EXHIBIT 10.5
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
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This Series B Preferred Stock Purchase Agreement (the "Agreement") is entered
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into as of _____________, 1998 (the "Effective Date"), by and between Internet
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Technologies China Incorporated, a Delaware corporation (the "Company"), and
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the persons and entities set forth on Exhibit A hereto (each, an "Investor"
and, collectively, the "Investors"). Xxxxxxx Xxxxx is a party to this
Agreement for the sole purpose of making the representations and warranties set
forth in Section 4B hereof.
In consideration of the mutual promises, covenants and conditions hereinafter
set forth, the parties hereto agree as follows:
1. DEFINITIONS.
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1.1 Certain Defined Terms. As used in this Agreement, the following
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terms shall have the following respective meanings:
"Common Stock" shall mean the Company's Common Stock, $.01 par
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value.
"Proceeds" shall mean whatever is received when assets, whether
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tangible or intangible, are sold, changed, collected or otherwise disposed of,
both cash and non-cash, including the Proceeds of insurance payable by reason of
loss or damage to Proceeds.
"Proprietary Assets" shall mean all patents, patent applications,
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trademarks, service marks, trade names, copyrights, moral rights, maskworks,
trade secrets, confidential and proprietary information, compositions of matter,
formulas, designs, proprietary rights, know-how, processes, domain names and
URLs.
1.2 Index of Other Defined Terms. In addition to the terms defined
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above, the following terms shall have the respective meanings given thereto in
the sections indicated below:
Defined Term Section
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"Act" 4.5(b)
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"Agreement" Preamble
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"Business Plan" 4.25
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"Bylaws" 4.12
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"CERCLA" 4.22
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"Certificate" 2.1
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"Code" 4.20
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"Company" Preamble
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"Confidential Information" 9.13
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"Conversion Shares" 4.2(c)
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"Disclosing Party" 9.13
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"Effective Date" Preamble
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"Financial Statements" 4.16
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"First Closing" 3.1
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"Hazardous Materials" 4.22
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"Investor" Preamble
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"Non-Disclosing Party" 9.13
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"Disclosure Schedule" 4
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"SEC" 4.14
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"Second Closing" 3.2
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"Shares" 2.3
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"Tranche I Shares" 2.2
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"Tranche II Shares" 2.3
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2. AGREEMENT TO PURCHASE AND SELL STOCK
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2.1. Authorization. As of the First Closing (as defined below), the
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Company will have authorized the issuance, pursuant to the terms and conditions
of this Agreement, of up to 390,000 shares of the Company's Series B Convertible
Preferred Stock, $0.01 par value, ("Series B Preferred Stock") having the
rights, preferences, privileges and restrictions set forth in the Amended and
Restated Certificate of Incorporation of the Company attached to this Agreement
as Exhibit B (the "Certificate").
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2.2. Agreement to Purchase and Sell at the First Closing. Subject to
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the terms and conditions hereof, on the date of the First Closing, the Company
will issue and sell to the Investors, and the Investors agree to purchase from
the Company, an aggregate of 125,653 shares of Series B Convertible Preferred
Stock (the "Tranche I Shares") at a price of $5.173 per share for an aggregate
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purchase price of $650,002.98. The number of Tranche I Shares to be purchased by
each Investor is set forth next to such Investor's name in Exhibit A. The
purchase price for the Tranche I Shares shall be paid by wire transfer of funds
to a designated account of the Company, provided that wire transfer instructions
are delivered to each Investor at least one (1) business day prior to the First
Closing.
2.3 Agreement to Purchase and Sell at the Second Closing. Subject to
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the terms and conditions hereof (including without limitation, the satisfaction
of the conditions of Section 7), on the date of the Second Closing (as defined
below), the Company will issue and sell to the Investors, and the Investors
agree to purchase from the Company, between 125,653 and 260,309 shares of Series
B Preferred Stock (the "Tranche II Shares") at a price of $5.173 per share for
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an aggregate purchase price between $650,002.97 and $1,346,578.46. The number of
Tranche II Shares to be purchased by each Investor is set forth next to such
Investor's name on Exhibit A. At the Second Closing, each of and Kummell
Investments Limited ("Kummell") shall purchase at least 19,331 Tranche II Shares
and, together, Xxxxxxxx Enterprises, Inc. ("Xxxxxxxx") and Kummell shall have
the right, at their option and as they may mutually agree, to purchase an
aggregate total of 154,650 Tranche II Shares. At the Second Closing, PTV-China,
Inc. ("PTV China") shall purchase at least 9,666 Tranche II Shares and shall
have the right, at its option, to purchase an aggregate total of 28,334 Tranche
II Shares. The purchase price for the Tranche II
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Shares shall be paid by wire transfer of funds to a designated account of the
Company, provided that wire transfer instructions are delivered to each Investor
at least one (1) business day prior to the Second Closing. The Tranche I Shares
and the Tranche II Shares are sometimes referred to herein collectively as the
"Shares."
2.4 Currency. All monetary amounts set forth herein shall be in
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United States dollars.
3. CLOSING; DELIVERY.
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3.1. The First Closing. The purchase and sale of the Tranche I
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Shares hereunder shall be held at the offices of Xxxxxx, Xxxx & Xxxxxxxx LLP,
0000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, on ______________, 1998, or at
such other time and place as the Company and the purchasers of a majority of the
Shares may mutually agree upon (the "First Closing").
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3.2 The Second Closing. The purchase and sale of the Tranche II
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Shares hereunder, if consummated, shall be held at the offices of Xxxxxx, Xxxx &
Xxxxxxxx LLP, 0000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, on June 30,
1998, or at such other time and place as Company and the holders of a majority
of the Shares may mutually agree upon (the "Second Closing").
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3.3. Delivery. At the First Closing, and also at the Second Closing
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if consummated, the Company will deliver to each Investor a certificate
representing the Shares to be purchased by each Investor hereunder against
payment of the full purchase price therefor by wire transfer.
4. COMPANY REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
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warrants to the Investors that, except as set forth in the Disclosure Schedule
("Disclosure Schedule") attached to this Agreement as Exhibit C (which
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Disclosure Schedule shall be deemed to be representations and warranties to the
Investors), the statements in the following paragraphs of this Section 4 are all
true and correct:
4.1. Organization, Good Standing and Qualification. The Company is
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a corporation duly organized, validly existing and in good standing under, and
by virtue of, the laws of the State of Delaware and has all requisite corporate
power and authority to own its properties and assets and to carry on its
business as now conducted and as presently proposed to be conducted. The
Company is qualified to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business, prospects or operations.
4.2. Capitalization. Immediately before the First Closing, the
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authorized capital stock of the Company will consist of the following:
(a) Common Stock. A total of 5,000,000 authorized shares of
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Common Stock ($0.01 par value) of which 712,719 shares are issued and
outstanding.
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(b) Preferred Stock. A total of 625,000 authorized shares of
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Preferred Stock ($0.01 par value), of which 225,000 are designated as Series A
Convertible Preferred Stock ("Series A Preferred Stock"), all of which are be
outstanding, and 400,000 are designated as Series B Convertible Preferred Stock,
none of which are issued or outstanding.
(c) Options, Warrants, Reserved Shares. The Company has reserved
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400,000 shares of its Common Stock for possible issuance upon the conversion of
the shares of Series B Preferred Stock to be issued hereunder (the "Conversion
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Shares"). Except for (i) the conversion privileges of the Series B Preferred
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Stock to be issued hereunder, (ii) the rights to acquire the Tranche II Shares
as set forth herein, (iii) the 120,000 shares of Common Stock reserved for
issuance or to be reserved for issuance under the Company's stock option plan
under which options to purchase 23,125 shares of Common Stock are outstanding,
and (iv) warrants to purchase up to 33,531 shares33,531shares of Common Stock of
the Company, issued in connection with the Company's bridge financing in
December 1997, provided that such warrants shall be exercisable for only an
aggregate of 5,781 shares of Common Stock if such bridge financing is repaid
before June 30, 1998, there are no options, warrants, conversion privileges or
other rights, or agreements with respect to the issuance thereof, presently
outstanding to purchase any of the capital stock of the Company. Apart from the
exceptions noted in this Section 4.2, no shares (including the Shares and
Conversion Shares) of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options or other stock
issuable by the Company, are subject to any rights of first refusal or other
rights to purchase such stock (whether in favor of the Company or any other
person), pursuant to any agreement or commitment of the Company.
(d) Outstanding Security Holders. Section 4.2(d) of the
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Disclosure Schedule sets forth a complete list of all outstanding shareholders,
option holders and other security holders of the Company as of the Effective
Date.
4.3. Subsidiaries. The Company owns all of the issued and
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outstanding stock of ITC Electronic Technology Beijing Co. Ltd., a company
organized under the laws of the People's Republic of China ("ITC China").
ITC China is a wholly foreign owned enterprise (WFOE) authorized by the
government of China and has the government permits, approvals authorizations and
licenses necessary to engage in the business currently conducted and currently
proposed to be conducted by ITC China. No other person or entity other than the
Company has any right to acquire any equity or other ownership interest of ITC
China. Except for the Company's ownership of ITC China, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, trust, joint venture,
association, or other entity.
4.4. Due Authorization. All corporate action on the part of the
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Company and ITC China, their officers, directors and shareholders necessary for
the authorization, execution and delivery of, and the performance of all
obligations of the Company under, this Agreement, and the authorization,
issuance, reservation for issuance and delivery of all of the Shares being sold
under this Agreement has been taken or will be taken before the First Closing.
This Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium,
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reorganization and similar laws affecting creditors' rights generally and to
general equitable principles. The Shares are not subject to any preemptive
rights or rights of first refusal.
4.5. Valid Issuance of Stock.
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(a) The Shares, when issued, sold and delivered in accordance
with the terms of this Agreement, will be duly and validly issued, fully paid
and nonassessable. The Conversion Shares have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Certificate,
will be duly and validly issued, fully paid and nonassessable.
(b) The outstanding shares of the capital stock of the Company
and ITC China are duly and validly issued, fully paid and nonassessable, and
such shares of such capital stock, and all outstanding stock, options and other
securities of the Company and ITC China have been issued in full compliance with
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Act"), and the registration and qualification
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requirements of all applicable state securities laws, or in compliance with
applicable exemptions therefrom, and all other provisions of applicable federal
and state securities laws, including, without limitation, anti-fraud provisions.
4.6. Liabilities. Other than promissory notes in the amount of
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$100,000 issued in connection with the Company's bridge financing in December
1997, plus interest accrued at 10% since such date, neither the Company nor ITC
China has any indebtedness for borrowed money that the Company or ITC China has
directly or indirectly created, incurred, assumed, or guaranteed, or with
respect to which the Company or ITC China has otherwise become directly or
indirectly liable.
4.7. Title to Properties and Assets. Each of the Company and ITC
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China has good and marketable title to its properties and assets held in each
case subject to no mortgage, pledge, lien, encumbrance, security interest or
charge of any kind. With respect to the property and assets it leases, each of
the Company and ITC China is in compliance with such leases and, to the best of
the Company's knowledge, each of the Company and ITC China holds valid
leasehold interests in such assets free of any liens, encumbrances, security
interests or claims of any party other than the lessors of such property and
assets.
4.8. Status of Proprietary Assets.
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(a) Ownership. Each of the Company and ITC China has full title
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and ownership of, or has license to, all Proprietary Assets necessary to enable
it to carry on its business as now conducted and as presently proposed to be
conducted without any conflict with or infringement of the rights of others. No
third party has any ownership right, title, interest, claim in or lien on any of
the Company's or ITC China's Proprietary Assets and the Company and ITC China
have taken, and in the future will use their best efforts to take, all steps
reasonably necessary to preserve their respective legal rights in, and the
secrecy of, all its Proprietary Assets, except those for which disclosure is
required for legitimate business or legal reasons.
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(b) Licenses; Other Agreements. Neither the Company nor ITC
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China has granted, and there are not outstanding, any options, licenses or
agreements of any kind relating to any Proprietary Asset of the Company or ITC
China, nor is the Company or ITC China bound by or a party to any option,
license or agreement of any kind with respect to any of their respective
Proprietary Assets. Neither the Company nor ITC China is obligated to pay any
royalties or other payments to third parties with respect to the marketing,
sale, distribution, manufacture, license or use of any Proprietary Asset or any
other property or rights.
(c) No Infringement. Neither the Company nor ITC China has
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violated or infringed, and is not currently violating or infringing any
Proprietary Asset of any other person or entity. Neither the Company nor ITC
China has received any communications alleging that the Company or ITC China (or
any of their respective employees or consultants) has violated or infringed or,
by conducting its business as proposed, would violate or infringe, any
Proprietary Asset of any other person or entity.
(d) No Breach by Employee. After due inquiry, neither the
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Company nor ITC China is aware that any employee or consultant of the Company or
ITC China is obligated under any agreement (including licenses, covenants or
commitments of any nature) or subject to any judgment, decree or order of any
court or administrative agency, or any other restriction that would interfere
with the use of his or her best efforts to carry out his or her duties for the
Company or ITC China or to promote the interests of the Company or ITC China or
that would conflict with the Company's or ITC China's business as proposed to be
conducted. The carrying on of each of the Company's and ITC China's business by
the employees and contractors of the Company and ITC China and the conduct of
the Company's and ITC China's business as presently proposed, will not, to the
best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees or contractors of the
Company or ITC China are now obligated. Neither the Company nor ITC China
believes it is or will be necessary to utilize any inventions of any employees
of the Company or ITC China (or persons the Company or ITC China currently
intends to hire) made prior to their employment by the Company or ITC China. To
the best of the Company's knowledge, at no time during the conception of or
reduction of any of the Company's or ITC China's Proprietary Assets to practice
was any developer, inventor or other contributor to such patents operating under
any grants from any governmental entity or agency or private source, performing
research sponsored by any governmental entity or agency or private source or
subject to any employment agreement or invention assignment or nondisclosure
agreement or other obligation with any third party that could adversely affect
the Company's or ITC China's rights in such Proprietary Assets.
4.9. Material Contracts and Obligations. All agreements, contracts,
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leases, licenses, instruments, commitments (oral or written), indebtedness,
liabilities and other obligations to which the Company or ITC China is a party
or by which they are bound that (i) are material to the conduct and operations
of the businesses and properties of the Company or ITC China; (ii) involve any
of the officers, consultants, directors, employees or shareholders of the
Company or ITC China; or (iii) obligate the Company or ITC China to share,
license or develop any product or technology are listed in Section 4.9 of the
Disclosure Schedule and have been made available for inspection by the Investors
and their respective counsel. For purposes of this
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Section 4.9, "material" shall mean any agreement, contract, indebtedness,
liability or other obligation either: (i) having an aggregate value, cost or
amount in excess of $10,000, or (ii) not terminable upon thirty days notice.
4.10. Litigation. There is no action, suit, proceeding, claim,
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arbitration or investigation ("Action") pending (or, to the best of the
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Company's knowledge, currently threatened) against the Company or ITC China,
their activities, properties or assets or, to the best of the Company's
knowledge, against any officer, director or employee of the Company or ITC China
in connection with such officer's, director's or employee's relationship
with, or actions taken on behalf of the Company or ITC China. To the best of
the Company's knowledge, there is no factual or legal basis for any such Action
that might result, individually or in the aggregate, in any material adverse
change in the business, properties, assets, financial condition, affairs or
prospects of the Company or ITC China. By way of example but not by way of
limitation, there are no Actions pending or, to the best of the Company's
knowledge, threatened (or any basis therefor known to the Company or ITC China)
relating to the prior employment of any of the Company's or ITC China's
employees or consultants, their use in connection with the Company's or ITC
China's business of any information, technology or techniques allegedly
proprietary to any of their former employers, clients or other parties, or their
obligations under any agreements with prior employers, clients or other parties.
Neither the Company nor ITC China is a party to or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality and there is no Action by the Company or ITC China
currently pending or which the Company or ITC China intends to initiate.
4.11. Governmental Consents. All consents, approvals, orders,
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authorizations or registrations, qualifications, designations, declarations or
filings with any federal, state or local governmental authority on the part of
each of the Company and ITC China required in connection with the consummation
of the transactions contemplated herein shall have been obtained prior to and be
effective as of the First Closing. Based in part on the representations of the
Investors set forth in Section 5 below, the offer, sale and issuance of the
Shares in conformity with the terms of this Agreement are exempt from the
registration and prospectus delivery requirements of the Act.
4.12. Compliance with Other Instruments. Neither the Company nor
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ITC China is in, nor will the conduct of their businesses as proposed to be
conducted result in, any violation, breach or default of any term of the
Company's Certificate or ITC China's charter or the Company's or ITC China's
bylaws (collectively, the "Bylaws") or in any material respect of any term or
provision of any mortgage, indenture, contract, agreement or instrument to which
the Company or ITC China is a party or by which it may be bound, or of any
provision of any foreign or domestic state or federal judgment, decree, order,
statute, rule or regulation applicable to or binding upon the Company or ITC
China. The execution, delivery and performance of and compliance with this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such violation or default, or be in conflict with or constitute,
with or without the passage of time or the giving of notice or both, either a
default under the Company's Certificate or Bylaws or ITC China's charter or
Bylaws, or any agreement or contract of the Company or ITC China, or, to the
best of the Company's knowledge, a violation of any statutes,
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laws, regulations or orders, or an event which results in the creation of any
lien, charge or encumbrance upon any asset of the Company or ITC China.
4.13. Disclosure. No representation or warranty by the Company in
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this Agreement or in any statement or certificate signed by any officer of the
Company or ITC China furnished or to be furnished to the Investors pursuant to
this Agreement contains or will contain any untrue statement of a material fact
or omits or will 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 in which they are made, not misleading.
4.14. Registration Rights. Except as provided in the Investor
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Rights Agreement, neither the Company nor ITC China has granted or agreed to
grant any person or entity any rights (including piggyback registration rights)
to have any securities of the Company or ITC China registered with the United
States Securities and Exchange Commission ("SEC") or any other governmental
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authority.
4.15. Insurance. Each of the Company and ITC China have obtained,
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or will obtain (within 15 days of the First Closing) and will maintain, fire and
casualty insurance policies with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
4.16. Financial Statements. Section 4.16(a) of the Disclosure
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Schedule sets forth an unaudited income statement of the Company for the period
ended December 31, 1997 (the "Financial Statements"). The Financial
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Statements include the consolidated financial results of the Company and ITC
China. Such Financial Statements (a) are in accordance with the books and
records of the Company, and (b) are true, correct and complete and present
fairly the results of operations for the period therein specified. Other than
promissory notes in the amount of $100,000 issued in connection with the
Company's bridge financing in December 1997, plus interest accrued at 10% since
such date, neither the Company nor ITC China has any material indebtedness or
other material liability. From and after the date hereof (beginning with the
monthly financial statements for March 1998 which shall be delivered on or prior
to April 30, 1998), all financial statements prepared by the Company shall be
prepared in accordance with United States generally accepted accounting
principles (GAAP), and all audits of the Company's financial statements shall
be conducted by one of the United States based "Big Six" accounting firms.
Section 4.16(b) of the Disclosure Schedule sets forth the Company current
business plan and the Company's projections as to the Company's possible
financial performance for each quarter of the fiscal year ending December 31,
1998. Such projections were prepared by the Company in good faith and based on
assumptions which the Company believes to be reasonable in view of information
currently available to the Company; provided that the Company makes no
representation or warranty that such projections will be met.
4.17. Certain Actions. Since December 31, 1997, neither the Company
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nor ITC China has: (a) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock; (b) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $10,000 or in excess of $25,000 in the
aggregate; (c) made any loans or advances to any person, other than ordinary
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advances for travel expenses; (d) sold, exchanged or otherwise disposed of any
material assets or rights other than the sale of inventory in the ordinary
course of its business; or (e) entered into any transactions with any of its
officers, directors or employees or any entity controlled by any of such
individuals.
4.18. Activities Since Income Statement Date. Since December 31,
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1997, there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets,
properties, financial condition, operating results, prospects
or business of the Company or ITC China (as presently conducted
and as presently proposed to be conducted);
(b) any waiver by the Company or ITC China of a valuable right or
of a material debt owed to it;
(c) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company or ITC China,
except such a satisfaction, discharge or payment made in the
ordinary course of business that is not material to the assets,
properties, financial condition, operating results or business
of the Company or ITC China;
(d) any material change or amendment to a material contract or
arrangement by which the Company or ITC China or any of their
assets or properties is bound or subject, except for changes or
amendments which are expressly provided for or disclosed in
this Agreement;
(e) any material change in any compensation arrangement or
agreement with any present or prospective employee, contractor
or director not approved by the Company's or ITC China's Board
of Directors; or
(f) to the Company's knowledge, any other event or condition of any
character which would materially and adversely affect the
assets, properties, financial condition, operating results or
business of the Company or ITC China.
4.19. Tax Matters. The Company has made sufficient provision for,
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and has adequate resources to pay, all accrued and unpaid federal, state,
provincial, foreign, county and local taxes of each of the Company and ITC
China, whether or not assessed or disputed as of the date hereof. There have
been no examinations or audits of any tax returns or reports by any applicable
federal, state or local governmental agency. Except as set forth in the
Disclosure Schedule, each of the Company and ITC China have duly filed all
federal, state, county and local tax returns required to have been filed by it
and paid all taxes shown to be due on such returns. To the extent that any tax
returns have not been filed as reflected on the Disclosure Schedule , such
failure to file has not had and will not have any material adverse effect on the
Company or
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ITC China. There are in effect no waivers of applicable statutes of limitations
with respect to taxes for any year.
4.20. Tax Elections. Neither the Company nor ITC China has elected
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pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be
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treated as an "S" corporation or a collapsible corporation pursuant to Section
341(f) or Section 1362(a) of the Code, nor has the Company or ITC China made
any other elections pursuant to the Code (other than elections which relate
solely to matters of accounting, depreciation or amortization) which would have
a material affect on the Company or ITC China, their financial conditions, their
businesses as presently conducted or presently proposed to be conducted or any
of their properties or material assets.
4.21. Invention Assignment and Confidentiality Agreement. The
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Company has used its best efforts to caused each employee, officer, consultant
and contractor of each of the Company and ITC China to enter into and execute an
Invention Assignment and Confidentiality Agreement in the form attached to this
Agreement as Exhibit D, an employment or consulting agreement containing
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substantially similar terms, or the Employee, Non-Competition, Confidential
Information and Work Product Agreement described on page 9 of the attachment to
Section 4.9 (Material Contracts) of the Disclosure Schedule. The persons listed
on page 9 of such attachment have signed the agreement described on page 9 of
the attachment.
4.22. Environmental Matters. During the period that each of the
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Company and ITC China has owned or leased its properties and facilities, (a)
there have been no disposals, releases or threatened releases of Hazardous
Materials (as defined below) on, from or under such properties or facilities,
(b) neither the Company nor ITC China, nor to the Company's knowledge any third
party, has used, generated, manufactured or stored on, under or about such
properties or facilities or transported to or from such properties or facilities
any Hazardous Materials. Neither the Company nor ITC China has knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such properties or facilities, which may have occurred
prior to the Company or ITC China having taken possession of any of such
properties or facilities. For purposes of this Agreement, the terms
"disposal", "release", and "threatened release" shall have the definitions
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assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA").
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For the purposes of this Section, "Hazardous Materials" shall mean any
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hazardous or toxic substance, material or waste which is regulated under, or
defined as a "hazardous substance", "pollutant", "contaminant", "toxic
chemical", "hazardous material", "toxic substance", or "hazardous
chemical" under (1) CERCLA; (2) the Emergency Planning and Community Right-to-
Know Act, 42 U.S.C. Section 11001 et seq.; (3) the Hazardous Materials
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Transportation Act, 49 U.S.C. Section 1801, et seq.; (4) the Toxic Substances
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Control Act, 15 U.S.C. Section 2601 et seq.; (5) the Occupational Safety and
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Health Act of 1970, 29 U.S.C. Section 651 et seq.; (6) regulations promulgated
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under any of the above statutes; or (7) any applicable state or local statute,
ordinance, rule, or regulation that has a scope or purpose similar to those
statutes identified above.
4.23. Interested Party Transactions. To the best knowledge of the
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Company, no officer or director of the Company or ITC China or any "affiliate"
or "associate" (as those terms
10
are defined in Rule 405 promulgated under the 0000 Xxx) of any such person has
had, either directly or indirectly, a material interest in: (i) any person or
entity which purchases from or sells, licenses or furnishes to the Company or
ITC China any goods, property, technology, intellectual or other property rights
or services; or (ii) any contract or agreement to which the Company or ITC China
is a party or by which it may be bound or affected.
4.24. Stock Restriction Agreements. Each person who, pursuant of
----------------------------
any benefit, bonus or incentive plan of the Company or ITC China, holds any
currently outstanding shares of Common Stock or other securities of either the
Company or ITC China or any option, warrant or right to acquire such shares or
other securities, has entered into or is otherwise bound by, an agreement
granting the Company or ITC China (i) the right to repurchase the shares for the
original purchase price, or to cancel the option, warrant or right, in the event
the holder's employment or services with the Company or ITC China terminate for
any reason, subject to release of such repurchase or cancellation right on terms
and conditions specified by the Board of Directors of the Company, and (ii) a
right of first refusal with respect to all such shares. Each of the Company and
ITC China has furnished to each Investor true and complete copies of the forms
of all such stock restriction agreements.
4.25 Business Plan. The business plan prepared by the Company and
-------------
delivered to each Investor on or before the date hereof (the "Business Plan")
was prepared in good faith and is not materially misleading.
4B. REPRESENTATIONS AND WARRANTIES OF XXXXXXX XXXXX. Xxxxxxx Xxxxx
-----------------------------------------------
represents and warrants to the Investors as follows:
4B.1 Conflicting Agreements. He is not, as a result of the nature of
----------------------
the business conducted or proposed to be conducted by the Company or for any
other reason, in violation of (i) any fiduciary or confidential relationship,
(ii) any term of any contract or covenant (either with the Company or with
another entity) relating to employment, patents, proprietary information
disclosure, non-competition or non-solicitation, or (iii) any other contract or
agreement, or any judgment, decree or order of any court or administrative
agency relating to or affecting the right of Xx. Xxxxx to be employed by the
Company. No such relationship, term, judgment, decree, or order conflicts with
Xx. Xxxxx obligations to use his best efforts to promote the interests of the
Company nor does the execution and delivery of this Agreement and the
transactions contemplated hereby, nor the carrying on of the Company's business
as an officer or key employee of the Company, conflict with any such
relationship, term, judgment, decree or order.
4B.2 Litigation. There is no action, suit or proceeding, or
----------
governmental inquiry or investigation, pending or, to the best of Xx. Xxxxx'x
knowledge, threatened against Xx. Xxxxx and, to the best of his knowledge, there
is no basis for any such action, suit, proceeding, or governmental inquiry or
investigation.
4B.3 Stockholder Agreements. Except as contemplated by or disclosed
----------------------
in this Agreement, Xx. Xxxxx is not a party to and has no knowledge of any
agreements, written or oral, relating to the acquisition, disposition,
registration under the Securities Act, or voting of the capital stock of the
Company.
11
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
-----------------------------------------------
represents and warrants to the Company as follows:
5.1. Authorization. This Agreement when executed and delivered by
-------------
the Investor will constitute a valid and legally binding obligation of the
Investor, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles.
5.2. Investigation; Economic Risk. The Investor acknowledges that
----------------------------
it is an "accredited investor" within the meaning that term as defined in Rule
50l(a) of Regulation D of the Securities Act. The Investor's address set forth
on the Exhibit A represents its state of domicile, upon which the Company may
---------
rely for the purpose of complying with applicable state "Blue Sky" laws. The
Investor acknowledges that it has had an opportunity to discuss the business,
affairs and current prospects of the Company with its officers. The Investor
further acknowledges having had access to information about the Company that it
has requested. The Investor acknowledges that it is able to fend for itself in
the transactions contemplated by this Agreement and has the ability to bear the
economic risks of its investment pursuant to this Agreement.
5.3. Purchase for Own Account. The Shares and the Conversion Shares
------------------------
will be acquired for its own account, not as a nominee or agent, and not with a
view to or in connection with the sale or distribution of any part thereof.
5.4. Exempt from Registration; Restricted Securities. The Investor
-----------------------------------------------
understands that the Shares and the Conversion Shares will not be registered
under the Act, on the ground that the sale provided for in this Agreement is
exempt from registration under of the Act, and that the reliance of the Company
on such exemption is predicated in part on the Investor's representations set
forth in this Agreement. The Investor understands that the Shares and the
Conversion Shares being purchased hereunder are restricted securities within the
meaning of Rule 144 under the Act; that the Shares and the Conversion Shares are
not registered and must be held indefinitely unless they are subsequently
registered or an exemption from such registration is available.
5.5. Restrictive Legends. It is understood that each certificate
-------------------
representing (a) the Shares, (b) the Conversion Shares, and (c) any other
securities issued in respect of the any of the foregoing upon any stock split,
stock dividend, recapitalization, merger or similar event shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY
12
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
5.6 Removal of Restrictive Legend. The legend set forth above shall
-----------------------------
be removed by the Company from any certificate evidencing Shares or Conversion
Shares upon delivery to the Company of an opinion by counsel, reasonably
satisfactory to the Company, that a registration statement under the Act is at
that time in effect with respect to the legended security or that such security
can be freely transferred in a public sale without such a registration statement
being in effect and that such transfer will not jeopardize the exemption or
exemptions from registration pursuant to which the Company issued the Shares or
Conversion Shares.
6. COVENANTS OF THE COMPANY. The Company covenants to each Investor as
------------------------
follows:
6.1 Use of Proceeds. The Company will use the Proceeds from the
---------------
sale of the Shares for business expansion, capital expenditures, general working
capital and the repayment of promissory notes of the Company, including accrued
interest thereon, in the aggregate principal amount of $100,000.
6.2 Implementation of Business Plan. The Company shall use its best
-------------------------------
efforts to take all necessary actions to implement and carry out the Business
Plan, including, without limitation, hiring employees, renting office space,
employing legal and technical consultants and undertaking other customary
business activities.
6.3 Other Investors. The Company shall not engage any strategic
---------------
investors for the purpose of obtaining additional financing without the prior
written consent of the holders of a majority of the Shares.
6.4 Vesting. In addition, any Common Stock or other securities of
-------
the Company issued after the First Closing to employees, directors and
consultants of the Company pursuant to any benefit, bonus or incentive plan of
the Company shall be subject to customary vesting provisions over a period of
four (4) years (other than Common Stock issued pursuant to the exercise of
options held by Xxxxxx Xxxxxxx and Xxxxxx Xxxxx as of the date hereof), and a
minimum of 50% of the shares issued to Xxxxxxx Xxxxx shall be subject to four
(4) years of customary vesting and repurchase provisions at the original issue
price.
6.4 Expenses of Directors. The Company shall promptly reimburse in
---------------------
full each director of the Company who is not an employee of the Company for all
of his reasonable out-of-pocket expenses incurred in attending each meeting of
the Board of Directors of the Company or any committee hereof.
7. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT THE CLOSINGS. The
----------------------------------------------------------
obligations of each Investor to purchase the Tranche I Shares at the First
Closing and the Tranche II Shares at the Second Closing are subject to the
fulfillment, to the satisfaction each
13
Investor, on or before the First Closing and Second Closing, respectively, of
the following conditions:
7.1. Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 4 hereof shall be true and correct (i)
when made, (ii) as of the date of the First Closing, and (iii) as of the date of
the Second Closing, if consummated; such representations and warranties shall
have the same force and effect as if made on and as of such dates, subject to
changes contemplated by this Agreement; and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it (i)
on or before the First Closing, with respect to the issuance and sale of the
Tranche I Shares, and (ii) on or before the Second Closing, if consummated, with
respect to the issuance and sale of the Tranche II Shares.
7.2. Performance of Obligations. The Company shall have performed
--------------------------
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it (i) on or
before the First Closing, with respect to the issuance and sale of the Tranche I
Shares, and (ii) on or before the Second Closing, with respect to the issuance
and sale of the Tranche II Shares; and the Company shall have obtained all
approvals, consents and qualifications necessary to complete the purchases and
sales described herein.
7.3. Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Investor, and the Investor shall have received all such counterpart
originals or certified or other copies of such documents as it may reasonably
request.
7.4. Consents and Waivers. The Company shall have obtained any and
--------------------
all consents and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement.
7.5. Compliance Certificate. At the First Closing, the Company shall
----------------------
deliver to each Investor a certificate, dated as of the First Closing, signed by
the Company's President certifying that the conditions specified in Paragraphs
7.1 and 7.2 have been fulfilled. In addition, at the Second Closing, if
consummated, the Company shall deliver to each Investor another certificate,
dated as of the Second Closing, signed by the Company's President certifying
that the conditions specified in Sections 7.1 and 7.2 have been fulfilled.
7.6. Securities Laws. The offer and sale of the Shares to the
---------------
Investors pursuant to this Agreement shall be exempt from the registration
requirements of the Act and the registration and/or qualification requirements
of all applicable state securities laws.
7.7. Amendment to Certificate. The Certificate shall have been duly
------------------------
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders and shall have been duly filed with and accepted by
the Secretary of State of the State of Delaware.
14
7.8. Opinion of Company's Counsel. At both the First Closing and
-----------------------------
the Second Closing, each Investor shall have received from counsel to the
Company an opinion addressed to the Investor, dated the date of the respective
Closing, in form and substance reasonably acceptable to the Investor.
7.9. Board of Directors. The Company's Certificate of Incorporation
------------------
and bylaws shall provide for a Board of 45 Directors. The number of Directors
shall not be changed except by amendment. The Company's Board of Directors on
the date of both First Closing and Second Closing shall consist of Xxxxxxx
Xxxxx, Xxxxxx X. Xxxxxxx and two representatives selected by the holders of the
Series B Preferred Stock. The fifth seat on the Board of Directors shall be
either vacant or filled by vote of the Common Stock, Series A Preferred Stock
and Series B Preferred Stock, voting together as a single class.
7.10 Achievement of Revenue Plan; Audited Financial Statements;
----------------------------------------------------------
Information Rights. With respect to the obligation of the Investors to purchase
------------------
the Tranche II Shares at the Second Closing, the Company shall (i) have achieved
revenues of at least $117,090 with respect to the period from January 1, 1998,
through May 31, 1998, (ii) have provided audited financial statements for both
the Company and ITC China for the year ending December 31, 1997, no later than
May 31, 1998, and (iii) be in compliance with Sections 1.1 and 1.3 of that
certain Investor Rights Agreement, dated as of the date hereof, by and between
the Company and the Investors.
8. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSINGS. The obligations
----------------------------------------------------
of the Company under this Agreement are subject to the fulfillment, on or before
both the First Closing and the Second Closing, of the following conditions:
8.1. Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 5 hereof shall be true as of
both the First and Second Closing.
8.2. Payment of Purchase Price. Each Investor shall have delivered
-------------------------
to the Company the purchase price in accordance with the provisions of Section
3.
8.3. Certificate Effective. The Certificate shall have been duly
---------------------
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the Secretary of State of the State of Delaware.
8.4. Securities Exemptions. The offer and sale of the Shares to
---------------------
the Investors pursuant to this Agreement shall be exempt from the registration
requirements of the Act, and the registration and/or qualification requirements
of all applicable state securities laws.
9. MISCELLANEOUS.
-------------
9.1. Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware without regard to provisions regarding
choice of laws.
9.2. Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by any party hereto
and the closing of all the transactions contemplated hereby.
15
9.3. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto whose rights or obligations hereunder are affected by such
amendments. This Agreement and the rights and obligations therein may not be
assigned by any Investor without the written consent of the Company except to a
parent corporation, a subsidiary or affiliate. This Agreement and the rights and
obligations therein may not be assigned by the Company without the written
consent of the holders of a majority of the Shares purchased by Intel
Corporation pursuant hereto and the holders of a majority of the Shares
purchased by Xxxxxxxx and Kummell pursuant hereto.
9.4. Entire Agreement. This Agreement and the exhibits hereto which
----------------
are hereby expressly incorporated herein by this reference constitute the entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof; provided, however, that nothing in this Agreement shall be
-------- -------
deemed to terminate or supersede the provisions of any confidentiality and
nondisclosure agreements executed by the parties hereto prior to the date
hereof, which agreements shall continue in full force and effect until
terminated in accordance with their respective terms.
9.5. Notices. Except as may be otherwise provided herein, all
-------
notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been duly
given (a) when hand delivered to the other party; (b) when received when sent by
facsimile at the address and number set forth below; (c) three business days
after deposit in the U.S. mail with first class or certified mail receipt
requested postage prepaid and addressed to the other party as set forth below;
or (d) the next business day after deposit with a national overnight delivery
service, postage prepaid, addressed to the parties as set forth in Exhibit A
with next-business-day delivery guaranteed, provided that the sending party
receives a confirmation of delivery from the delivery service provider. Each
person making a communication hereunder by facsimile shall promptly confirm by
telephone to the person to whom such communication was addressed each
communication made by it by facsimile pursuant hereto but the absence of such
confirmation shall not affect the validity of any such communication. A party
may change or supplement the addresses given in Exhibit A, or designate
additional addresses, for purposes of this Section 9.5 by giving the other party
written notice of the new address in the manner set forth above.
9.6. Amendments and Waivers. Any term of this Agreement may be
----------------------
amended only with the written consent of the Company and the holders of a
majority of shares of Series B Preferred Stock, or rights to acquire Shares.
9.7. Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to the Company or to any Investor, upon any
breach or default of any party hereto under this Agreement, shall impair any
such right, power or remedy of the Company, or the Investor nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of any similar breach of default thereafter occurring; nor shall any
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 the
Company or any Investor of any breach of default under this Agreement or any
waiver on the part of the Company or any Investor
16
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded to the
Company or any Investor shall be cumulative and not alternative.
9.8. Legal Fees. In the event of any action at law, suit in equity
----------
or arbitration proceeding in relation to this Agreement or any Shares or other
securities of the Company issued or to be issued, the prevailing party, shall be
paid by the other party a reasonable sum for attorney's fees and expenses for
such prevailing party.
9.9. Finder's Fees. Each party (a) represents and warrants to the
-------------
other party hereto that, except as set forth in Section 9.9 of the Disclosure
Schedule, it has retained no finder or broker in connection with the
transactions contemplated by this Agreement, and (b) hereby agrees to indemnify
and to hold harmless the other party hereto from and against any liability for
any commission or compensation in the nature of a finder's fee of any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the indemnifying party or any of its
employees or representatives are responsible.
9.10. Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.12. Severability. Should any provision of this Agreement be
------------
determined to be illegal or unenforceable, such determination shall not affect
the remaining provisions of this Agreement.
9.13 Protection of Confidential Information. Confidential or
--------------------------------------
proprietary information disclosed by either party under this Agreement, as well
as the terms of this Agreement and each Investor's investment in the Company,
shall be considered confidential information (the "Confidential Information")
and shall not be disclosed by the Company or any other party to this Agreement
to any third party, subject to Section 9.14 below. Each party shall immediately
notify the other parties of any information that comes to its attention which
might indicate that there has been a loss of confidentiality with respect to the
Confidential Information. In the event that the Company or any other party
becomes legally compelled (by statute or regulation or by oral questions,
interrogatories, request for information or documents, subpoena, criminal or
civil investigative demand or similar process, including without limitation, in
connection with any public or private offering of the Company's capital stock)
to disclose any of the Confidential Information, such party (the "Disclosing
Party") shall provide the other party (the "Non-Disclosing Party") with prompt
written notice of that fact so that the appropriate party may seek (with the
cooperation and reasonable efforts of the other parties) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the Confidential Information
which is legally required and shall
17
exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded the Confidential Information to the extent reasonably
requested by the Non-Disclosing Party. The provisions of this Section 9.13 shall
be in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto with respect to the
transaction contemplated hereby.
9.14 Disclosure of Terms; Press Releases. Notwithstanding the
-----------------------------------
provisions of Section 9.13 above, from and after the First Closing, the Company
may disclose the existence of this Agreement and the terms hereof, as well as
each Investor's investment in the Company solely to the Company's investors,
investment bankers, lenders, accountants, legal counsel, business partners, and
bona fide prospective investors, employees, lenders and business partners, in
each case only where such persons or entities are under appropriate
nondisclosure obligations. In addition, the Company may disclose the fact that
the Investor is an investor in the Company to third parties without the
requirement of nondisclosure obligations. Within sixty (60) days of the First
Closing, the Company may issue a press release disclosing that the Investor has
invested in the Company; provided that the release does not disclose the amount
or other specific terms of the investment and is approved in advance in writing
by the Investor. Each Investor, at its sole discretion, may provide an
executive quote or other material regarding its investment in the Company. No
other announcement regarding the Investor's investment in the Company in a
press conference, in any professional or trade publication, in any marketing
materials or otherwise to the general public may be made without the prior
written consent of the Investor, which consent may be withheld at the sole
discretion of the Investor. Notwithstanding the foregoing, the Investor may
disclose its investment in the Company and the terms thereof to third parties or
to the public at its discretion, and the Company shall have the right to
disclose to third parties any such information disclosed by the Investor in a
press release or other public announcement. If the Company or the Investor
determines that any disclosure not otherwise authorized by this Agreement is
required by law or regulation, then the provisions of Section 9.13 regarding
disclosure of Confidential Information by a Disclosing Party shall govern.
9.15 Dispute Resolution. The parties agree to negotiate in good
------------------
faith to resolve any dispute between them regarding this Agreement. If the
negotiations do not resolve the dispute to the reasonable satisfaction of both
parties, then each party shall nominate one senior officer of the rank of Vice
President or higher as its representative. These representatives shall, within
thirty (30) days of a written request by either party to call such a meeting,
meet in person and alone (except for one assistant for each party) and shall
attempt in good faith to resolve the dispute. If the disputes cannot be resolved
by such senior managers in such meeting, the parties agree that they shall, if
requested in writing by either party, meet within thirty (30) days after such
written notification for one day with an impartial mediator and consider dispute
resolution alternatives other than litigation. If an alternative method of
dispute resolution is not agreed upon within thirty (30) days after the one day
mediation, either party may begin litigation proceedings. This procedure shall
be a prerequisite before taking any additional action hereunder.
18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year herein above first written.
INVESTOR
INTERNET TECHNOLOGIES
CHINA INCORPORATED ___________________________
(Name of Investor)
_______________________ ___________________________
Signature Signature
_______________________ ___________________________
Printed Name Printed Name
_______________________ ___________________________
Title Title
XXXXXXX XXXXX
Executed solely for the purpose of making
the representations and warranties set
forth in Section 4B hereof:
_______________________
Xxxxxxx X.X. Xxxxx
[SIGNATURE PAGE FOR SERIES B PREFERRED
STOCK PURCHASE AGREEMENT]
-19-
