute Books. The minute books of the Company made available to
WRC contain a complete summary of all meetings of directors and stockholders
since the time of incorporation and accurately reflect in all material respects
all actions taken during such meetings.
5.17 Disclosure. The Company has provided WRC with all the
information that WRC has requested for deciding whether to acquire the Shares.
No representation or warranty of the Company contained in this Agreement and the
exhibits attached hereto or any certificate furnished or to be furnished to WRC
at the Closings (when read together) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. The financial projections relating to the Company
delivered to WRC were prepared on the basis of assumptions the Company
reasonably believed in good faith at the time of preparation to be reasonable
and the Company has no knowledge of any fact or information that would lead it
to believe that such assumptions are incorrect or misleading in any material
respect.
-13-
5.18 No Conflict of Interest. The Company is not indebted, directly
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
for the relocation expenses of employees. To the Company's knowledge, none of
the Company's officers or directors, or any members of their immediate families,
are, directly or indirectly, indebted to the Company (other than in connection
with purchases of the Company's stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation that
competes with the Company except that officers, directors, or stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
To the Company's knowledge, none of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
5.19 Financial Statements; Undisclosed Liabilities; Absence of
Changes.
(a) Section 5.19 of Company Disclosure Letter sets forth the
income statements of the Company for the month and year ended December 31, 1999
(the "1999 Income Statement") and for the month and year ended December 31, 2000
(the "Income Statement") and the balance sheets of the Company as of December
31, 1999 (the "1999 Balance Sheet") and as of December 31, 2000 (the "Balance
Sheet", together with the 1999 Balance Sheet, the 1999 Income Statement and
Income Statement, the "Financial Statements"). The Financial Statements have
been prepared in conformity with GAAP consistently applied (except in each case
as described in the notes thereto) and on that basis fairly present in all
material respects the financial condition and results of operations of the
Company as of the respective dates thereof and for the respective periods
indicated.
(b) The Company does not have any liabilities or obligations of
any nature (whether accrued, absolute, contingent, unasserted or otherwise) that
have had or could reasonably be expected to have a Company Material Adverse
Effect, except (i) as disclosed, reflected or reserved against in the Balance
Sheet and the notes thereto, (ii) for items set forth in Section 5.19(b) of
Company Disclosure Letter and (iii) for liabilities and obligations incurred in
the ordinary course of business of the Company consistent with past practice
since the date of the Balance Sheet and not in violation of this Agreement.
(c) Since the date of the Balance Sheet, there has not been any
material adverse change in the business, prospects, assets, condition (financial
or otherwise) or results of operations of the Company. Since the date of the
Balance Sheet, the Company has caused its business to be conducted in the
ordinary course and in substantially the same manner as previously conducted and
has made all reasonable efforts to preserve the relationships of its business
with customers, suppliers and others with whom its business deals. Since the
date of the Balance Sheet, the Company has not taken any action that, if taken
after the date of this Agreement, would constitute a breach of Section 9.2.
-14-
5.20 Taxes.
(a) The Company has timely filed all Tax Returns required to be
filed by it, and all such Tax Returns are true, complete and correct in all
material respects. All Taxes required to be paid by the Company have been timely
paid, except to the extent that any failure to pay, individually or in the
aggregate, has not had and could not reasonably be expected to have a Company
Material Adverse Effect or such unpaid taxes have been fully reserved on the
Financial Statements of the Company. All Taxes required to be withheld by the
Company have been withheld and have been duly and timely paid to the proper
governmental entity, except to the extent that any failure to withhold,
individually or in the aggregate, has not had and could not reasonably be
expected to have a Company Material Adverse Effect.
(b) The Financial Statements of the Company reflect an adequate
reserve for all Taxes payable by the Company for all periods and portions
thereof through the date of such Financial Statements. No deficiency with
respect to any Taxes has been proposed, asserted or assessed against the
Company, and no requests for waivers of the time to assess any such Taxes have
been made or are pending. No Tax Returns of the Company have ever been audited
or examined, nor is any Tax Return of the Company presently under audit or
examination, by any governmental entity. No written or unwritten notice of any
such audit or examination has been received by the Company.
(c) No assessment for Taxes has ever been made against the
Company. The relevant statute of limitations has not closed with respect to the
federal, foreign and state and local Tax Returns of the Company for any period.
(d) There are no material Liens for Taxes (other than for
current Taxes not yet due and payable) on the assets of the Company. The Company
has no liability for the payment of Taxes of any other entity as a result of
being a member of an affiliated, combined, consolidated or unitary group. The
Company is not bound by any Tax sharing (or similar) agreement with another
person with respect to Taxes. No power of attorney with respect to any Taxes has
been executed or filed with any governmental entity by or on behalf of the
Company.
(e) The Company will not be required to include in a taxable
period ending after the Effective Date taxable income attributable to income
that accrued in a prior taxable period but was not recognized in any prior
taxable period as a result of the installment method of accounting, the
long-term contract method of accounting, the cash method of accounting or
Section 481 of the Code, or any comparable provision of state, local, or foreign
Tax law, or for any other reason.
(f) No consent under Section 341 of the Code has been made with
respect to the Company or any property held by the Company. No property of the
Company is "tax exempt use property" within the meaning of Section 168(h) of the
Code, and the Company is not a party to any lease made pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954. None of the assets of the
Company is subject to a lease under Section 7701(h) of the Code or under any
predecessor section thereof.
-15-
(g) For purposes of this Agreement:
"Taxes" includes all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether imposed by a
local, municipal, governmental, state, foreign, federal or other governmental
entity, or in connection with any agreement with respect to Taxes, including all
interest, penalties and additions imposed with respect to such amounts.
"Tax Return" means all federal, state, local, provincial and foreign
Tax returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax return relating to Taxes.
5.21 Permits. Section 5.21 of the Company Disclosure Letter sets
forth all certificates, licenses, permits, authorizations and approvals
("Permits") issued or granted to the Company by Governmental Entities. Except as
set forth in Section 5.21 of the Company Disclosure Letter, (i) all such Permits
are validly held by the Company, and the Company has complied in all material
respects with all terms and conditions thereof, (ii) neither the Company nor, to
the Company's knowledge, any affiliate of the Company has received notice of any
suit, action or proceeding ("Proceeding") relating to the revocation or
modification of any such Permits the loss of which, individually or in the
aggregate, has had and could reasonably be expected to have a Company Material
Adverse Effect and (iii) none of such Permits will be subject to suspension,
modification, revocation or nonrenewal as a result of the execution and delivery
of this Agreement or the consummation of the transactions.
5.22 Employee Benefits.
(a) Section 5.22 of the Company Disclosure Letter contains a
true and complete list of each benefit, employment, personal services,
compensation, change in control, severance, time-off and perquisite agreement,
plan, policy and other arrangement, relating to one or more employees, directors
and/or independent contractors, maintained by the Company or any of its
subsidiaries, or with respect to which the Company or any of its subsidiaries
has or could have any liability (each a "Benefit Plan"). The Company has
provided WRC with respect to any Benefit Plan true, correct and complete copies
of (1) each of such Benefit Plan (or, in the case of any unwritten Benefit
Plans, written descriptions thereof), (2) the most recent annual report on Form
5500 filed with the Internal Revenue Service (the "IRS") (if any such report was
required), (3) the most recent summary plan description or similar document that
was required to be or was otherwise provided to plan participants or
beneficiaries and (4) each trust agreement and insurance annuity contract.
(b) Each Benefit Plan is now and has always been operated (i)
in accordance with its terms and the provisions of any applicable law as in
effect from time to time, including, but not limited to, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and (ii) in order to minimize
tax liability, the Code. No condition exists with respect to a Benefit Plan that
presents a risk to the Company of incurring any liability under any such law.
-16-
(c) No Benefit Plan (i) provides for defined benefit pension
benefits, (ii) provides any benefits other than on a self-pay basis following
termination of service or employment, (iii) provides any benefit, payment or
right (or increased or accelerated benefit payment or right) with respect to the
transactions contemplated by this Agreement or (iv) is a "multiple employer
plan" or a "multiemployer plan" each within the meaning of ERISA.
5.23 Employee and Labor Matters.
(a) (i) None of the Company's employees are represented by a
union and (ii) to the knowledge of the Company, no union organizational campaign
is in progress as of the date hereof with respect to the employees of the
Company and no question concerning representation of such employees exists. The
Company and each of its subsidiaries have complied in all respects with all
applicable employment and labor laws and there are no pending or threatened
charges against the Company or any of its subsidiaries or any of their current
or former employees. Neither the Company nor any of its subsidiaries has
received notice of the intention of any governmental entity responsible for the
enforcement of labor or employment laws to conduct an investigation of the
Company or any of its subsidiaries.
(b) The Company has provided to WRC the name and address of
each employee, officer and consultant of the Company as of the date of this
Agreement with a current annual salary (including bonus) of $75,000 or greater,
including a description of applicable bonus or benefit plans.
5.24 Insurance. The Company maintains policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses as are, in the Company's judgment, reasonable.
The insurance policies maintained by the Company are listed in Section 5.24 of
Company Disclosure Letter. All such policies are in full force and effect, all
premiums due and payable thereon have been paid (other than retroactive or
retrospective premium adjustments that are not yet, but may be, required to be
paid with respect to any period ending prior to the Effective Date under
comprehensive general liability and workmen's compensation insurance policies),
and no notice of cancellation or termination has been received with respect to
any such policy which has not been replaced on substantially similar terms prior
to the date of such cancellation. The Company has conducted its business in a
manner so as to conform in all material respects to all applicable provisions of
such insurance policies.
5.25 Effect of Transaction. No creditor, employee, client, customer
or other person having a material business relationship with the Company has
informed the Company that such person intends to materially change such
relationship because of the transactions contemplated by the Agreements.
5.26 Operating Deficits. Set forth in Section 5.26 of the Company
Disclosure Letter are the Company's projected operating deficits from the date
of this Agreement to 12 months from the date hereof and the schedule of
Post-Exercise Funding payments.
-17-
5.27 Information Supplied. Other than information supplied by WRC to
the Company in writing or incorporated by reference by such information, none of
the information included in or incorporated by reference in the Consent
Solicitation and Information Statement attached as Exhibit L hereto (the
"Information Statement") prepared by the Company and delivered in connection
with the solicitation by the Company of the consents of its shareholders
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
6. Representations and Warranties of WRC. WRC represents, warrants and
covenants to the Company as follows (provided, however, that the
representations, warranties and covenants in Sections 6.3, 6.8, 6.9 and 6.10
shall be effective only as of the Option Exercise):
6.1 Organization, Standing and Power. WRC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. WRC has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on WRC and WRC Sub as a whole. WRC Sub is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on WRC and WRC Sub as a whole.
6.2 Authorization. When executed and delivered by WRC, and assuming
due execution and delivery by the Company, the Agreements will constitute valid
obligations of WRC, enforceable in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) to the
extent the indemnification provisions contained in the Rights Agreement may be
limited by applicable federal or state securities laws. WRC has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby has been duly
authorized by all necessary corporate action on the part of WRC. This Agreement
constitutes the valid and binding obligation of WRC, enforceable in accordance
with its terms. At the time of the Option Closing: (i) the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby shall have been duly authorized by all necessary corporate
action on the part of WRC Sub and (ii) the Merger Agreement shall constitute the
valid and binding obligation of WRC Sub, enforceable in accordance with its
terms.
-18-
6.3 Capital Structure.
(a) The authorized stock of WRC consists of 20,000,000 shares of
common stock, of which 6,851,821 shares were issued and outstanding as of March
31, 2001, and 20,000,000 shares of preferred stock, of which 3,000,000 shares
were issued and outstanding as of March 31, 2001. All such shares have been duly
authorized, and all such issued and outstanding shares have been validly issued,
are fully paid and nonassessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof.
The authorized capital stock of WRC Sub consists of 1,000 shares of common
stock, 1,000 shares of which, as of the date hereof, are issued and outstanding
and are held by WRC and all such issued and outstanding shares are validly
issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof.
(b) The shares of WRC common stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid,
non-assessable and issued in compliance with applicable federal and state
securities laws.
6.4 Brokers and Finders. WRC has not retained any investment banker,
broker or finder in connection with the transactions contemplated by this
Agreement.
6.5 Securities Laws.
(a) This Agreement is made with WRC in reliance upon WRC's
representation to the Company, which by WRC's execution of this Agreement WRC
hereby confirms, that the Shares and the Common Stock issuable upon conversion
thereof (collectively, the "Securities") to be received by WRC will be acquired
for investment for WRC's own account, not as a nominee or agent, and not with a
view to the sale or distribution of any part thereof, and that WRC has no
current intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, WRC further represents that
WRC has no 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 Securities.
(b) WRC understands and acknowledges that the offering of the
Securities pursuant to this Agreement will not be registered under the
Securities Act. WRC represents that it is an accredited investor within the
definition of Regulation D of the Securities Act. WRC represents that it is
experienced in evaluating and investing in private placement transactions of
securities of companies in a similar stage of development and acknowledges that
WRC is able to fend for itself, can bear the economic risk of its investment,
and has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the investment in the Shares.
WRC has not been organized for the purpose of acquiring the Shares.
-19-
(c) WRC covenants that in no event will it dispose of any of the
Securities (other than if a Registration Statement is in effect with respect to
such shares of the Securities or a disposition pursuant to Rule 144 ("Rule 144")
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Act or any similar or analogous rule) unless and until (i) WRC
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition that are necessary to the availability of an exemption
under the Securities Act other than Rule 144 and (ii) if requested by the
Company, WRC shall have furnished the Company with an opinion of counsel
reasonably satisfactory in form and substance to the Company and the Company's
counsel, to the effect that (x) such disposition will not require registration
under the Securities Act and (y) all appropriate actions necessary for
compliance with the Securities Act and any applicable state, local or foreign
law have been taken. Notwithstanding the limitations set forth in the foregoing
sentence, WRC may transfer Securities to its constituent stockholders, members,
partners or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such stockholder, member or partner or retired
partner or transfer by gift, will or intestate succession to any such
stockholder's, member's or partner's spouse or lineal descendants or ancestors
or to an affiliate of such corporation, limited liability company or partnership
without the necessity of registration or opinion of counsel if the transferee
agrees in writing to be subject to the terms of the Agreements to the same
extent as if such transferee were WRC; provided, however, that WRC hereby
covenants not to effect such transfer if such transfer either would invalidate
the securities laws exemptions pursuant to which the Securities were originally
offered and sold or would itself require registration under the Securities Act
or applicable state securities laws. Any certificate evidencing the Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 6.6 below, provided, however, that any legend endorsed on a
certificate pursuant to Section 6.6(a) hereof shall be removed (i) if the
Securities represented by such certificate shall have been effectively
registered and sold under the Securities Act or otherwise lawfully sold in a
public transaction or (ii) if such Securities may be transferred in compliance
with Rule 144(k) promulgated under the Securities Act. Any legend endorsed on a
certificate pursuant to Section 6.6(b) hereof shall be removed if the Company
receives an order of the appropriate state authority authorizing such removal.
(d) WRC represents that: (i) it has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its prospective investment in the Securities; (ii) it has
received all the information it has requested from the Company and considers
necessary or appropriate for deciding whether to purchase the Securities; (iii)
it has the ability to bear the economic risks of its prospective investment;
(iv) it understands that no public market currently exists for any of the
Company's securities, and that the Company has made no assurances that a public
market will ever exist for the Securities; and (v) it is able, without
materially impairing its financial condition, to hold the Securities for an
indefinite period of time and to suffer complete loss of its investment.
6.6 Legends. WRC understands that each certificate representing the
Shares, and the shares of Common Stock issuable upon conversion of the Shares,
and any securities issued in respect thereof or exchange therefor shall bear
legends in substantially the following forms:
(a) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS
TO SUCH TRANSFER OR SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR IN THE
OPINION OF COUNSEL FOR THE COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN
ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
-20-
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RIGHTS, INCLUDING RESTRICTIONS ON TRANSFER, AS SET FORTH IN AN
INVESTORS' RIGHTS AGREEMENT ENTERED INTO BY THE HOLDER OF THESE SHARES, THE
ISSUER AND CERTAIN STOCKHOLDERS OF THE ISSUER. A COPY OF SUCH AGREEMENT MAY BE
EXAMINED AT THE PRINCIPAL OFFICE OF THE CORPORATION."
(c) Any certificates evidencing the Securities shall also bear
any legend required by the State of Delaware or required pursuant to any state,
local or foreign law governing such securities.
6.7 Tax Advisors. WRC has reviewed with its own tax advisors the
federal, state and local tax consequences of WRC's investment in the Shares,
where applicable, and the transactions contemplated by the Agreements. Except
with respect to the representations set forth in Section 5.20 of this Agreement
and Section 2.19 of the Merger Agreement, WRC is relying solely on its advisors
and not on any statements or representations of the Company or any of its agents
and understands that WRC (and not the Company) shall be responsible for WRC's
tax liability that may arise as a result of this investment or the transactions
contemplated by this Agreement. Nothing in this Section 6.7 shall affect the
obligation to make reasonable representations as requested by Cravath, Swaine &
Xxxxx (or other satisfactory counsel) in connection with the delivery of the
opinion to WRC under Section 7.3(e) of the Merger Agreement.
6.8 SEC Documents; WRC Financial Statements. WRC has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the Securities and Exchange Commission
(the "SEC") since May 15, 2001, all in the form so filed (all of the foregoing
being collectively referred to as the "SEC Documents"). As of their respective
filing dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Securities Exchange Act of 1934 (the
"Exchange Act") as the case may be, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a document subsequently filed with the SEC. The financial
statements of WRC, including the notes thereto, included in the SEC Documents
(the "WRC Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied (except as may be indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and present fairly in all material respects the
consolidated financial position of WRC at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal audit adjustments). There has been
no change in WRC accounting policies except as described in the notes to the WRC
Financial Statements; provided, however, WRC may have restated or may restate
one or more of the WRC Financial Statements to reflect acquisitions entered into
subsequent to the respective dates thereof.
-21-
6.9 No Material Adverse Change. Since the date of the balance sheet
included in WRC's most recently filed report on Form 10-K filed with the XXX xx
Xxxxx 00, 0000, XXX has conducted its business in the ordinary course and there
has not occurred: (a) any material adverse change in the financial condition,
liabilities, assets or business of WRC; (b) any amendment or change in the
Certificate of Incorporation or Bylaws of WRC (other than restatements of the
Certificate or Incorporation which did not require stockholders' approval and
other than amendments or changes disclosed in writing by WRC to the Company); or
(c) any damage to, destruction or loss of any assets of WRC (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of WRC.
6.10 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which WRC has received any notice
of assertion against WRC, which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
6.11 Information Supplied. The information supplied by WRC to the
Company in writing or incorporated by reference by such information, as
incorporated into the Information Statement, did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
7. Conditions of WRC's Obligations at the Closings. The obligation of
WRC to consummate each Closing (or, as specified, a particular Closing) is
subject to the satisfaction (or waiver by WRC) as of such Closing of the
following conditions:
7.1 Representations and Warranties. The representations and
warranties of the Company in this Agreement which are qualified as to
materiality shall be true and correct, and the representations and warranties of
the Company in this Agreement which are not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the date of each Closing as though made on such date (or, in the case
of each representation and warranty which expressly speaks as of an earlier
date, as of the earlier date as of which such representation and warranty
speaks). With respect to each Closing, the Company shall have delivered to WRC a
certificate on its behalf dated the date of such Closing, and signed by an
authorized officer representing and confirming that the foregoing condition has
been satisfied.
7.2 Performance. The Company shall have performed or fulfilled in
all material respects all agreements, covenants, obligations and conditions
contained herein required to be performed or fulfilled by the Company by the
time of each Closing. The Company shall have delivered to WRC a certificate on
its behalf dated the date of such Closing and signed by an authorized officer
representing and confirming that the foregoing condition has been satisfied.
-22-
7.3 Blue Sky Compliance. The Company shall have complied with and be
effective under all state securities or Blue-Sky laws applicable to the offer
and sale of the Shares to WRC at each Closing.
7.4 Rights Agreement, Co-Sale Agreement. The Company and the other
parties to the Rights Agreement and Co-Sale Agreement shall have entered into
the Rights Agreement and Co-Sale Agreement, respectively.
7.5 Proceedings Satisfactory. All corporate and legal proceedings
taken by the Company in connection with the transactions contemplated by this
Agreement and all documents and papers relating to such transactions shall be
reasonably satisfactory to WRC and its counsel.
7.6 Certified Charter Documents. There shall have been delivered to
WRC a copy of the Certificate and Bylaws of the Company (as amended and restated
through the Initial Closing Date), certified by the Secretary of the Company as
true and correct copies thereof as of the Initial Closing Date.
7.7 Amended and Restated Certificate of Incorporation. The
Certificate shall have been filed with and accepted by the Delaware Secretary of
State.
7.8 Opinion of Company Counsel. WRC shall have received from Xxxxxx
Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., counsel for the Company, an opinion, dated as
of the Initial Closing, in substantially the form attached hereto as Exhibit E.
7.9 Conversion Shares. The shares of Common Stock issuable upon
conversion of the Shares shall be duly uthorized and reserved.
7.10 CompassLearning. The Company shall have entered into an
amendment to the Distribution Agreement, in the form attached hereto as Exhibit
I, to extend the original term of the Distribution Agreement to three years.
7.11 Voting Agreement. The stockholders of the Company shall have
entered into the Voting Agreement attached hereto as Exhibit G.
7.12 No Litigation.
(a) There shall not be pending or threatened any suit, action
or proceeding by (x) any Governmental Entity or (y) any other third party (in
the case of (y) which has a reasonable likelihood of success), (i) seeking to
restrain or prohibit the acquisition by WRC of any Capital Stock or any other
transaction contemplated by the Agreements or seeking to obtain from WRC any
damages that are material in relation to the value of the Company, taken as a
whole, (ii) seeking to prohibit or limit the ownership or operation by WRC of
any material portion of the business or assets of WRC or the Company, or to
compel WRC to dispose of or hold separate any material portion of the business
or assets of WRC or the Company, in each case as a result of any of the
transactions contemplated by the Agreements, (iii) seeking to impose limitations
on the ability of WRC to acquire or hold, or exercise full rights of ownership
of, the Capital Stock or (iv) seeking to prohibit WRC from effectively
controlling in any material respect the Capital Stock.
-23-
(b) No action shall have been taken, or any statute, rule,
regulation or order shall have been enacted, entered or enforced or deemed
applicable to the transactions contemplated by the Agreements, and no temporary
restraining order or preliminary or permanent injunction or other order shall
have been issued by any Governmental Entity (each, an "Injunction") (i) granting
any of the relief referred to in clauses (i) through (ii) of Section 7.12(a)
above or (ii) which otherwise could reasonably be expected to have a Company
Material Adverse Effect.
7.13 Credit Agreement. As of the Initial Closing, WRC shall have
received all waivers, consents and amendments under the Credit Agreement dated
as of November 17, 1999 and amended and restated on May 9, 2001, among Weekly
Reader Corporation and CompassLearning, Inc. (formerly known as JLC Learning
Corporation), as borrowers, WRC, as guarantor, the various lenders party
thereto, Credit Suisse First Boston (as successor in interest to DLJ Capital
Funding, Inc.), Bank of America, N.A. and General Electric Capital Corporation,
as WRC, in its sole discretion, believes necessary or desirable in connection
with the consummation of the Agreements and the other transactions contemplated
thereby and the prevention of a default following the consummation of the
Agreements (including, without limitation, under the financial covenants
applicable to WRC's consolidated financial results).
7.14 Delivery of Shares. The Company shall have delivered to WRC a
certificate evidencing the Shares being issued to WRC applicable to the Monthly
Payment Closing as set forth on Exhibit A hereto.
8. Conditions of the Company's Obligations at the Closings. The
obligation of the Company to consummate each Closing is subject to the
satisfaction (or waiver by the Company) as of such Closing of the following
conditions:
8.1 Representations and Warranties. The representations, warranties
and covenants of WRC contained in Section 6 shall be true and correct in all
material respects on and as of each Closing with the same effect as though said
representations, warranties and covenants had been made on and as of each
Closing.
8.2 Rights Agreement, Right of First Refusal and Co-Sale. WRC shall
have entered into the Rights Agreement and the Co-Sale Agreement.
8.3 Performance. WRC shall have performed or fulfilled in all
material respects all agreements, covenants, obligations and agreements
contained herein required to be performed or fulfilled by WRC by the time of
such Closing.
-24-
8.4 Amended and Restated Certificate of Incorporation. The
Certificate shall have been filed with and accepted by the Delaware Secretary of
State.
8.5 Blue Sky Compliance. The Company shall have complied with and be
effective under all state securities or blue sky laws applicable to the offer
and sale of the Shares to WRC and required to be complied with prior to Closing.
8.6 Payment of Purchase Price. WRC shall have delivered the purchase
price applicable to the Monthly Payment Closing as set forth on Exhibit A
hereto.
8.7 Weekly Reader. The Company and WRC shall have entered into the
License Agreement attached hereto as Exhibit H, pursuant to which WRC will grant
to the Company all necessary rights to use the Weekly Reader name and content in
the Company's programs.
8.8 Voting Agreement. The stockholders of the Company shall have
entered into the Voting Agreement attached hereto as Exhibit G.
9. Covenants of the Company. The Company covenants and agrees as
follows:
9.1 Access. During the period from the date of this Agreement to the
earlier of the termination of this Agreement and the Option Closing and except
as required pursuant to any confidentiality agreement or similar agreement or
arrangement to which the Company is a party (in which case the Company shall use
all commercially reasonable efforts to provide acceptable alternative
arrangements, not in violation of such agreement or arrangement, for disclosure
to WRC or its advisors) or pursuant to applicable law, WRC and each of its
employees and other representatives shall hold in confidence all such
confidential information as required and in accordance with the Mutual
Nondisclosure Agreement previously executed between WRC and the Company (the
"Confidentiality Agreement"). The Company shall give to WRC and its employees,
counsel, accountants, investment bankers and other necessary representatives and
advisors (collectively, "Representatives") reasonable access upon reasonable
prior notice to all offices and other facilities used by the Company and to all
books, records, agreements, documents, information, personnel, data and files to
the extent relating to the Company, and during such period shall furnish to the
Representatives any information concerning the Company as they may reasonably
request (including, to the extent practicable, by electronic means). No
investigation by WRC and no other receipt of information by WRC shall operate as
a waiver or otherwise affect any representation or warranty of the Company or
any covenant or other provision in this Agreement.
9.2 Conduct of Business. Except for matters set forth in Section 9.2
of Company Disclosure Letter or otherwise expressly permitted by this Agreement,
during the period from the date of this Agreement to the earlier of (i) the
termination of this Agreement, (ii) the Option Closing and (iii) the termination
of the WRC Option pursuant to Section 2.3, the Company shall conduct its
business in the usual, regular and ordinary course in substantially the same
manner as previously conducted and use all reasonable best efforts to maintain
its assets in good operating order and condition, preserve intact its current
business organization, keep available the services of its current officers and
employees and keep its relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with them to the end
that its goodwill and ongoing business shall not be materially impaired at the
Option Closing. In addition, and without limiting the generality of the
foregoing, except for matters set forth in Section 9.2 of the Company Disclosure
Letter or otherwise expressly permitted by this Agreement, from the date of this
Agreement to the earlier of (i) the termination of this Agreement, (ii) the
Option Closing and (iii) the termination of the WRC Option pursuant to Section
2.3, the Company shall not do any of the following without the prior written
consent of WRC:
-25-
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (ii) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities; except for
repurchases of up to $25,000 in stock, in the aggregate, upon the termination of
services of an employee, consultant or other service provider to the Company at
the price originally paid by such service provider for such stock (in accordance
with the terms of the agreement under which such stock was issued);
(b) issue, deliver, sell or grant (i) any shares of its capital
stock, (ii) any voting securities, (iii) securities convertible into or
exchangeable for, or any options, warrants or rights to acquire, any such
shares, voting securities or convertible or exchangeable securities that exceed,
in each case and collectively, an aggregate of 750,000 shares (except as
provided in the Company's capitalization table attached as Exhibit A to the
Company Disclosure Letter); provided, however, that to the extent that such
shares may be issued, delivered or sold pursuant to this Section 9.2(b), such
shares must be issued, delivered or sold in a manner which does not cause an
adjustment to the Conversion Price (as defined in the Certificate) of the Series
C Preferred or (iv) any "phantom" stock, "phantom" stock rights, stock
appreciation rights or stock-based performance units;
(c) amend its Certificate or Bylaws in a manner that adversely
affects the ability of the Company or WRC to consummate the Option Closing;
(d) adopt or amend in any material respect any employee benefit
plan or enter into any collective bargaining agreement or other Contract with
any labor organization, union or association, except in each case as required by
Applicable Law;
(e) grant to any officer or employee any material increase in
compensation or benefits; except for increases of up to 15% in the aggregate in
the payroll of the Company;
(f) incur or assume any liabilities, obligations or indebtedness
for borrowed money or guarantee any such liabilities, obligations or
indebtedness; provided, however, after a termination or suspension of the
Payments, Continued Funding or Post-Exercise Funding pursuant to Section 1.7,
the Company may, beginning five days after such termination or suspension, incur
indebtedness for borrowed money up to the amount of such terminated or suspended
Payment, Continued Funding or Post-Exercise Funding.
-26-
(g) permit, allow or suffer any asset to become subjected to any
Lien of any nature whatsoever that would have been required to be set forth in
Section 5.9 or 5.10 of Company Disclosure Letter if existing on the date of this
Agreement;
(h) cancel any material indebtedness (individually or in the
aggregate) or waive any claims or rights of substantial value;
(i) pay, loan or advance any amount to, or sell, transfer or
lease any of its assets to, or enter into any agreement or arrangement with, any
of the Company's affiliates;
(j) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
business organization or otherwise acquire any assets except assets that are
acquired in the ordinary course of the Company's business consistent with past
practice and that are not material, individually or in the aggregate, to the
Company;
(k) make or incur any capital expenditures that, in the
aggregate, are in excess of $250,000;
(l) sell, lease, license or otherwise dispose of any of its
assets, except inventory sold in the ordinary course of business and consistent
with past practice;
(m) enter into any lease of real property;
(n) modify, amend, terminate or permit the lapse of the Lease or
other material agreement relating to, real property or modify, amend or
terminate any Company Contract, except in the ordinary course of business and in
a manner consistent with past practice or contemplated in the 12-Month Budget or
Monthly Budget as provided in accordance with Section 9.4;
(o) enter into any Contract except Contracts that are (i)
entered into in the ordinary course of business, (ii) consistent with past
practice and (iii) contemplated in the 12-Month Budget or Monthly Budget as
provided in accordance with Section 9.4;
(p) make or change any material Tax election or settle or
compromise any material Tax liability; or
(q) authorize any of, or commit or agree to take, whether in
writing or otherwise, to do any of, the foregoing actions.
-27-
9.3 Advise of Changes. The Company shall promptly advise WRC in
writing of the occurrence of any matter or event that is material to the
business, assets, condition (financial or otherwise), prospects, working
capital, liabilities or results of operations of the Company, including material
breaches of WRC's obligations under this Agreement.
9.4 Use of Proceeds.
(a) At the Initial Closing, the Company shall provide WRC with a
budget mutually acceptable to WRC and the Company (the "12-Month Budget") for
the use of proceeds to be received by the Company from WRC pursuant to this
Agreement ("Proceeds") detailing the projected monthly departmental use of
Proceeds (excluding payment of legal fees pursuant to Section 16.10). The
12-Month Budget may be revised upon the mutual consent of WRC and the Company.
(b) At least seven (7) days prior to each Closing Date
subsequent to the Initial Closing Date, the Company shall prepare and submit to
WRC a departmental budget detailing the proposed use of Proceeds for the 30-day
period following such Closing (the "Monthly Budget").
(c) To the extent that the budget for any department on the
Monthly Budget (i) deviates from the amount allocated to that month on the
12-Month Budget by more than 20% and (ii) exceeds the amount allocated to that
month on the 12-Month Budget by more than $50,000, WRC shall have the right to
object to such budgeted item.
(d) WRC agrees that if objection to a budget item pursuant to
Section 9.4(c) is not given within five (5) days after WRC's receipt of the
Monthly Budget, the Company may assume approval and operate within the proposed
Monthly Budget. The Company shall eliminate or revise any item in a Monthly
Budget which is disapproved by WRC in a timely fashion pursuant to this Section
9.4(d) to the extent necessary to obtain WRC's approval.
(e) The Monthly Budgets, after approval or lack of objection
within five (5) days of receipt by WRC, shall be used by the Company as a guide
for the use of Proceeds by the Company. Any changes to such approved Monthly
Budgets for which WRC would have had a right to object under Section 9.4(c)
above must be approved by WRC.
9.5 Effectiveness of the Merger Agreement. Upon the Option Exercise,
the execution and delivery of the Merger Agreement shall become effective.
10. Indemnification.
10.1 Indemnification. Except as otherwise provided in this Section
10, the Company (the "Indemnifying Party") agrees to indemnify, defend and hold
harmless WRC and its affiliates and its respective officers, directors, agents,
employees, subsidiaries, partners, members and controlling persons (each, an
"Indemnified Party") to the fullest extent permitted by law from and against any
losses or claims thereof (including, without limitation, any claim by a third
party), damages, expenses (including reasonable fees and disbursements of
counsel incurred by the Indemnified Party in any action between the Indemnifying
Party and the Indemnified Party or between the Indemnified Party and any third
party or otherwise) or other liabilities (collectively, "Losses") resulting from
or arising out of (i) any breach of any representation or warranty (it being
understood that for purposes of such right of indemnification, the
representations and warranties of the Company shall be deemed not qualified by
any references therein to materiality generally or to whether or not any breach
would result or could reasonably be expected to result in a Company Material
Adverse Effect) in this Agreement or in any certificate delivered by or on
behalf of the Company hereunder, or (ii) any breach by the Company of any
covenant or agreement of the Company in this Agreement. In connection with the
obligation of the Indemnifying Party to indemnify for Losses as set forth above,
the Indemnifying Party shall, contingent upon presentation of appropriate
invoices containing reasonable detail, reimburse each Indemnified Party for all
such expenses (including reasonable fees, disbursements and other charges of
counsel incurred by the Indemnified Party in any action between the Indemnifying
Party and the Indemnified Party or between the Indemnified Party and any third
party or otherwise), provided, however, that the Indemnifying Party shall not be
required to indemnify or hold harmless any person, and shall not have any
liability, under this Section 10 unless the aggregate of all Losses relating
thereto for which Indemnifying Party would, but for this proviso, be liable
exceeds on a cumulative basis an amount equal to $75,000, and then only to the
extent of any such excess. The Indemnifying Party shall not have liability for
any Losses in the aggregate in excess of the aggregate of the CompassLearning
Payment, the Company Legal Fees, the Payments, the Continued Funding and the
Post-Exercise Funding paid by WRC to the Company.
-28-
10.2 Adjustment For Indemnification by the Company. Any amount
payable by the Indemnifying Party to WRC pursuant to Section 10.1 shall be
adjusted in order to reflect the size of WRC's ownership share of the Company
whereby the adjusted amount payable by the Company shall equal the amount
initially payable before adjustment by the Company divided by (1-x), where x
represents the size of WRC's ownership share of the Company expressed as the
fraction of the total Capital Stock owned by WRC.
10.3 Procedures Relating to Indemnification. Each Indemnified Party
shall, promptly after the receipt of notice of the commencement of any claim
against such Indemnified Party by a third party in respect of which indemnity
may be sought from the Indemnifying Party hereunder, notify the Indemnifying
Party in writing of the commencement thereof. The omission or delay of any
Indemnified Party to so notify the Indemnifying Party of any such action shall
not relieve the Indemnifying Party from any liability which it may have to such
Indemnified Party (a) other than pursuant to this Section 10 or (b) under this
Section 10 unless, and only to the extent that, such omission results in the
Indemnifying Party's forfeiture of rights or defenses. In case any such claim
shall be brought against any Indemnified Party by a third party, and the
Indemnified Party shall notify the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall be entitled to participate in the defense
thereof, and if it so chooses, to assume the defense thereof at its own expense,
upon written confirmation that such Indemnifying Party agrees to indemnify the
Indemnified Party for any Losses arising out of or in connection with such
claim, with counsel satisfactory to such Indemnifying Party in its reasonable
judgment; provided, however, that any Indemnified Party may retain separate
counsel to participate in such defense at its own expense, and in the event the
Indemnifying Party does not provide the written confirmation required by this
sentence, the Indemnified Party may retain counsel to defend such claim and
shall be entitled to reimbursement of the reasonable fees and disbursements of
such counsel in accordance with this Section 10. Notwithstanding the foregoing,
in any claim in which both the Indemnifying Party, on the one hand, and an
Indemnified Party, on the other hand, are, or are reasonably likely to become, a
party, such Indemnified Party shall have the right to employ separate counsel
and to control its own defense of such claim if, in the opinion of counsel to
such Indemnified Party, either (x) one or more defenses are available to the
Indemnified Party that are not available to the Indemnifying Party or (y) a
conflict or potential conflict exists between the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable; provided, however, that the Indemnifying
Party (i) shall not be liable for the reasonable fees and expenses of more than
one counsel to all Indemnified Parties and (ii) shall reimburse the Indemnified
Parties for all of such reasonable fees and expenses of such counsel incurred in
any action contemplated in (x) or (y) above between the Indemnifying Party and
the Indemnified Parties or between the Indemnified Parties and any third party,
as such expenses are incurred. The Indemnifying Party agrees that it will not,
without the prior written consent of the Indemnified Parties, settle, compromise
or consent to the entry of any judgment in any pending or threatened claim
relating to the matters contemplated hereby (if any Indemnified Party is a party
thereto or has been threatened to be made or would reasonably be expected to be
made a party thereto) unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Party from all liability arising or
that may arise out of such claim. The Indemnifying Party shall not be liable for
any settlement of any claim effected against an Indemnified Party without its
written consent. The rights accorded to an Indemnified Party hereunder shall be
in addition to any rights that any Indemnified Party may have by separate
agreement (including, without limitation, the Investors' Rights Agreement dated
as of the date hereof among the Company and certain investors listed therein) or
pursuant to the federal securities laws.
-29-
Notwithstanding the foregoing, the Indemnifying Party shall not be
entitled to assume the defense of any claim brought against any Indemnified
Party by a third party (and shall be liable for the reasonable fees and expenses
of counsel incurred by the Indemnified Party in defending such claim) if such
claim seeks an order, injunction or other equitable relief or relief for other
than money damages against the Indemnified Party that the Indemnified Party
reasonably determines, after conferring with its counsel, cannot be separated
from any related claim for money damages. If such equitable relief or other
relief portion of such claim can be so separated from that for money damages,
the Indemnifying Party shall be entitled to assume the defense of the portion
relating to money damages.
In the event any Indemnified Party should have an indemnification
claim against the Indemnifying Party under this Section 10 that does not involve
a claim by a third party being asserted against or sought to be collected from
such Indemnified Party, the Indemnified Party shall deliver notice of such claim
to the Indemnifying Party. The failure by an Indemnified Party to so notify the
Indemnifying Party shall not relieve the Indemnifying Party from any liability
that it may have to such Indemnified Party, except to the extent that the
Indemnifying Party has been actually and materially prejudiced by such failure.
If the Indemnifying Party does not notify the Indemnified Party within ten (10)
business days following its receipt of such notice that the Indemnifying Party
disputes such claim, such claim specified by the Indemnified Party in such
notice shall be conclusively deemed a liability of the Indemnifying Party under
this Section 10 and the Indemnifying Party shall pay the amount of such
liability to the Indemnified Party on demand, or in the case of any notice in
which the amount of the claim is estimated, on such later date when the amount
of such claim is finally determined. If the Indemnifying Party disputes its
liability with respect to such claim in a timely manner, the Indemnified Party
and the Indemnifying Party shall proceed in good faith to negotiate a resolution
of such dispute.
-30-
10.4 Reduction of Payments, Continued Funding and Post-Exercise
Funding. WRC is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply all or a portion of the
Payments, Continued Funding or Post-Exercise Funding at any time held against
any indemnification obligation set forth in any claim delivered pursuant to this
Section 10 by any Indemnified Party specified in Section 10.1. The rights of any
Indemnified Party under the preceding sentence are in addition to any other
rights and remedies (including other rights of setoff) that such person may
have.
11. Additional Agreements.
11.1 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party shall use all reasonable best efforts to cause
each Closing to occur, including using its reasonable best efforts to obtain all
material consents, permits, authorizations and approvals of, and to make all
necessary filings, notifications or registrations with, all Governmental
Entities and other persons which are necessary for the consummation of the
transactions contemplated by the Agreements, provided however that the foregoing
shall not be deemed to require WRC or the Company to expend a material amount of
funds to comply with the foregoing.
11.2 Frustration of Closing Conditions. Neither WRC nor the Company
may rely on the failure of any condition set forth in Sections 7 and 8 to be
satisfied if such failure was caused by such party's failure to act in good
faith or to use its reasonable efforts, as and to the extent required by Section
11.1, to cause each Closing to occur.
12. Termination.
12.1 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Option Closing Date:
(i) by mutual written consent of the Company and WRC;
(ii) by WRC upon written notice to the Company if any of the
conditions to any Closing set forth in Section 7 shall have become incapable of
fulfillment and shall not have been waived in writing by WRC;
-31-
(iii) by the Company upon written notice to WRC if any of the
conditions to any Closing set forth in Section 8 shall have become incapable of
fulfillment and shall not have been waived in writing by the Company;
(iv) by either the Company or WRC upon written notice to the
other such party if the Initial Closing does not occur on or prior to May 31,
2001; provided, however that the right to terminate this Agreement pursuant to
this Section 12.1(iv) shall not be available to any party hereto if the failure
to consummate the Initial Closing by such date was caused by the breach of this
Agreement by such party; or
(v) (a) by the Company, if WRC breaches or fails to perform in
any respect any of its representations, warranties or covenants contained in
this Agreement and such breach or failure to perform (x) would give rise to the
failure of a condition set forth in Section 8.1 or Section 8.3 and (y) cannot be
or has not been cured within 30 days after such breach or failure to perform or
(b) by WRC, if the Company breaches or fails to perform in any respect any of
its representations, warranties or covenants contained in this Agreement and
such breach or failure to perform (1) would give rise to the failure of a
condition set forth in Section 7.1 or Section 7.2 and (2) cannot be or has not
been cured within 30 days after such breach or failure to perform; or
(b) by either the Company or WRC if any Injunction
granting any of the relief set forth in clauses (i) through (iv) of Section
7.12(a) shall be in effect and shall have become a final non-appealable final
order, decree or ruling, provided that the party seeking to terminate this
Agreement pursuant to this clause shall have used reasonable efforts to prevent
the entry of and to remove such Injunction.
12.2 Other Agreements; Material To Be Returned.
(a) In the event that this Agreement is terminated by the
Company or WRC pursuant to Section 12.1, the transactions contemplated by the
Agreements shall be terminated, without further action by any party hereto, and
each of the Company and WRC shall immediately enter into, or cause its relevant
affiliates to enter into, written consents to terminate each of the other
agreements; provided, however that the License Agreement shall be governed by
sections 3.8 and 12.1 thereof in the event that this Agreement is terminated and
the Distribution Agreement shall not be terminated or affected by this Section
12.2(a).
(b) Furthermore, in the event that this Agreement is
terminated as provided herein:
(i) WRC shall return all documents and other material
received from the Company or any of its respective representatives relating to
the Purchase or the Option or the transactions contemplated by the Agreements,
whether obtained before or after the execution of this Agreement, to the Company
or, at its option, destroy such documents and material;
-32-
(ii) WRC agrees that all confidential information received
by WRC or its representatives with respect to the Purchase or the Option or the
Agreements or the transactions contemplated thereby shall be treated in
accordance with the Confidentiality Agreement, which shall remain in full force
and effect notwithstanding the termination of this Agreement;
(iii) The Company shall return all documents and other
material received from WRC or any of its representatives relating to WRC or the
transactions contemplated by the Agreements, whether obtained before or after
the execution of this Agreement, to WRC, or at its option, destroy such
documents and material; and
(iv) The Company agrees that all confidential information
received by the Company or its representatives with respect to WRC or the
Agreements or the transactions contemplated thereby shall be kept confidential
notwithstanding the termination of this Agreement.
12.3 Effect of Termination. Upon the termination hereof, this
Agreement shall become void and of no further force and effect, except for the
provisions of (i) Sections 1.5 and 1.6 relating to the issuance of Shares to
WRC, (ii) Sections 5.13 and 6.4 relating to brokers, (iii) Section 13.10
relating to certain expenses and (iv) this Section 12. Nothing in this Section
12 shall be deemed to release either party from any liability for any breach by
such party of the terms and provisions of this Agreement or to impair the right
of any party to compel specific performance by any other party of its
obligations under this Agreement.
13. Miscellaneous.
13.1 Entire Agreement; Successors and Assigns. The Agreements
constitute the entire agreement between the Company and WRC relative to the
subject matter hereof. Any previous agreement between the Company and WRC is
superseded by this Agreement. Subject to the exceptions specifically set forth
in this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs,
successors and assigns of the parties.
13.2 Transfers and Assignments. Neither this Agreement nor any
rights or obligations hereunder may be assigned or otherwise transferred by any
party (including by operation of law) without the prior written consent of the
other parties hereto, and any assignment or transfer without such consent shall
be null and void and of no effect.
13.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the laws that might otherwise govern under applicable principles of conflict
of laws thereof.
13.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
-33-
13.5 Headings. The headings of the sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.
13.6 Notices. Any notice required or permitted hereunder shall be
given in writing and shall be conclusively deemed effectively given (i) three
days after sending by first class U.S. mail postage prepaid, (ii) upon personal
delivery or (iii) one day after the sending if sent by commercial overnight
courier addressed to the Company at 000 Xxxxx Xxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxxxx, XX 00000, Attention: Xxxxx X. Xxxxxx, President with a copy to Xxxxxx
Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, XX 00000,
Attention: Xxxxxxx X. Xxxxxxx, and if to WRC, at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, XX 00000, Attention: Xxxxxxx Xxxxxx, Director, with a copy to Cravath,
Swaine & Xxxxx, Worldwide Plaza, 000 Xxxxxx Xxxxxx, Xxx Xxxx, XX 00000-0000,
Attention: Xxxxx X. Xxxxxxxx or at such other address as the Company or WRC may
designate.
13.7 Survival of Representations and Warranties. The warranties,
representations and covenants of the parties contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
each Closing, and such warranties, representations and covenants of the Company
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of WRC; provided, however, that such representations and
warranties need only be accurate as of the date of such execution and delivery
and as of each Closing.
13.8 Amendment of Agreement. Any provision of this Agreement may be
amended, waived or terminated by a written instrument signed by the Company and
WRC.
13.9 Finders Fees. Each of the Company and WRC will indemnify the
other against all liabilities incurred by the indemnifying party with respect to
claims related to investment banking or finders fees in connection with the
transactions contemplated by this Agreement, arising out of arrangements between
the party asserting such claims and the indemnifying party, and all costs and
expenses (including reasonable fees of counsel) of investigating and defending
such claims.
13.10 Expenses. Each of the Company and WRC shall bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby, unless the parties mutually agree otherwise;
provided, however, that WRC shall pay to the Company the Company Legal Fees at
the Initial Closing. At the Initial Closing, the Company shall, out of Proceeds
received at the Initial Closing, pay (by check or wire transfer) the Company
Legal Fees.
13.11 Aggregation of Stock. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
13.12 Severability. If any provision of this Agreement is held to
be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
-34-
13.13 Attorneys' Fees and Expenses. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party is
entitled.
13.14 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of any similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth on such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
13.15 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Delaware state court or any
Federal court located in the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Delaware state court or any Federal court located in the State of
Delaware in the event any dispute arises out of this Agreement or any
transaction contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, (c) agrees that it will not bring any action relating
to this Agreement or any transaction contemplated by this Agreement in any court
other than any Delaware state court or any Federal court sitting in the State of
Delaware and (d) waives any right to trial by jury with respect to any action
related to or arising out of this Agreement or any transaction contemplated by
this Agreement.
13.16 Solicitation of Employees. The parties agree that without the
prior written consent of the parties, and until the later of the date that is
(i) 12 months following the termination of this Agreement or (ii) 12 months
following the Initial Closing Date if there is an Option Exercise, neither party
shall either directly or indirectly solicit, induce, recruit or encourage any of
the other party's employees to leave their employment, or take away such
employees, or attempt to solicit, induce, recruit, encourage or take away
employees of the other party; provided, however that the foregoing provision
shall not prevent either party from employing any such person who contacts a
party hereto on his or her own initiative without any direct or indirect
solicitation from such party, and provided further that the foregoing provision
shall not prohibit (a) any advertisement or general solicitation (or any hiring
thereto) that is not specifically targeted at such persons or (b) the
solicitation or employment of any person who is not employed by a party hereto
on the date the other party first solicits him or her.
-35-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE COMPANY: THINKBOX INC.
a Delaware corporation
By:
--------------------------------------
Xxxxx X. Xxxxxx
President and Chief Executive Officer
[Signature Page to ThinkBox Inc. Series C Preferred Stock Purchase Agreement]
WRC:
WRC MEDIA INC.
a Delaware corporation
By:
--------------------------------------
Xxxxxxx X. Xxxxxx
Secretary
[Signature Page to ThinkBox Inc. Series C Preferred Stock Purchase Agreement]
EXHIBIT A
Schedule of Payments
EXHIBIT B
Second Amended and Restated Certificate of Incorporation
EXHIBIT C
First Amended and Restated Investors' Rights Agreement
EXHIBIT D
First Amended and Restated Right of First Refusal and Co-Sale Agreement
EXHIBIT E
Legal Opinion
EXHIBIT F
Option Payment Schedule
EXHIBIT G
Irrevocable Proxy and Voting Agreement
EXHIBIT H
License Agreement
EXHIBIT I
Amendment to Distribution Agreement
EXHIBIT J
Merger Agreement
EXHIBIT K
Form of Confidential Information and Intellectual Property Assignment Agreement
EXHIBIT L
Consent Solicitation and Information Statement
