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LOAN AND PURCHASE OPTION AGREEMENT
This Loan and Purchase Option Agreement ("Agreement") is entered into as of
the ___ day of February, 2003 by and among xxxxxxxx.xxx, inc., a Delaware
corporation ("Buyer"), [ * ], a New York
corporation ("Company"), and [ * ], individually, and
[ * ], individually and as power of attorney on behalf
of all of the remaining holders of all of the issued and outstanding common
stock of the Company as set forth on Schedule A (collectively, the "Sellers",
and including [ * ] as the "Sellers' Representative").
[ * ] and [ * ] are
sometimes collectively referred to herein as the "Operating Sellers."
WHEREAS, the Company currently owes the Buyer the sum of $40,000, plus
interest, under an outstanding bridge loan dated December 12, 2002, and was
subsequently loaned an additional $40,000 on the same terms (collectively, the
"Bridge Loan");
WHEREAS, the Buyer has agreed to loan the Company the additional
amount of $80,000 (the "Additional Amount"), which will result in an overall
loan in the aggregate principal amount of $160,000;
WHEREAS, the parties wish to replace the Bridge Loan by consolidating
all the money owed by the Company thereunder into this Agreement subject to and
upon the terms and conditions herein set forth; and
WHEREAS, as an inducement to the Buyer to make the Operating Loan, the
Sellers wish to grant the Buyer the option to acquire all of the shares of
capital stock owned by them in the Company under the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
A. The Operating Loan.
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1. The Operating Loan and Funding. Within two business days of
execution of this Agreement, the Buyer will loan Forty Thousand Dollars
($40,000) to the Company pursuant to a loan commitment in the aggregate amount
of One Hundred Sixty Thousand Dollars ($160,000) (inclusive of the Bridge Loan)
(the "Operating Loan"). Subject to compliance by the Company and Sellers with
the terms of this Agreement, the Buyer agrees to fund the remaining Forty
Thousand Dollars ($40,000) of the Operating Loan on March 12, 2003. The
Additional Amount of the Operating Loan will be used solely for operating
expenses incurred on and after the date of this Agreement. The Operating Loan
will mature on December 12, 2003, with all outstanding principal and interest
being due in one lump sum on such date except as provided in the next sentence.
If the Buyer elects not to exercise the Purchase Option (as defined below), then
(i) the Operating Loan will mature twelve months following the earlier of: (a)
notice at any time from the Buyer that it is not exercising the Purchase Option
or (b) the expiration of the Purchase Option, with equal monthly payments of
principal and interest being made on a straight amortization basis, and (ii)
sixty thousand dollars of the amount of the Operating Loan will be deemed
forgiven (the "Forgiven Amount"); provided, however, if within one year of such
date the Company obtains financing from any unrelated third party the full
amount of the Operating Loan (including the Forgiven Amount) will be immediately
due and payable. The Operating Loan shall be represented by a Promissory Note
(which shall subsume and supercede the promissory note relating to the Bridge
Loan) in the form attached hereto as Exhibit A which shall be executed and
delivered by the Company concurrent with the execution of this Agreement.
2. Security for the Operating Loan. As security for the Company's
obligations to the Buyer, the Company does hereby grant the Buyer a first
priority security interest in and to all of the tangible and intangible assets
of the Company, including without limitation, "goodwill", intellectual property,
and the Company's contractual rights with third parties, all as further
described in the Security Agreement attached hereto as Exhibit B (the "Security
Agreement"). Buyer will share, on a pro rata basis, the above security interest
with [ * ] ("[ * ]") and [
* ] ("[ * ]") to the extent of the first
priority security interest that each of [ * ] and [
* ] has in the above property. The Company shall execute and
deliver the Security Agreement concurrently with this Agreement. Such Security
Agreement will included a joinder by [ * ] and [
* ] pursuant to which they consent to such shared security interest
and the provisions of Paragraph C.2 hereof. The Company further agrees to
promptly execute and deliver all other documentation reasonably requested by the
Buyer to further reflect, implement and perfect the foregoing security interest.
This Agreement, the Promissory Note and the Security Agreement are sometimes
collectively referred to herein as the "Loan Documents."
3. Accrued Compensation Subordination. The Sellers (together with the
persons identified on Schedule D.1 hereof, each of which shall contemporaneous
with this Agreement execute and deliver a Subordination Agreement in the form of
Exhibit C) agree to subordinate and defer payment of all accrued and unpaid
compensation, if any, owed to them (approximately Two Hundred Twenty Four
Thousand and Five Hundred Dollars ($224,500) as of the date of this Agreement)
for services rendered (the "Accrued Compensation") to repayment of the Operating
Loan (including the Bridge Loan) except as provided in the next sentence.
Notwithstanding repayment of the Operating Loan, in the event of exercise of the
Purchase Option, the Sellers and other persons whom are owed Accrued
Compensation further agree that they shall be entitled to payment of the Accrued
Compensation only to the extent so provided in Section 5 of the Subordination
Agreement.
4. Election to Increase Funding. At its discretion, the Buyer may
elect to increase the amount of funding under the Operating Loan on a month to
month basis on the same terms as outlined above, including without limitation as
to security and the subordination. The Company and the Sellers agree to promptly
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execute and deliver all other documentation reasonably requested by the Buyer to
further reflect, implement and document any such increased funding.
5. Conditions Precedent to Additional Funding. The obligation of the
Buyer to fund the Additional Amount of the Operating Loan shall be subject to
satisfaction of the following conditions precedent at the time of each funding:
(i) all representations, warranties, covenants and statements made by or behalf
of the Company or any Seller in any of the Loan Documents or the Stock Purchase
Agreement (as defined below and incorporated herein) shall be true and correct
in all material respects; (ii) there shall not have been any material adverse
change in the condition (financial or otherwise), operations, assets,
liabilities or prospects of the Company, as determined in Buyer's sole good
faith discretion; and (iii) there shall not be voluntary or involuntary
bankruptcy, insolvency or similar proceedings pending relating to the Company or
any of its assets; provided, however, in the event Buyer believes that either
clause (i) or (ii) above is not satisfied, it will so notify the Company and to
the extent curable, will afford it a period of fifteen (15) days to satisfy such
condition to Buyer's satisfaction (and during such notice and cure period any
obligation of the Buyer to fund will be suspended). If requested by the Buyer,
the Company agrees to promptly supply it with a certification signed by its
President and Chief Financial Officer that, to the best of their respective
knowledge and belief, all such conditions are satisfied.
B. The Purchase Option. The Sellers hereby jointly and severally grant
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to the Buyer the option to purchase all of the issued and outstanding shares of
common stock (together with any Common Stock Equivalents, as hereinafter
defined) (the "Common Stock") now or hereinafter owned by them (the "Purchase
Option"). The Sellers represent and warrant that they are the owners of all of
the issued and outstanding shares of Common Stock. The Purchase Option shall be
exercisable by written notice from the Buyer to the Sellers' Representative (the
"Election Notice") at any time on or before the later of (i) March 31, 2003 and
(ii) ten (10) days following the date of Buyer's receipt of written notice from
the Company that [ * ]. The closing of the exercise
of the Purchase Option (the "Option Closing") shall occur at the offices of the
Buyer on the 10th business day following receipt by the Sellers' Representative
of the Election Notice. At the Option Closing, the Buyer shall (i) pay an
aggregate of Forty Thousand Dollars ($40,000) (the "Cash Payment") in
immediately available funds to [ * ] as complete
payment for the shares owned by [ * ] (and its other
undertakings pursuant to the Stock Purchase Agreement described below) and (ii)
issue to the balance of the Sellers (excluding [ * ])
an aggregate of two million (2,000,000) shares of its common stock, $.001 par
value per share (the "xxxxx.xxx Shares")(together with the Cash Payment, the
"Purchase Price"). The xxxxx.xxx Shares will be unregistered and constitute
restricted securities for purposes of federal securities laws and shall contain
restrictive legends prohibiting the transfer of the xxxxx.xxx Shares, except in
compliance with applicable state and federal securities laws. The xxxxx.xxx
Shares will be issued pro rata to the Sellers (other than to and taking into
account the exclusion of [ * ]) in accordance with
their respective ownership percentages as set forth on Schedule A and will be
entitled to "piggy back" registration rights in the manner set forth in Schedule
III of the form of Stock Purchase Agreement referred to below. When and if the
Purchase Option is exercised, the Company and the Sellers shall sell their
shares of the Common Stock to the Buyer pursuant to the form of Stock Purchase
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Agreement attached hereto as Exhibit D, which the Company and Sellers covenant
and agree to execute and deliver to Buyer at the Option Closing, together with
stock certificates or other Common Stock Equivalents with stock powers or other
appropriate instruments of transfer duly executed in favor of the Buyer. For
purposes of this Agreement, the term "Common Stock Equivalents" means shares of
Common Stock issuable upon (i) the exercise of outstanding options, warrants or
rights to subscribe for the Common Stock or (ii) the conversion of outstanding
shares of preferred stock, debt or other convertible instruments, in either
case, whether or not then currently exercisable or convertible.
C. Other Agreements. In connection with the Purchase Option and the
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Operating Loan the parties agree as follows:
1. Employment Agreements. If and when the Purchase Option is
exercised, [ * ] and [ * ]
agree to enter into the forms of employment agreements (the "Employment
Agreements") attached hereto as Exhibits E-1 and E-2, respectively, effective as
of the Option Closing;
2. Loan Matters. [ * ] and [ *
] hereby agree to share on a pro rata basis with the Buyer their respective
security interests in the property of the Company. In addition, the parties
hereby acknowledge and agree that the Company will pay the aggregate amount of
Eighty Thousand Dollars ($80,000) (which the Company and Sellers represent and
warrant to be the only indebtedness for borrowed money owed by the Company,
other than the Bridge Loan) upon the sooner of (i) the date on which the Option
Closing occurs and (ii) the original maturity dates of the loans (all at various
dates in the third and fourth quarter of 2004) to such parties. The Company
covenants not to prepay the loans to [ * ] or
[ * ] except as set forth in the preceding sentence.
D. Representations and Warranties.
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1. Company and Operating Sellers. The Company and the Operating
Sellers, jointly and severally, represent and warrant to the Buyer as follows:
(a) Stock Purchase Agreement. The representations and warranties set
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forth in Sections 3.1 through 3.21 (including without limitation, the
representations as to capitalization matters in Section 3.3) of the
Stock Purchase Agreement are true and correct as of the date of this
Agreement and are incorporated herein.
(b) Validity of Loan Documents. The execution, delivery and
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performance by the Company of the Loan Documents and by the Sellers of
this Agreement: (i) are duly authorized and do not require the consent
or approval of any other party or governmental authority which has not
been obtained; and (ii) will not violate any law or agreement, nor
result in the imposition of any lien, charge or encumbrance upon the
assets of the Company or the Common Stock. The Loan Documents
constitute the legal, valid and binding obligations of the Company
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enforceable in accordance with their respective terms and this
Agreement constitutes the legal, valid and binding obligation of each
Seller in accordance with its terms. The Company and each Seller has
the power and authority to enter into the Loan Documents and this
Agreement, respectively. The Sellers' Representative holds legal and
binding powers of attorney which grant him authority to execute and
deliver the Loan Documents on behalf of the other Sellers and to bind
them in accordance with the terms of the Loan Documents.
(c) Accrued Compensation. The Sellers and the persons set forth on
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Schedule D.1 are the only persons due Accrued Compensation from the
Company and the amount of such Accrued Compensation owed to each
Seller, if any, and other person, as of January 31, 2003, is as set
forth opposite such Seller's or other person's name on such Schedule.
2. The Sellers. Each Seller, as to itself and not jointly, represents
and warrants to the Buyer that the representations and warranties set forth in
Sections 4.1 through 4.5 (including without limitation, the representations as
to title matters in Section 4.2) of the Stock Purchase Agreement are true and
correct as of the date of this Agreement and are incorporated herein; provided
that for purposes of this Agreement, reference to the term "Agreement" in the
Stock Purchase Agreement shall mean both the Stock Purchase Agreement and this
Agreement.
E. Covenants of the Company and Sellers.
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1. Exclusivity. From the date hereof until expiration of the Purchase
Option (the "Exclusivity Period"), neither the Company, Seller(s) nor any of
their respective officers, directors, employees or agents shall, directly or
indirectly, without the prior written consent of Buyer, contact, respond to,
negotiate with or initiate or hold discussions with, agree, solicit or entertain
offers from, any corporation, partnership, person or other entity (other than
Buyer) regarding (i) the sale, transfer, issuance or other disposition of the
Common Stock, Common Stock Equivalents or any other equity interest in the
Company, (ii) the sale or disposition of all or any substantial portion of the
assets of the Company or (iii) the merger, consolidation or reorganization of
the Company with or into any other entity. The Company and each Seller agree to
immediately advise, in reasonable detail, Buyer regarding any offer, proposal or
related inquiry which it or he, or their respective officers, directors,
employees or agents, may hereafter receive from any other corporation,
partnership, person or other entity.
2. Conduct of Business. The Company will do or cause to be done, all
things reasonably necessary to preserve and keep in full force and effect its
existence and its material rights, franchises, licenses and other intellectual
property. The Company will comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business. The Company will
not engage (directly or indirectly) in any business other than the business in
which they are engaged on the date hereof.
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3. Liens. The Company will not create, incur, assume or suffer to
exist any Lien upon or with respect to any property or assets (real or personal,
tangible or intangible), whether now owned or hereafter acquired, without the
prior consent of the Buyer. The Sellers will not create, incur, assume or suffer
to exist any Lien on the Common Stock.
4. Dividends. The Company will not declare or pay any dividends, or
return any capital, to its stockholders or authorize or make any other
distribution, payment or delivery of property or cash to its stockholders as
such, or redeem, retire, purchase or otherwise acquire, directly or indirectly,
for any consideration, any shares of any class of its capital stock now or
hereafter outstanding (or any Common Stock Equivalents) , or set aside any funds
for any of the foregoing purposes.
5. Control; Management. There shall be no change in the officers or
directors of the Company without the consent of the Buyer.
6. Affiliated Transactions. Except as otherwise disclosed and
contemplated in Section 3.18 of the Disclosure Schedule to the Stock Purchase
Agreement, the Company will not enter into any transaction or series of related
transactions, whether or not in the ordinary course of business, with a Seller
or any affiliate of a Seller.
7. Taxes. The Company will pay and discharge or cause to be paid and
discharged all applicable federal, state, local and other material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or upon any of its property, real, personal or mixed or upon
any part thereof, when due, as well as all lawful claims for labor, materials
and supplies which, if unpaid might by law become a lien upon such property.
F. Break-up Option. The Company hereby grants to the Buyer an
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irrevocable option to purchase an amount of its shares of Common Stock that
after giving effect to such issuance would equal forty percent (40%) of the
Company's then issued and outstanding shares of Common Stock, on a fully diluted
basis for Common Stock Equivalents, for an exercise price of Ten Dollars
($10.00) in the aggregate, payable at the time of exercise. Such option will be
exercisable only if (i) the Company, any of its subsidiaries, affiliates or
successors or assigns, obtain from, or enter into a binding agreement with, any
third party for any form of investment or financing whatsoever (including
without limitation, through a simple financing or acquisition) at anytime on or
before December 31, 2003, without the express written consent of the Buyer; and
(ii) the Buyer is not then in default of this Agreement.
G. Press Releases and Announcements. Neither party shall release any
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information concerning this Agreement or the transactions contemplated hereby
which is intended for or may result in public dissemination thereof without
first furnishing drafts of all documents or proposed oral statements to the
other party for comment and approval; provided, that nothing herein shall
restrict Buyer from making such disclosures as it deems appropriate for purposes
of complying with state or federal securities laws.
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H. Expenses. Buyer, the Company and Sellers shall each be responsible for
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and shall pay their own respective expenses incurred in connection with this
Agreement and the transactions contemplated hereby, including, without
limitation, legal and accounting fees and expenses.
I. Miscellaneous.
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1. Entire Agreement. This Agreement together with its schedules and
exhibits represent the complete understanding between the parties with respect
to the subject matters hereto and thereto and supersedes any and all other
understandings or agreements (whether orally or in writing) between the parties,
except as specifically otherwise provided herein or therein.
2. Governing Law; Submission to Jurisdiction; Appointment of Process
Agent. The terms of this Agreement shall be governed by, and shall be construed
and enforced in accordance with, the laws of the State of Florida without regard
to principles of conflicts of law. With respect to any suit, action or
proceeding relating to this Agreement or the transactions contemplated hereby,
the parties irrevocably (i) submits to the exclusive jurisdiction of the United
States District Court for the Southern District of Florida, and, if such Court
lacks subject matter jurisdiction, in the courts of general jurisdiction in
Broward County, Florida; and (ii) waives, to the fullest extent permitted by
law, any objection or immunities to jurisdiction which such party may now or
hereafter have at any time to the laying of venue of any such suit, action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, or any judgment entered by any court in respect hereof
brought in any such court, waives any claim that any such suit, action or
proceeding has been brought in an inconvenient forum and further waives the
right to object with respect to any such suit, action or proceeding that such
court does not have any jurisdiction over it.
3. Notices. All notices and other communications provided for herein
shall be dated and in writing and shall be deemed to have been duly given (x) on
the date of delivery, if delivered personally or by telecopier, receipt
confirmed, (y) on the second following business day, if delivered by a
recognized overnight courier service, or (z) seven days after mailing, if sent
by registered or certified mail, return receipt requested, postage prepaid, in
each case, to the party to whom it is directed at the following address (or at
such other address as any party hereto shall hereafter specify by notice in
writing to the other parties hereto):
(i) If to the Company to the following address:
[ * ]
With a copy to:
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Xxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP
000 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
Facsimile: (000) 000-0000
(ii) If to Buyer the following address:
000 Xxxx Xxxxxxx Xxxx.
Xxxxx 0000
Xx. Xxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxx
Facsimile: (000) 000.0000
With a copy to:
Proskauer Rose LLP
0000 Xxxxxx Xxxx
Xxxxx 000 Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. "Rocky" Xxxxxxxx, II
Facsimile: (000) 000.0000
(iii) If to any of the Sellers, to the Sellers'
Representative, to the following address:
[ * ]
4. Binding Agreement. This Agreement is binding upon, and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
5. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be an original and together shall constitute a
single agreement.
6. Severability. The provisions of this Agreement will be deemed
severable and the invalidity or unenforceability of any provision hereof will
not affect the validity or enforceability of the other provisions hereof;
provided that if any provision of this Agreement, as applied to any party or to
any circumstance, is adjudged by a court or governmental body not to be
enforceable in accordance with its terms, the parties agree that the court or
governmental body making such determination will have the power to modify the
provision in a manner consistent with its objectives such that it is
enforceable, and/or to delete specific words or phrases, and in its reduced
form, such provision will then be enforceable and will be enforced.
IN WITNESS WHEREOF, the undersigned have signed this Agreement as of the
date first provided above.
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"BUYER"
xxxxxxxx.xxx, Inc.
By:
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Its:
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Print Name: Xxxxxx Xxxxxxxx
"COMPANY"
[ * ]
By:
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Its: President
Print Name: [ * ]
"SELLERS"
[Note: as applicable, provide appropriate signature pursuant to
power of attorney ]
_______________________________________________
[ * ], individually and as Seller's
Representative
_______________________________________________
[ * ]
_______________________________________________
[ * ]
_______________________________________________
[ * ]
[ * ]
By:____________________________________________
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