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STOCK PURCHASE AGREEMENT
between
PRODIGY SERVICES CORPORATION, SUNSHINE INTERACTIVE NETWORK, INC.
and
PARADIGM MUSIC ENTERTAINMENT COMPANY
dated
January 9, 1997
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TABLE OF CONTENTS
SECTION 1 Authorization and Sale of the Shares; Closing............................................... 1
1.1 Purchase and Sale of the Shares............................................................. 1
SECTION 2 Representations and Warranties of the Shareholders.......................................... 2
2.1 Organization, Good Standing and Qualification............................................... 2
2.2 Authorization............................................................................... 2
2.3 Validity; No Violation of Agreements, Etc................................................... 2
2.4 Title to the Stock.......................................................................... 3
2.5 Organization and Standing; Certificate of Incorporation and By-Laws......................... 3
2.6 Subsidiaries; Joint Ventures, Etc........................................................... 3
2.7 Capitalization.............................................................................. 3
2.8 Conflicts................................................................................... 4
2.9 Consents; Permits........................................................................... 4
2.10 Compliance with Charter, By-Laws and Other Instruments...................................... 5
2.11 Compliance with Law......................................................................... 5
2.12 Litigation and Bankruptcy................................................................... 5
2.13 Material Contracts.......................................................................... 6
2.14 Title to Properties; Liens and Encumbrances................................................. 6
2.15 Leases...................................................................................... 7
2.16 Trademarks and Other Intellectual Property.................................................. 7
2.17 Employee Benefit Plans...................................................................... 8
2.18 Employees................................................................................... 9
2.19 Financial Statements........................................................................ 10
2.20 Certain Events.............................................................................. 11
2.21 Insurance................................................................................... 12
2.22 Tax Matters................................................................................. 13
2.23 Disclosure.................................................................................. 15
2.24 Books and Records........................................................................... 15
2.25 Transactions with Related Parties........................................................... 15
2.26 Bank Accounts............................................................................... 15
2.27 Acquisition for Investment.................................................................. 15
2.28 Restricted Securities....................................................................... 16
2.29 Investor Suitability........................................................................ 16
2.30 Legends..................................................................................... 16
SECTION 3 Representations and Warranties of the Purchaser............................................. 17
3.1 Organization and Standing; Certificate of Incorporation and By-Laws......................... 17
3.2 Authorization............................................................................... 17
3.3 Enforceability.............................................................................. 17
3.4 Capitalization.............................................................................. 17
3.5 No Conflicts................................................................................ 18
3.6 Status of Shares............................................................................ 19
3.7 Financial Statements........................................................................ 19
3.8 Litigation and Bankruptcy................................................................... 20
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3.9 Title to Properties; Liens and Encumbrances................................................. 20
3.10 Disclosure.................................................................................. 20
SECTION 4 Closing Deliveries of Shareholders.......................................................... 21
4.1 Officers' Certificate(s).................................................................... 21
4.2 Resignations................................................................................ 21
4.3 Opinion of Company's Counsel................................................................ 21
4.4 Termination of Shareholders' Agreement...................................................... 21
4.5 Release of Obligations...................................................................... 21
SECTION 5 Closing Deliveries of Purchaser............................................................. 22
5.1 Officer's Certificate....................................................................... 22
5.2 Opinion of Counsel.......................................................................... 22
5.3 Warrant Agreements.......................................................................... 22
5.4 Registration Rights Agreement............................................................... 22
SECTION 6 Covenants................................................................................... 23
6.1 By Prodigy.................................................................................. 23
6.2 By Purchaser................................................................................ 23
6.3 By Purchaser and the Company................................................................ 23
SECTION 7 Indemnification............................................................................. 23
7.1 Survival of Representations and Warranties.................................................. 23
7.2 Shareholder Indemnification................................................................. 23
7.3 Purchaser Indemnification................................................................... 25
7.4 Indemnification Procedure................................................................... 25
7.5 Purchaser's Non-Waiver...................................................................... 26
7.6 Shareholders' Non-Waiver.................................................................... 26
SECTION 8 Miscellaneous............................................................................... 26
8.1 Governing Law............................................................................... 26
8.2 Successors and Assigns...................................................................... 26
8.3 Entire Agreement; Amendment................................................................. 26
8.4 Notices, Etc................................................................................ 26
8.5 Brokers' and Finders' Fees.................................................................. 28
8.6 Titles and Subtitles........................................................................ 28
8.7 Counterparts................................................................................ 28
8.8 Publicity................................................................................... 28
8.9 Assurances.................................................................................. 28
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STOCK PURCHASE AGREEMENT
AGREEMENT dated this 9th day of January, 1997, by and among PARADIGM
MUSIC ENTERTAINMENT COMPANY, a Delaware corporation (the "Purchaser"); and
PRODIGY SERVICES CORPORATION, a Delaware corporation ("Prodigy"), and SUNSHINE
INTERACTIVE NETWORK, INC., a Delaware corporation ("Sunshine" and together with
Prodigy, the "Shareholders").
R E C I T A L S:
Sunshine is the owner of 49 shares of the common stock, no par value
(the "Common Stock"), of SonicNet, Inc., a Delaware corporation (the "Company"),
and Prodigy is the owner of 56 shares of the preferred stock, no par value (the
"Preferred Stock"), of the Company.
The 49 shares of Common Stock and 56 shares of Preferred Stock owned by
the Shareholders (collectively, the "Shares") constitute all of the Company's
issued and outstanding capital stock.
The Purchaser desires to acquire and the Shareholders desire to sell
all, but not less than all, of the issued and outstanding capital stock of the
Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises hereof and the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
SECTION 1
Authorization and Sale of the Shares; Closing
1.1 Purchase and Sale of the Shares. Subject to the terms and
conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, the Shareholders hereby sell to the Purchaser, and
the Purchaser hereby purchases from the Shareholders, all right and title to and
interest of the Shareholders in the Shares. Simultaneously with herewith the
Shareholders are delivering to Purchaser certificates representing the Shares
with stock powers duly executed in favor of Purchaser.
The consideration for the Shares, which is being paid simultaneously
herewith, consists of $100,000 being paid by bank check or wire transfer,
200,000 shares of the Class A common stock of Purchaser, par value $.01 per
share (the "Paradigm Stock") and warrants in the form set forth in Exhibit 1.1
hereto, to purchase 100,000 shares of the Class A common stock of Purchaser (the
"Paradigm Warrants"). Certificates representing the Paradigm Stock and Warrant
Agreements with respect to the Paradigm Warrants, registered in the names of the
Shareholders in such amounts as have been directed by the Shareholders, are
being delivered to the Shareholders simultaneously herewith.
SECTION 2
Representations and Warranties of the Shareholders
The Shareholders represent and warrant to the Purchaser jointly and
severally, as to all matters other than those contained jointly in Sections 2.1,
2.2, 2.3, 2.4, 2.27, 2.28, 2.29 and 2.30 as to which the Shareholders severally
represent and warrant, as follows:
2.1 Organization, Good Standing and Qualification. Each Shareholder is
a corporation duly organized, validly existing and in good standing under the
laws of the state in which it was incorporated and is in good standing in each
jurisdiction in which the character of its properties or the nature of its
business require each such qualification. Each Shareholder has the requisite
power and authority to own and use its properties, to carry on its business as
presently conducted, and to enter into and perform this Agreement.
2.2 Authorization. The execution and delivery of this Agreement by each
Shareholder and the consummation by each Shareholder of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
2.3 Validity; No Violation of Agreements, Etc. This Agreement
constitutes the valid and binding agreement of each Shareholder and is
enforceable against it in accordance with its terms. Neither the execution nor
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, (a) violates or will violate, or conflicts or will conflict
with, or constitutes or will constitute a default (with or without notice, the
passage of time, or both) under, the certificate of incorporation or by laws of
each Shareholder or any material contract, commitment, agreement, understanding,
arrangement, or restriction of any kind to which either Shareholder is a party
or by which it is bound, or (b) violates or will violate any existing statute or
law, rule or regulation or order of any court or governmental authority, or (c)
will cause, or give any person grounds to cause (with or without notice, the
passage of time, or both), the maturity of any liability or obligation of either
Shareholder to be accelerated, or will increase any such liability or
obligation. No consent, declaration or filing with, or approval by any
governmental authority is required, in connection with the execution, delivery
and performance by either Shareholder of this Agreement or the consummation by
either Shareholder of the transactions contemplated hereby.
2.4 Title to the Stock. Each Shareholder has good, valid
and marketable title to the Shares set forth opposite his name on Schedule 2.4
annexed hereto, all of which have been fully paid for and are non-assessable,
and are free and clear of all pledges, liens, claims, charges, options, calls,
encumbrances, restrictions and assessments whatsoever (except any restrictions
which may be created by operation of Federal and State Securities laws).
2.5 Organization and Standing; Certificate of Incorporation and
By-Laws. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is qualified to do
business and is in good standing in each jurisdiction in which the character of
its properties or the nature of its business requires such qualification, except
where the failure to so qualify would have no material adverse impact upon
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the business, operations, financial condition or prospects of the Company. The
Company has the requisite corporate power to own the properties owned by it and
to conduct business as now being conducted by it and as proposed to be conducted
by it. The Company has furnished the Purchaser with true, correct and complete
copies of its Certificate of Incorporation, as amended to date (as amended, the
"Charter"), and By-Laws, as amended to date (as amended, the "ByLaws") and no
actions have been taken to amend, modify or repeal the forms of the Charter and
By-Laws delivered to the Purchaser.
2.6 Subsidiaries; Joint Ventures, Etc. The Company has no subsidiaries
and does not control, directly or indirectly, or have an interest in, any
corporation, association, partnership, joint venture or other business entity.
2.7 Capitalization.
(a) The Company's authorized capital stock consists of 1000 shares,
of which:
(A) 700 shares are Common Stock, of which 49 shares are duly
issued and outstanding, fully-paid and non-assessable; and
(B) 300 shares are Preferred Stock, having the rights,
preferences and designations set forth in the Charter, of
which 56 shares are duly issued and outstanding, fully paid
and non-assessable.
(b) There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding on the Company
for the purchase or acquisition of any shares of its capital stock.
(c) All shares of capital stock and other securities of the Company
issued prior to the date hereof have been issued in transactions exempt from
compliance with the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and all applicable state securities or "blue
sky" laws. The Company has not violated, nor is it in violation of, the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities.
2.8 Conflicts.
The execution, delivery and performance by the Shareholders of this
Agreement and their compliance herewith, and the sale and delivery of the Shares
do not result in any violation of, and do not conflict with, or result in a
breach of any of the terms of, or constitute a default under, the Charter or
By-Laws of the Company. The execution, delivery and performance by the
Shareholders of this Agreement, and their compliance herewith, and the sale and
delivery of the Shares do not result in any violation of and do not conflict
with, or result in a breach of any of the terms of, or constitute a default
under, any mortgage, indenture, lease, agreement, instrument, judgment, decree,
order, rule or regulation or other restriction to which the Company is a party
or by which it or any of its assets is bound or the provision of any state or
Federal law to which the Company is subject, or result in the creation of any
lien upon any of the properties or assets of the Company pursuant to any such
term, or result in the suspension,
3
revocation, impairment, forfeiture or non-renewal of any permit, license,
authorization or approval applicable to the Company's operations or any of its
assets or properties.
2.9 Consents; Permits.
(a) Except as set forth on Schedule 2.9, no consent, approval,
qualification, order or authorization of, or filing with, any Governmental Body
(as defined in Section 2.22) or non-governmental Person, including, without
limitation, the Secretary of State of Delaware, is required in connection with
the execution, delivery or performance of this Agreement, the offer and sale of
the Shares by the Shareholders, or the consummation of any other transaction
contemplated on the part of the Shareholders or the Company hereby. As used
herein, "Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, association, unincorporated organization or
other entity or Governmental Body.
(b) The Company has all governmental registrations, certificates,
consents, qualifications, accreditations, licenses, permits, authorizations and
approvals (collectively, "Approvals") necessary to own and operate the Company's
business and operations. All Approvals are valid and in full force and effect
and the Company has not received any notice that any governmental entity intends
to cancel, terminate or not renew any such Approvals. The Company is not in
default under any such approvals and no event has occurred and no condition
exists which, with the giving of notice the passage of time, or both, would
constitute a default thereunder.
2.10 Compliance with Charter, By-Laws and Other Instruments. The
Company is not in violation of any term of its Charter or By-Laws. The Company
is not in violation of any term of any mortgage, indenture, contract, agreement
or instrument to which it is a party or by which it is bound or to which its
properties or assets are subject, except for such violations which, in the
aggregate, will not, or are not reasonably likely to, materially adversely
affect the financial condition, operations, assets or business of the Company.
2.11 Compliance with Law. The Company is in compliance in all material
respects with all judgments, decrees, orders, rules and regulations, and all
state, local and federal laws, and other restrictions to which it is a party or
by which it is bound (other than minor violations which are not likely to lead
to criminal charges or to civil penalties exceeding $5,000 in the aggregate).
2.12 Litigation and Bankruptcy.
(a) Except as set forth on Schedule 2.12, there are no actions, suits,
proceedings, investigations or claims pending or, to the Company's knowledge,
threatened against or involving the Company or its assets.
(b) The Company has not admitted in writing its inability to pay its
debts generally as they become due, nor has it filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, nor has it made an assignment for the benefit of creditors,
consented to the appointment of a receiver for itself or for the whole or any
substantial part of its property or assets, or had a petition in bankruptcy
filed against it,
4
been adjudicated bankrupt, or filed a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other similar law or
statute of the United States of America or any other jurisdiction.
2.13 Material Contracts. Except as set forth on Schedule 2.13, the
Company has no currently existing contract, obligation, agreement, plan,
arrangement, commitment or the like (written or oral) (i) to undertake capital
expenditures, or to acquire any property or assets other than in the ordinary
course of business consistent with past practice, in an aggregate amount
exceeding Ten Thousand Dollars ($10,000); (ii) providing for or evidencing
indebtedness (other than trade payables and accrued liabilities constituting
current liabilities); (iii) having a remaining term of more than six months and
providing for payments to or by the Company in excess of Ten Thousand Dollars
($10,000) individually or (if such contracts are of a similar nature or with the
same party) in the aggregate; (iv) to loan money or extend credit (other than
trade credit in the ordinary course of business consistent with past practice)
to or guarantee the obligations of any other Person (other than guarantees by
way of endorsement of negotiable instruments in the ordinary course of business
consistent with past practice); (v) which involves any joint venture,
partnership or other arrangement involving sharing of profits with any Person;
(vi) which would restrict the Company from carrying on business anywhere in the
world; (vii) providing for employment or consulting arrangements; (viii)
providing for mortgages or security interests (other than a vendor's security
interest in goods delivered and not paid for); (ix) providing for brokerage or
finder's fees; (x) providing for any purchase of assets, shares of capital stock
or other equity interests, or other acquisition or divestiture, in connection
with the purchase or sale of a business or any substantial part of a business;
(xi) with any employee or officer of the Company other than in connection with
his or her employment; or (xii) described in Section 2.16 relating to
Intellectual Property (each, a "Material Contract"). The Company has complied
with all material provisions of all said Material Contracts and there does not
exist any event of default either by the Company or, to the Company's knowledge,
the other party to the agreement under any such agreement or any event which,
after notice or lapse of time or both, would constitute an event of default
under any such Material Contract.
2.14 Title to Properties; Liens and Encumbrances. Except as set forth
on Schedule 2.14, the Company has good and marketable title to all of the
properties and assets, both real and personal, tangible and intangible, which it
purports to own, including, without limitation, all assets reflected on the
Unaudited Statements (as defined in Section 2.19), and such properties and
assets are not subject to any mortgage, pledge, lien, security interest,
conditional sale agreement, encumbrance or charge. The Company is not in default
or in breach of any provision of its leases or licenses and the Company holds
valid leasehold or licensed interests in the property which it leases or which
is licensed to it. No other party to any lease or license to which the Company
is a party is in default under or breach of any such lease or license.
The Company has never owned any real property or any interest in real
property. The personal property, including without limitation machinery,
equipment and other fixed assets, owned or leased by the Company is in a
condition sufficient to conduct the business of the Company in all material
respects in the same manner as it is conducted on or has been conducted for the
three months preceding the date of this Agreement, and all of such property is
generally in good repair and operating condition (subject to normal wear and
tear). The Company is not
5
in material violation of any applicable building, zoning or other law in respect
of its buildings, plants or structures or their operation.
2.15 Leases. Schedule 2.15 attached hereto contains a true, correct and
complete list of all leases under which the Company is a lessee or sublessee of
real property, equipment, vehicles or any other item, other than leases or
licenses for routine office equipment which, in the aggregate, require payments
of $10,000 or less per year. The Company holds valid leasehold or licensed
interests in the properties which it leases or which are licensed to it, and
enjoys peaceful and undisturbed possession under all such leases. All such
leases are valid and enforceable in accordance with their respective terms
(subject to applicable bankruptcy, insolvency, reorganization and moratorium
laws and other laws of general application affecting enforcement of creditors'
rights generally and to general equitable principles), are in full force and
effect, without any default by the Company, to the Company's knowledge, by any
landlord under any such lease, or any condition, event or act which, with the
giving of notice or lapse of time, or both, would constitute such a default
unless such default can be remedied or cured by the payment of less than $5,000
and the Company has made reserves therefor as reflected in the financial
statements delivered to the Purchaser.
2.16 Trademarks and Other Intellectual Property.
(a) Schedule 2.16 attached hereto sets forth a true, complete and
accurate list of all trademarks and trademark applications (collectively,
"Trademarks") now owned, licensed or controlled by the Company, and attached to
Schedule 2.16 are true and correct copies of all Trademarks registered by the
Company or any Subsidiary with the United States Patent and Trademark Office. No
Trademarks have been adjudged invalid or unenforceable, in whole or in part, and
there is no litigation or proceeding pending concerning the validity or
enforceability of the registered Trademarks. To the knowledge of the
Shareholders and the Company, each of the issued Trademarks is valid and
enforceable. The Company is the sole and exclusive owner of the entire right and
title to and interest in each of the trademark registrations, free and clear of
any Liens. The Company has not received any communication(s), or otherwise
received any information, asserting a claim by any person to the ownership of or
right to use said Trademarks and the Company does not know of any basis for any
such claim.
The Company does not own, license or control any other United States or
foreign patents, patent applications, service marks, trade names, copyrights or
registrations thereof or applications for such registrations.
(b) The conduct by the Company of its business does not (a) infringe
upon or violate the registered trademarks, registered service marks, registered
copyrights or other Intellectual Property, registered with the U. S. Patent and
Trademark Office or the U. S. Copyright Office, of any Person or (b) involve the
misappropriation or other improper use of the trade secrets or other
intellectual or industrial property rights of any other Person. The Company owns
or has the right to use all of the Intellectual Property necessary for the
conduct and operation of the business of the Company as now being conducted free
from any Liens other than those which arise in the ordinary course of business
and do not materially impair the Company's use of such Intellectual Property. No
claim or demand of any Person has been made, nor is there any proceeding that is
pending or to the best knowledge of the Company threatened, which (in any
6
such case) (i) challenges the rights of the Company in respect of any
Intellectual Property or (ii) asserts that the Company is infringing or
otherwise in conflict with, or is required to pay any royalty, license fee,
charge or other amount with regard to, any Intellectual Property. As used
herein, the term "Intellectual Property" means any and all software and any and
all United States and foreign: (i) trademarks, service marks, trade names, trade
dress, logos, business and product names, slogans, and registrations and
applications for registration thereof and (ii) copyrights and registrations
thereof.
(c) The Company is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any Intellectual Property being used by the
Company with respect to its use thereof or in connection with the conduct of its
business or otherwise.
(d) Except as set forth on Schedule 2.16, no Intellectual Property has
been licensed by the Company to any other Person.
2.17 Employee Benefit Plans. Except as set forth in Schedule 2.17, the
Company has not maintained, sponsored, adopted, made contributions to or
obligated itself to make contributions to or to pay any benefits or grant rights
under or with respect to any "Employee Pension Benefit Plan" (as defined in
Section 3(2) of the Employment Retirement Security Act of 1974, as amended
("ERISA")), "Employee Welfare Benefit Plan" (as defined in Section 3(1) of
ERISA, "multi-employer plan" (as defined in Section 3(37) of ERISA), plan of
deferred compensation, medical plan, life insurance plan, long-term disability
plan, dental plan or other plan providing for the welfare of any of the
Company's employees or former employees or beneficiaries thereof, personnel
policy (including but not limited to vacation time, holiday pay, bonus programs,
moving expense reimbursement programs and sick leave), excess benefit plan,
bonus or incentive plan (including but not limited to stock options, restricted
stock, stock bonus and deferred bonus plans), salary reduction agreement,
change-of-control agreement, employment agreement, consulting agreement or any
other benefit, program or contract (collectively, "Employee Benefit Plans"),
whether or not written, which could give rise to or result in the Company having
any material debt, liability, claim or obligation of any kind or nature, whether
accrued, absolute, contingent, direct, indirect, known or unknown, perfected or
inchoate or otherwise and whether or not due or to become due. Correct and
complete copies of all Employee Benefit Plans previously have been furnished to
the Purchaser. The Employee Benefit Plans are in compliance in all material
respects with governing documents and agreements and with applicable laws. There
has not been any act or omission by the Company or any Plan Affiliate of the
Company under ERISA or the terms of the Employee Benefit Plans, or any other
applicable law or agreement which could give rise to any liability of the
Company, whether under ERISA, the Code or other laws or agreements. With respect
to the Employee Benefit Plans set forth on Schedule 2.17, the Company has
accrued or reserved for all obligations to fund such Employee Benefit Plans, if
any. The term "Plan Affiliate" shall mean any other person or entity together
with which the Company constitutes all or part of a controlled group, or which
would be so treated with the Company, under Section 414 of the Code and any
regulations, administrative rulings and case law interpreting the foregoing.
2.18 Employees.
7
(a) Schedule 2.18 attached hereto contains a true, complete and correct
list of the Company's employees as of the date hereof, and the respective
offices and titles thereof.
(b) Except as set forth on Schedule 2.18, the Company is not a party to
any collective bargaining or similar labor agreements.
(c) Set forth on Schedule 2.18 is a list by name and date of agreement
of those employees of the Company who have employment agreements, other than
those employees who are "employees at will." Schedule 2.18 contains a list of
the base salary and bonus arrangement of each employee.
(d) The Company is in compliance in all material respects with all
applicable laws, rules and regulations of governmental agencies or authorities
relating to the employment of labor in connection with the operation of its
business, including, without limitation, ERISA and the regulations and published
interpretations thereunder, the requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, relating to employees and former
employees ("COBRA"), and those relating to wages, hours, collective bargaining,
unemployment insurance, workers' compensation, equal employment opportunity,
race, sex and age discrimination or harassment, and the payment and withholding
of taxes, including income and social security taxes. There are no
administrative charges nor court complaints pending or, to its knowledge,
threatened against the Company or any Subsidiary before the U.S. Equal
Employment Opportunity Commission concerning alleged employment discrimination
or any other matters relating to employment of labor nor any basis therefor. The
Company has not agreed to recognize any union or other collective bargaining
unit, nor has any union or other collective bargaining unit been certified or
sought to be certified as representing any of its employees. The Company has not
experienced any strikes, work stoppages, significant grievance proceedings or
filings of claims of unfair labor practices.
(e) No employee or consultant of the Company is, or is now believed to
be, in violation of any term of any employment contract, disclosure agreement,
non-competition agreement, proprietary information and inventions assignment, or
any other contract or agreement or any restrictive covenant or any other common
law obligation to a former employer or other person or entity relating to the
right of any such employee or consultant to be employed by the Company. The
employment by the Company of the Company's employees or the retainer by the
Company of the Company's consultants does not subject the Company or the
Purchaser to any liability to a third party. The Company does not have any
collective bargaining agreement covering any of its employees.
2.19 Financial Statements.
(a) The Shareholders provided Purchaser with an unaudited
balance sheet of the Company as at December 31, 1996 (the "Balance Sheet Date")
and the related statement of income for the year then ended (the "Unaudited
Statements").
(b) The Unaudited Statements are reconcilable to the books and
records of the Company in all material respects, and present fairly the
financial position of the Company as of the date and the results of operations
for the period, indicated. The books of account and other
8
financial records of the Company have been maintained in accordance with good
business practice. The Unaudited Statements were prepared from the books and
records of the Company and such books and records accurately reflect all
transactions to which the Company was and is a party.
(c) Except as reflected in the Unaudited Statements, and/or in
the Schedules to this Agreement, there were, as at the Balance Sheet Date, no
material liabilities or obligations of the Company of a type that would be
required under generally accepted accounting principles to be reflected in a
balance sheet or notes thereto.
(d) Except as set forth on Schedule 2.19, the Company has no
liabilities or obligations, other than those reflected on the Unaudited
Statements or incurred since the Balance Sheet Date in the ordinary course of
business. There are no asserted claims for indemnification by any person or
entity against the Company under any law or agreement or pursuant to the Charter
or By-laws, and the Company is not aware of any facts or circumstances that
might reasonably give rise to the assertion of such a claim against the Company.
(e) The accounts receivable of the Company reflected in the
Unaudited Statements arose from bona fide transactions in the ordinary course of
business. Except as set forth on Schedule 2.19, the Company has not received
notice of any counterclaims or setoffs against such accounts receivable for
which allowances have not been established. The Unaudited Statements reflect
adequate allowances for uncollectible receivables. Notwithstanding the
foregoing, the Shareholders make no representation as to the actual
collectibility, either individually or in the aggregate, of the accounts
receivable of the Company.
(f) Since December 31, 1996, there has been no material
adverse change in the business, operations or financial condition of the
Company.
2.20 Certain Events. Except as set forth on Schedule 2.20, since June
30, 1996, the Company has not:
(a) issued any stock, bond or other corporate security (including
without limitation securities convertible into or rights to acquire
capital stock of the Company or any Subsidiary) other than as provided
herein;
(b) borrowed any amount or incurred or become subject to any liability
(absolute, accrued or contingent), except current liabilities incurred,
liabilities under contracts entered into, borrowings under its credit
facilities, liabilities for customer advances and liabilities in
respect of letters of credit, all of which are in the ordinary course
of business;
(c) discharged or satisfied any lien or incurred or paid any obligation
or liability (absolute, accrued or contingent) other than current
liabilities shown on the Schedule 2.20 and current liabilities incurred
in the ordinary course of business;
(d) declared or made any payment or distribution to stockholders or
purchased or redeemed any shares of its capital stock or other
securities;
9
(e) mortgaged, pledged or subjected to lien any of its assets, tangible
or intangible, other than liens of current real property taxes not yet
due and payable;
(f) sold, assigned or transferred any of its tangible assets except in
the ordinary course of business, or canceled any debt or claim;
(g) sold, assigned, transferred or granted any license with respect to
any patent, trademark, trade name, service xxxx, copyright, trade
secret or other intangible asset other than in the ordinary course of
business;
(h) suffered any material loss of property or waived any right of
substantial value whether or not in the ordinary course of business;
(i) suffered any material adverse change in its relations with, or any
loss or threatened loss of, any of its suppliers or customers;
(j) made any change in the employment arrangements or benefits for its
executive officers;
(k) made any material change in the manner of its business or
operations;
(l) made any material change in any method of accounting or accounting
practice, except for any such change required by reason of a concurrent
change in generally accepted accounting principles;
(m) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby; or
(n) entered into any commitment (contingent or otherwise) to do any of
the foregoing except as contemplated hereby.
2.21 Insurance. Schedule 2.21 is a true, correct and complete list and
description, including policy numbers, of all insurance maintained by the
Company and complete and correct copies thereof have been delivered to the
Purchaser. The Company is not in default with respect to its obligations under
any insurance policy maintained by it.
2.22 Tax Matters. (a) Schedule 2.22 is a true, correct and complete
list of all of the taxing authorities with which the Company is required to file
any tax returns, estimates or returns in connection with the conduct of its
business. The Company has timely filed all federal, state and local tax returns,
estimates and reports with respect to the business of the Company required to be
filed by it as of the date hereof and has paid in full all taxes shown to be due
by such returns, estimates or reports. As of the time of filing, all such
returns, estimates and reports were true, correct and complete, and correctly
reflected in all material respects the facts regarding the income, business,
assets, operations, activities and status of the Company and any other
information required to be shown therein.
10
(b) None of the United States federal, foreign, state and
local Tax Returns that have been filed by the Company since its formation have
been audited by any Governmental Body, nor have any adjustments to Tax Returns
filed by or on behalf of the Company been proposed by any representative of any
Governmental Body. The Company has not given nor been requested to give waivers
or extensions (or is or would be subject to a waiver or extension given by any
other entity) of any statute of limitations relating to the payment of Taxes for
which the Company may be liable. There are no other agreements between the
Company and any Governmental Body relating to Taxes.
(c) The Company has paid, accrued for payment on its books and
records or made provision for the payment of, all Taxes that have or may become
due for all periods ending on or before the date hereof attributable to the
income, business, assets, operations, activities and status of the Company on or
before the date hereof, including, without limitation, all Taxes reflected on
the Tax Returns referred to in Section 2.22(a), or in any assessment, proposed
assessment, or notice, either formal or informal, received by the Shareholders
or the Company except such Taxes, if any, that are being contested in good faith
and as to which adequate accruals have been provided. The charges and accruals
with respect to Taxes on the books of the Company are adequate and are at least
equal to the Company's liabilities for Taxes for all periods ending on or before
the date hereof. All Taxes that the Company is, or was, required by law to
withhold or collect for all periods ending on or before the date hereof have
been duly withheld or collected and, to the extent required, have been paid to
the appropriate Governmental Body. There are no liens with respect to Taxes upon
any of the properties or assets, real or personal, tangible or intangible, of
the Company. (For purposes of this Section 2.22(c), the date of this Agreement
shall be treated as the last day of a taxable period in fact ends on such date).
(d) There is no existing tax sharing agreement that may or
will require that any payment be made by or to the Company on or after the date
hereof.
(e) Schedule 2.22 contains a true and correct schedule of the
tax basis of all assets of the Company with an individual value in excess of
$5,000 and a true and correct schedule of all tax credit and tax loss carry
forwards of the Company with respect to federal, state, local or foreign Taxes.
(f) No Shareholder is a foreign person within the meaning of
Section 1445 of the Code.
(g) None of Shareholders nor the Company has in effect any tax
elections for federal income tax purposes under Sections 108, 168, 338, 341(f),
441, 471, 1017, 1033 or 4977 of the Code.
(h) During the previous two (2) years the Company has not
engaged in any exchange under which the gain realized on such exchange was not
recognized due to Section 1031 of the Code.
(i) The Company is not a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code.
11
(j) The Company has no liability, actual or contingent, for
Taxes of any predecessor entity, including without limitation Sonic Net L.P. or
SonicNet LLC.
Definitions used in this Section:
"Code" -- The Internal Revenue Code of 1986, as amended.
"Governmental Body" -- Any domestic or foreign national,
state, multi-state or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental or private
body exercising any regulatory or taxing authority thereunder.
"Taxes" -- (a) Any federal, state, local, foreign and other
income, alternative or add-on minimum, accumulated earnings, personal holding
company, franchise, capital stock, profits, windfall profits, gross receipts,
value added, sales, use, excise (including the golden parachute excise tax
imposed by Section 4999 of the Code and the green mail excise tax imposed by
Section 5881 of the Code), customs duties, transfer, conveyance, registration,
stamp, documentation, recording, premium, severance, environmental (including
taxes under Section 59A of the Code), real property, personal property, ad
valorem, intangibles, rent, occupancy, firearm, ammunition, license, occupation,
employment, unemployment insurance, social security, disability, workers'
compensation, payroll, withholding, estimated or any other tax, duty,
governmental fee or other like assessment or charge of any kind whatsoever
(including all interest and penalties thereon and additions thereto whether
disputed or not) imposed by any Governmental Body and (b) any obligations under
any agreements or arrangements with respect to Taxes described in clause (a)
above.
"Tax Returns" -- Any returns, reports, declarations, forms,
claims for refund or information returns or statements relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
2.23 Disclosure. Neither this Agreement nor any other document,
certificate, schedule, financial, business or other statement furnished to the
Purchaser by or on behalf of the Shareholders in connection with the
transactions contemplated hereby or referred to herein, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein or herein not misleading in light
of the circum stances under which they were made.
2.24 Books and Records. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of
stockholders, Board of Directors and committees thereof. The stock ledgers of
the Company are complete and reflect all issuances, transfers of which it is
aware, repurchases and cancellations of shares of capital stock of the Company.
2.25 Transactions with Related Parties. Except as disclosed on Schedule
2.25, no officer or shareholder of the Company nor any of their respective
affiliates is presently a party to any transaction with the Company including,
without limitation, any contract, agreement or arrangement (i) providing for the
furnishing of services, (ii) providing for rental of real or
12
personal property, or (iii) otherwise requiring payments to any Person in which
such person has an interest. There are no loans outstanding to or from any such
officer or Shareholder from or to the Company.
2.26 Bank Accounts. Schedule 2.26 hereto sets forth a true, correct and
complete list of the names and addresses of all banks and other financial
institutions in which the Company maintains an account, deposit or safe-deposit
box, together with the names of all Persons authorized to draw on these accounts
or deposits or to have access to these boxes.
2.27 Acquisition for Investment. The Paradigm Stock and Paradigm
Warrants to be received by each Shareholder pursuant to the terms hereof will be
acquired for investment for such Shareholder's own account, without any view to
the unregistered public distribution or resale thereof, all without prejudice,
however, to the right of each Shareholder at any time lawfully to sell or
otherwise to dispose of all or any part of the Paradigm Stock and Paradigm
Warrants pursuant to registration or any exemption therefrom under the
Securities Act and applicable state securities laws.
2.28 Restricted Securities. Each Shareholder understands that the
Paradigm Stock and Paradigm Warrants to be received by it pursuant to the terms
hereof and characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Purchaser in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.
2.29 Investor Suitability. Each Shareholder is an "accredited investor"
within the meaning of Rule 501 of Regulation D under the Securities Act. Each
Shareholder has the capacity to evaluate the merits and high risks of an
investment in the Paradigm Stock and Paradigm Warrants and is able to bear the
economic risk of this investment. Each Shareholder understands that an
investment in Paradigm Stock and Paradigm Warrants is highly speculative and
involves a high degree of risk. Each Shareholder has been provided access to all
information requested by it in order to evaluate the merits and risks of an
investment in the Paradigm Stock and Paradigm Warrants.
2.30 Legends. Each Shareholder acknowledges that the certificates
evidencing the Paradigm Stock, Paradigm Warrants and securities issued upon
exercise of the Paradigm Warrants may bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
The foregoing legend shall be removed by Purchaser from any certificate at such
time as the holder of the Paradigm Stock, Paradigm Warrant or other security
represented by the certificate delivers an opinion of counsel reasonably
satisfactory to Purchaser to the effect that such legend
13
is not required in order to establish compliance with any provisions of the
Securities Act, or at such time as the holder of such Paradigm Stock, Paradigm
Warrant or other security satisfies the requirements of Rule 144(k) under the
Securities Act (provided that Rule 144(k) as then in effect does not differ
substantially from Rule 144(k) as in effect as of the date of this Agreement),
and provided further that Purchaser has received from the holder a written
representation that such holder satisfies the requirements of Rule 144(k) as
then in effect with respect to such Paradigm Stock, Paradigm Warrant or other
security.
SECTION 3
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Shareholders as follows:
3.1 Organization and Standing; Certificate of Incorporation and
By-Laws. The Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is qualified to do
business and is in good standing in each jurisdiction in which the character of
its properties or the nature of its business requires such qualification, except
where the failure to so qualify would have no material adverse impact upon the
business, operations or prospects of the Purchaser. The Purchaser has the
requisite corporate power to own the properties owned by it and to conduct
business as now being conducted by it and as proposed to be conducted by it. The
Purchaser has furnished the Shareholders with true, correct and complete copies
of its Certificate of Incorporation, as amended to date (as amended, the
"Charter"), and By-Laws, as amended to date (as amended, the "By-Laws") and no
actions have been taken to amend, modify or repeal the forms of the Charter and
By-Laws delivered to the Shareholders.
3.2 Authorization. The Purchaser has all requisite power and authority
to enter into this Agreement and to carry out and perform its obligations under
the terms of this Agreement. The Purchaser has taken all action necessary for
the authorization, execution, delivery and performance by it of this Agreement.
3.3 Enforceability. This Agreement is the valid and binding obligation
of the Purchaser, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and other
laws of general application affecting enforcement of creditors' rights generally
and to general equitable principles.
3.4 Capitalization. (a) The Purchaser has the authority to issue
40,000,000 shares of capital stock, consisting of (i) 31,999,900 shares of Class
A Common Stock, par value $0.01 per share, (ii) 1,000,1000 shares of Class B
Common Stock, par value $0.01 per share, (iii) 2,000,000 shares of Class E
Common Stock, par value $0.01 per share, and (iv) 5,000,000 shares of Preferred
Stock, par value $0.01 per share, of which 1,342,036 shares of Class of Class A
Common Stock, 1,000,005 shares of Class B Common Stock, 1,216,047 shares of
Class E Common Stock and no shares of Preferred Stock are outstanding. An
aggregate of 666,670 shares of Class A Common Stock and Class B Common Stock
have been placed in escrow and are subject to cancellation if the Purchaser does
not attain certain earnings levels or the
14
Purchaser is sold below certain per share prices. In addition, the Purchaser has
reserved for issuance (i) 300,000 shares of Class A Common Stock upon exercise
of stock options which may be granted to employees, directors and consultants of
the Purchaser under the Purchaser's 1996 Stock Option Plan, (ii) 333,333 shares
of Class A Common Stock to certain directors, consultants and employees of the
Purchaser, of which 100,000 shares will be placed in escrow upon issuance, and
(iii) 500,004 shares of Class A Common Stock issuable upon exercise of warrants.
The shares of Class A Common Stock, Class B Common Stock and Class E Common
Stock are substantially identical, except that holders of Class A Common Stock
and Class E Common Stock have the right to cast one vote, and the holders of
Class B Common Stock have the right to cast five votes, on all matters submitted
to a vote of the holders of Common Stock. Each share of Class B Common Stock is
convertible into one share of Class A Common Stock (i) at the option of the
holder or (ii) automatically upon the sale or any other transfer thereof except
to a person who immediately prior to such sale or transfer is a holder of Class
B Common Stock. In addition, the outstanding shares of Class E Common Stock are
subject to redemption under certain circumstances.
(b) After giving effect to the presently-contemplated initial
public offering of Purchaser's securities (the "Paradigm IPO"), an additional
12,000,000 shares of Class A Common Stock will be issued and outstanding or
issuable on the exercise of outstanding options and warrants (assuming the sale
of 3,000,000 units in the Paradigm IPO, consisting in the aggregate of 3,000,000
shares of Class A Common Stock and warrants to purchase 9,000,000 shares of
Class A Common Stock, but excluding the unit purchase option to be granted to
the underwriter in connection with the Paradigm IPO). There are as of the date
of this Agreement no other outstanding subscriptions, options, rights, warrants,
convertible securities or other agreements (other than this Agreement) or calls,
demands or commitments of any kind relating to the issuance, sale or transfer of
any capital stock or other equity securities of the Purchaser, whether directly
or upon the exercise or conversion of other securities.
3.5 No Conflicts. Neither the execution and delivery of this Agreement
or any of the other agreements or documents necessary to effect the provisions
of this Agreement nor the consummation of the transactions contemplated hereby
or thereby nor compliance by Purchaser with any of the provisions hereof or
thereof, do or will (a) conflict with, result in a breach or violation of or
constitute (or with notice or lapse of time both constitute) a default under,
(i) Purchaser's Certificate of Incorporation or By-Laws or (ii) any statute,
regulation, order, judgment or decree or any instrument, contract or other
agreement to which Purchaser is a party or by which Purchaser (or any of the
properties, assets or business of Purchaser) is subject or bound; (b) result in
the creation of, or give any party the right to create, any lien upon the
properties or assets of Purchaser; (c) result in any suspension, revocation,
impairment, forfeiture or non-renewal of any approval applicable to Purchaser;
or (d) require Purchaser to obtain any authorization, consent, approval or
waiver from, or to make any filing with, any governmental entity or to obtain
the approval or consent of any other person other than if required,
qualifications or filings under the Securities Act, and the applicable
securities laws of other states, which qualifications or filings, if required,
will be obtained on behalf of the Shareholders and will be effective within the
period required by law.
3.6 Status of Shares. The Paradigm Stock, when sold and issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will
15
be free of any mortgage, pledge, lien, security interest, encumbrance or charge
of any kind whatsoever.
3.7 Financial Statements.
(a) The Purchaser provided the Shareholders with the audited balance
sheet of the Purchaser as at December 31, 1995, and the related statement of
income and cash flows for the year then ended (the "Audited Statements"). The
Purchaser also provided the Shareholder with the unaudited balance sheet of the
Purchaser as at September 30, 1996 (the "Balance Sheet Date") and the related
statements for the nine months then ended (the "Unaudited Statements").
(b) The Audited Statements present fairly the financial position of the
Purchaser in conformity with generally accepted accounting principles applied on
a consistent basis as at the date thereof. The Audited Statements and Unaudited
Statements reflect only assets and liabilities and results of operations and
transactions of the Purchaser, and do not include any assets, liabilities or
transactions of any corporation or entity except the Purchaser. The Unaudited
Financial Statements were prepared from the books and records of the Purchaser
and such books and records accurately reflect, on a basis consistent with the
Audited Statements, all transactions to which the Purchaser was and is a party.
There are no asserted claims for indemnification by any person or entity against
the Purchaser under any law or agreement or pursuant to the Charter or By-laws,
and the Purchaser is not aware of any facts or circumstances that might
reasonably give rise to the assertion of such a claim against the Purchaser.
3.8 Litigation and Bankruptcy.
(a) Except as set forth on Schedule 3.8, there are no actions, suits,
proceedings, investigations or claims pending or, to the Purchaser's knowledge,
threatened against or involving the Purchaser.
(b) The Purchaser has not admitted in writing its inability to pay its
debts generally as they become due, nor has it filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, nor has it made an assignment for the benefit of creditors,
consented to the appointment of a receiver for itself or for the whole or any
substantial part of its property or assets, or had a petition in bankruptcy
filed against it, been adjudicated bankrupt, or filed a petition or answer
seeking reorganization or arrangement under the federal bankruptcy laws or any
other similar law or statute of the United States of America or any other
jurisdiction.
3.9 Title to Properties; Liens and Encumbrances. Except as set forth on
Schedule 3.9, the Purchaser has good and marketable title to all of its material
properties and assets, both real and personal, tangible and intangible, which it
purports to own, and such properties and assets are not subject to any mortgage,
pledge, lien, security interest, conditional sale agreement, encumbrance or
charge which would materially adversely affect the proposed use thereof by
Purchaser. The Purchaser is not in material default or in breach of any
provision of its material leases or licenses and the Purchaser holds valid
leasehold or licensed interests in the property which it leases or which is
licensed to it. To the best knowledge of Purchaser, no other party
16
to any material lease or license to which the Purchaser is a party is in
material default under or breach of any such lease or license.
3.10 Disclosure. Neither this Agreement nor any certificate or schedule
furnished to the Shareholders by or on behalf of the Purchaser in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein or herein not misleading or incomplete in light of
the circumstances under which they were made.
SECTION 4
Closing Deliveries of Shareholders
In addition to certificates representing their respective shares of
capital stock of the Company, simultaneously herewith the Shareholders are
delivering to Purchaser:
4.1 Officers' Certificate(s). A certificate of their respective
secretaries in form and substance reasonably satisfactory to the Purchaser,
certifying as to their respective Charters and By-laws; the incumbency of the
officers executing this Agreement on their behalf, and the adoption and
effectiveness of resolutions authorizing the execution, delivery and performance
of this Agreement; and certifying as to such other matters as the Purchaser may
reasonably request.
4.2 Resignations. Resignations from their respective positions as
officers and directors of the Company of such individuals as the Purchaser shall
designate.
4.3 Opinion of Company's Counsel. An opinion addressed to the
Purchaser, to the effect that the Company is duly organized and validly
existing; that all corporate action on the part of the Company necessary or
appropriate in connection with the transaction contemplated hereby has been
taken and that the Shares, have been duly authorized, validly issued and are
non-assessable.
4.4 Termination of Shareholders' Agreement. An agreement terminating
the Shareholders' Agreement made as of the first day of December 1995 among the
Shareholders and the Company and waiving any rights that may arise thereunder as
a result of the execution, delivery or performance of this Agreement.
4.5 Release of Obligations. An agreement whereby Prodigy releases the
Company from all obligations to Prodigy arising prior to December 31, 1996,
including all obligations under the Sub-Sublease Agreement dated as of April 15,
1996, as amended provided that such agreement shall not terminate the Publisher
Area Agreement dated December 1, 1995, between Prodigy or any obligation arising
under the Sub-Sublease after December 31, 1996, and the Company or release the
Company from any obligations arising thereunder and provided further that in
consideration of such release the Company shall deliver to Prodigy an agreement
releasing Prodigy from all obligations under the Conveyance and Contribution
Agreement dated December 1, 1995 and the Subscription Agreement dated December
1, 1995, whereby Prodigy
17
subscribed to purchase 56 shares of the Preferred Stock of the Company, as
amended by the letter agreement dated ___________, 1996.
SECTION 5
Closing Deliveries of Purchaser
In addition to certificates representing the Paradigm Stock and a
certified check or wire transfer for the cash portion of the Purchase Price,
simultaneously herewith the Purchaser is delivering to the Shareholders:
5.1 Officer's Certificate. A certificate of its secretary, in form and
substance reasonably satisfactory to the Shareholders certifying as to its
Charter and By-laws, the incumbency of the officers executing this Agreement on
its behalf, and the adoption and effectiveness of resolutions authorizing the
execution, delivery and performance of this Agreement and certifying as to such
other matters as either Shareholder may reasonably require.
5.2 Opinion of Counsel. An opinion addressed to each of the
Shareholders to the effect that Purchaser is duly organized and validly
existing; that all corporate action on the part of Purchaser necessary or
appropriate in connection with the transactions contemplated hereby has been
taken and that the Paradigm Stock, when issued in accordance with the terms
hereof, shall have been duly authorized and validly issued and are
non-assessable.
5.3 Warrant Agreements. A Warrant Agreement in the form of Exhibit 1.1
together with Warrant Certificates evidencing the Paradigm Warrants.
5.4 Registration Rights Agreement. A Registration Rights Agreement
providing each of the Shareholders with certain "piggy-back" registration rights
with respect to their Paradigm Stock and Paradigm Warrants.
18
SECTION 6
Covenants
6.1 By Prodigy and Sunshine. (a) Prodigy hereby covenants and agrees
that prior to July 31, 1997, it shall not recruit or solicit any person who
currently is or prior to such date becomes an employee of the Company or its
affiliates; provided that the foregoing shall not prohibit Prodigy from
employing in a non-managerial position any such employee who seeks employment
with Prodigy to fill a vacancy arising in the normal course of business.
(b) Prodigy and Sunshine hereby represent and warrant that all
consents, if any, necessary in connection with the execution and delivery of the
Sub-Sublease, and any which may be required by the Sub-Sublease or any xxxxxxxxx
in connection herewith have been obtained, and if any such consents have not
been obtained, Prodigy and Sunshine shall, jointly and severally, indemnify the
Company and hold it harmless from any damage, cost or expense resulting from the
failure to obtain the same.
6.2 By Purchaser. Purchaser hereby covenants and agrees to invest in
the Company during the next twelve months such amounts, up to $2 million, as
shall be necessary to enable the Company to continue to operate in the ordinary
course; provided, however, nothing contained herein shall be construed to
prevent Purchaser from modifying the strategic focus and business priorities of
the Company.
6.3 By Purchaser and the Company. The Company and the Purchaser hereby
covenant and agree that prior to July 31, 1997, they shall not recruit or
solicit any person, other than Xxxxx Xxxxxxxxxxx, who currently is or prior to
such date becomes an employee of Prodigy or its affiliates; provided that the
foregoing shall not prevent either of them from employing in a non-managerial
position any such employee who seeks employment with either of them to fill a
vacancy arising in the normal course of business.
SECTION 7
Indemnification
7.1 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements made herein shall survive until December
31, 1997, except that the representation and warranty contained in Section 2.19
shall survive only until June 30, 1997.
7.2 Shareholder Indemnification. The Shareholders, jointly and
severally, shall indemnify, defend and hold the Purchaser harmless against all
liability, loss or damage, together with all reasonable costs and expenses
related thereto (including legal and accounting fees and expenses), arising from
(i) the untruth, inaccuracy or breach of any of the representations or
warranties of the Shareholders herein or (ii) a breach of one or more of the
covenants and or agreements of the Shareholders set forth in this Agreement (any
such event being hereinafter referred to collectively as an "Event of
Shareholder Non-Compliance"); provided that neither Shareholder shall be
required to indemnify, defend or hold the Purchaser harmless from any
19
loss, damage or expenses arising out of the untruth of the representations and
warranties of the other Shareholder in Section 2.1, 2.2, 2.3, 2.4, 2.27, 2.28,
2.29 and 2.30. Upon the occurrence of an Event of Shareholder Non-Compliance,
the Purchaser may proceed to protect and enforce its rights either by suit in
equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Agreement. Damages
recoverable by the Purchaser hereunder are not limited to matters asserted by
third parties against the Company or the Purchaser, but include damages incurred
or sustained by the Company or the Purchaser in the absence of third party
claims. Payments by the Company or the Purchaser of amounts for which the
Purchaser is indemnified hereunder shall not be a condition precedent to
recovery.
Notwithstanding the foregoing, there shall be no obligation on the part
of the Shareholders to indemnify or hold Purchaser or the Company harmless
except to the extent that the sum of all liabilities, losses or damages,
together with the reasonable costs and expenses related thereto, for which the
Purchaser and the Company seeks to be indemnified exceeds $50,000 (the
"Shareholders' Basket"), in which event the Shareholders shall be responsible
for all liabilities, losses, damages and expenses in excess of the first $50,000
thereof, and provided further that the Shareholders' Basket shall not be
applicable to Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.10, 2.12, 2.22,
2.25, 2.26, 2.27, 2.28 and 2.29.
The parties acknowledge although the Shareholders are making the
representations and warranties contained herein, the Company has operated
independently and the Shareholders have no actual knowledge of the facts
underlying the representations and warranties regarding the business and affairs
of the Company. Consequently, in the absence of a demonstration of actual
knowledge or intentional misconduct a breach of a representation or warranty
shall give rise only to a claim for indemnification hereunder and not a claim
for fraud. Further, in the event of a breach of a representation or warranty,
Purchaser's recourse shall be limited to the securities issuable hereunder and,
in the absence of fraud, the Shareholders shall not be liable for monetary
damages hereunder.
7.3 Purchaser Indemnification. The Purchaser shall indemnify, defend
and hold the Shareholders harmless against all liability, loss or damage,
together with all reasonable costs and expenses related thereto (including legal
and accounting fees and expenses), arising from (i) the untruth, inaccuracy or
breach of any of the representations or warranties of the Purchaser herein or
(ii) a breach of one or more of the covenants and or agreements set forth in
this Agreement (any such event being hereinafter referred to collectively as an
"Event of Purchaser NonCompliance"). Upon the occurrence of an Event of
Purchaser Non-Compliance, the Shareholders may proceed to protect and enforce
their rights either by suit in equity and/or by action at law, including, but
not limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Agreement.
Notwithstanding the foregoing, there shall be no obligation on the part
of the Purchaser to indemnify or hold the Shareholders harmless except to the
extent that the sum of all liabilities, losses or damages, together with the
reasonable costs and expenses related thereto, for which the Shareholders seek
to be indemnified exceeds $50,000 (the "Purchaser's Basket"), in which event the
Purchaser shall be responsible for all liabilities, losses, damages and expenses
in
20
excess of the first $50,000 thereof, and provided further that the Purchaser's
basket shall apply only to Sections 3.5, 3.7, 3.8, 3.9 and 3.10.
7.4 Indemnification Procedure. Each party entitled to indemnification
under this Section 7 (the "Indemnified Party") shall give notice in writing in
the manner provided under Section 8.4 hereof to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemni fying Party of its obligations under this Section 7 except to the extent
the Indemnifying Party has been prejudiced by such failure. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
7.5 Purchaser's Non-Waiver. The rights or remedies of the Purchaser
shall be cumulative and not exclusive of any right or remedy which the Purchaser
would otherwise have and no failure or delay by the Purchaser in exercising any
right shall operate as a waiver of such right nor shall any single or partial
exercise of any power or right preclude its other or further exercise or the
exercise of any other power or right.
7.6 Shareholders' Non-Waiver. The rights or remedies of the
Shareholders shall be cumulative and not exclusive of any right or remedy which
the Shareholders would otherwise have and no failure or delay by the Purchaser
in exercising any right shall operate as a waiver of such right nor shall any
single or partial exercise of any power or right preclude their other or further
exercise or the exercise of any other power or right.
SECTION 8
Miscellaneous
8.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York, without reference to the conflict of laws
provisions thereof.
8.2 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.
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8.3 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Shareholders, the Company and the Purchaser.
8.4 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, return receipt requested, or delivered either by hand, by
messenger or by nationally recognized overnight courier, addressed:
(a) if to the Purchaser, to the following address, or at such other
address as the Purchaser shall have furnished to the Shareholders and to the
Company in writing:
Paradigm Music Entertainment Company
00 Xxxxxx Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx XxXxxxxxxx
(b) if to the Company to the following address, or at such other
address as the Company shall have furnished to the Purchaser in writing,
SonicNet, Inc.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxxxxxx
with, in the case of the Purchaser and the Company, a copy to:
Bachner, Tally, Xxxxxxx & Xxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxx, Esq.
(c) If to the Shareholders, notice must be sent to each of the
Shareholders at the following addresses, or at such other address as the
Shareholders shall have furnished to the Purchaser in writing,
(i) Prodigy Services Corporation
000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxx Xxxx 00000
Attn: General Counsel
(ii) Sunshine Interactive Network, Inc.
000 Xxxxxxxx
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
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Attn: Chief Financial Officer
(d) with a copy, in the case of Prodigy, to:
Xxxxxxxx Xxxxx Xxxxxxxx Xxxx & Ballon LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. XxXxxx, Esq.
Fax: (000) 000-0000
and in the case of Sunshine, to:
Xxxxxxx & Beer
000 Xxxx Xxxxxx Xxxxx
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxxx X. Xxxxxx, Esq.
8.5 Brokers' and Finders' Fees. Each party hereto (i) represents and
warrants that it has not retained a finder or broker in connection with the
transactions contemplated by this Agreement and (ii) hereby agrees to indemnify
and to hold the other party harmless of and from any liability for commission or
compensation in the nature of an agent's fee to any broker or other person or
firm incurred in connection with the transactions contemplated hereby (and the
costs and expenses of defending against such liability or asserted liability)
arising from any act by it or any of its employees or representatives.
8.6 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.
8.7 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.
8.8 Publicity. None of the parties hereto shall make or issue, or cause
to be made or issued, by the Company or otherwise, any announcement or written
statement concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of the other
parties hereto. This provision shall not apply, however, to any announcement or
written statement required to be made by law or the regulations of any federal
or state governmental agency, except that the party required to make such
announcement shall, whenever practicable, consult with the other party
concerning the timing and content of such announcement before such announcement
is made.
8.9 Assurances. From time to time after the date hereof, and without
any further consideration, each of the parties shall execute, acknowledge and
deliver all such additional assignments, conveyances, instruments, notices,
releases, acquittances and other documents, and will do all such other acts and
things, all in accordance with applicable law, as may be necessary or
appropriate (i) more fully to assure any other party hereto and its successors
and assigns all
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of the properties, rights, titles, interests, estates, remedies, powers and
privileges by this Agreement granted to such party or intended so to be.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date above written.
PARADIGM MUSIC ENTERTAINMENT
COMPANY
By: _______________________________________
Xxxxxx XxXxxxxxxx, its President
PRODIGY SERVICES CORPORATION
By: _______________________________________
Xxxx Xxxxxxxx, Vice President-
General Counsel
SUNSHINE INTERACTIVE NETWORK, INC.
By: _______________________________________
Xxxx Xxxxxxxx, Chief Financial Officer
SONICNET, INC.
By: _______________________________________
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