Exhibit 10.13
EXECUTION COPY
SPARTAN MULTIMEDIA, INC.
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STOCK PURCHASE AGREEMENT
Dated as of November 1, 1998
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Common Stock
This STOCK PURCHASE AGREEMENT, dated as of November 1, 1998, is made
and entered into by and among XXXXXXXXXXXX.XXX LTD., an Alberta corporation,
("Purchaser"), NETGATEWAY, INC., a Nevada corporation ("NetGateway,") and each
of the individuals listed on Schedule 1 hereto ("Selling Stockholders").
Capitalized terms not otherwise defined herein have the meanings set forth in
Section 10.01.
WHEREAS, the Selling Stockholders own 1,666,668 shares of common
stock, no par value per share, of Spartan Multimedia, Inc., an Alberta
corporation (the "Company"), constituting all issued and outstanding shares of
capital stock of the Company (such shares being referred to herein as the
"Shares"); and
WHEREAS, the Selling Stockholders desire to sell, and Purchaser
desires to purchase, the Shares on the terms and subject to the conditions 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:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01 Purchase and Sale. The Selling Stockholders agree to sell to
Purchaser, and Purchaser agrees to purchase from the Selling Stockholders, all
of the right, title and interest of the Selling Stockholders in and to the
Shares at the Closing on the terms and subject to the
conditions set forth in this Agreement.
1.02 The aggregate purchase price for the Shares is $2,600,000.00
(the "Purchase Price"), which shall be payable, subject to the provisions of
Section 1.03, by Purchaser's delivery of up to 260,000 shares of Purchaser=s
Class B Common Stock (the "Exchangeable Shares"), which shall be exchangeable
into NetGateway common stock ("NetGateway Shares") in accordance with the
Purchaser's Articles of Incorporation set forth in Exhibit A hereto. All Dollar
amounts set forth herein shall refer to United States Dollars unless otherwise
indicated.
1.03 Share Subscription.
(a) Vested Shares. At the Closing, Purchaser shall issue to the
Selling Stockholders an aggregate of 130,000 fully-vested Exchangeable Shares
(the "Vested Shares"). Each Selling Stockholder shall receive that number of
vested shares shown opposite each Stockholder's name on Schedule 1 hereto.
(b) Contingent Shares. In addition to the Vested Shares, the Selling
Stockholders
shall be eligible to receive up to an aggregate of 130,000 additional
Exchangeable Shares (the "Contingent Shares") in three (3) installments, within
30 days after the first, second and third anniversary dates (each an
"Anniversary Date" and, collectively, the "Anniversary Dates") following the
Closing. Such installments shall be subject to the following number of Paying
Accounts (as defined below) being attained by Purchaser or any of its
Affilliates prior to the respective Anniversary Date. Out of any such Contingent
Shares issued by Purchaser, each Selling Stockholder shall be entitled to
receive each such Selling Stockholder's Percentage Interest of such Contingent
Shares.
Number of Paying Maximum Contingent
Anniversary Date Accounts Shares
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First Anniversary Date 1,000 43,333
Second Anniversary Date 3,000 43,333
Third Anniversary Date 6,000 43,334
A paying account ("Paying Account") shall be an account with a customer that has
entered into a Written Account Agreement with Purchaser, in the form of Exhibit
B hereto, and which results in a minimum of $30.00 per month in revenues to
Purchaser or any of its Affiliates, including XxxxxxXxxxxx.xxx, a California
corporation. In the event that the annual Paying Account number is not reached
in any year, then only a pro rata portion of the maximum number of Contingent
Shares issuable in such installment shall be issued by Purchaser. For example,
if on the First Anniversary Date, there are only 800 Paying Accounts, then the
Selling Stockholders will only receive eighty percent (80%) of that installment
of Contingent Shares. If, in any year, the required number of Paying Accounts is
not met, any shortfall in Paying Accounts and Contingent Shares can be made up
in any subsequent year up to the Third Anniversary Date, provided that the
required number of Paying Accounts for such subsequent year is also met. In the
event that
the required number of Paying Accounts is reached prior to any Anniversary Date
then, upon request by the Selling Stockholders, Purchaser shall issue the number
of Contingent Shares corresponding to such number of Paying Accounts. On the
Third Anniversary Date, Purchaser's only obligation shall be to issue to Sellers
any additional amount of Contingent Shares which, when added to the number of
previously issued Contingent Shares, equals the total number of Contingent
Shares corresponding to the number of Paying Accounts existing on the Third
Anniversary Date. After the Third Anniversary Date, Purchaser shall have no
obligation to issue any additional Contingent Shares.
(c) The number of Exchangeable Shares issued or issuable to the
Selling Stockholders is subject to adjustment as follows:
(i) February 28, 1999 shall be referred to herein as the
"Adjustment Date."
(ii) On March 1, 1999, Purchaser shall determine the average
daily closing price ("ADP") of NetGateway's common stock during the forty-five
(45) days immediately preceding the Adjustment Date. In determining the ADP, the
actual closing sales price of NetGateway's common stock (as quoted on the
exchange or other market on which NetGateway's common stock is normally traded)
shall be used. Days on which no sales shall have been consummated shall be
disregarded. By way of example, if during the Adjustment Period there are 40
trading days and NetGateway's common stock was traded on 30 of those days, the
sum of the closing sales prices on the 30 days on which a sales transaction
actually occurred shall be divided by 30 in order to determine the ADP.
(iii) If the resultant ADP for the Adjustment Period is Ten
Dollars ($10.00) or more, there shall be no adjustment in the number of Vested
Shares or Contingent Shares issued or issuable to the Selling Stockholders
pursuant to this subparagraph. If the ADP for the Adjustment Period is less than
Ten Dollars ($10.00), Purchaser shall divide the Purchase Price by the ADP to
determine the an aggregate number of Exchangeable Shares issuable by Purchaser
to the Selling Stockholders, and the excess Exchangeable Shares to which the
Selling Stockholders are entitled shall be delivered, in the case of the Vested
Shares, and reserved for issuance to Seller, in the case of the Contingent
Shares. Each Selling Stockholder shall be entitled to receive his or her
Percentage Interest of any such Exchangeable Shares.
(d) The Selling Stockholders agree that the Vested Shares and any
issued Contingent Shares shall be subject to the pledge described in Article IX
hereof. In addition, Purchaser shall have no obligation to issue any Contingent
Shares to any Selling Stockholder to the extent that any such Selling
Stockholder shall have any indemnification obligations pursuant to Article IX
hereof. None of the foregoing shall limit or be construed to limit the liability
of the Selling Stockholders under this Agreement or otherwise, nor will any
pledged Shares be
considered as liquidated damages for any breach under this Agreement.
(e) The Selling Stockholders acknowledge that the issuance of the
Exchangeable Shares is made in reliance on the representations, warranties and
covenants of the Selling Stockholders set forth in Article III hereof.
(f) Market Stand-Off.
(i) In connection with any underwritten public offering by
NetGateway of the NetGateway Shares pursuant to an effective registration
statement filed under the 1933 Securities Act, as amended, no Selling
Stockholder shall sell, make any short sale of, loan, hypothecate, pledge, grant
any option for the purchase of, or other dispose of or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
any of the NetGateway Shares without the prior written consent of NetGateway and
its underwriters, for such period of time from and after the effective date of
such registration statement as may be requested by NetGateway or such
underwriters; provided, however, that in no event shall such period exceed one
hundred eighty (180) days. Following the lapse of such period, ten percent (10%)
of the aggregate number of the NetGateway Shares issued and issuable shall be
released each quarter thereafter from the foregoing market standoff provisions.
(ii) Stop-Transfer Instructions. In order to enforce the
provisions of this Section 1.03(f), NetGateway may impose stop-transfer
instructions with respect to the NetGateway Shares until the end of the
applicable standoff period.
(iii) NetGateway covenants that the Affiliates of NetGateway
will enter into similar market stand-off arrangements as those set forth in
Section 1.03(f)(i). If such Affiliates enter into arrangements more favorable
than the provisions of Section 1.03(f)(i), then the Selling Stockholders shall
be afforded similar arrangements.
1.04 Closing. The Closing will take place in the principal offices
of the Purchaser, at 10:00 A.M. local time, on the Closing Date. At the Closing,
Purchaser will deliver the certificates representing the Vested Shares to the
Selling Stockholders. Simultaneously, the Selling Stockholders will assign and
transfer to Purchaser all of the Selling Stockholders' right, title and interest
in and to the Shares by delivering to Purchaser a certificate or certificates
representing the Shares, in genuine and unaltered form, duly endorsed in blank
or accompanied by duly executed stock powers endorsed in blank, with requisite
stock transfer tax stamps, if any, attached. At the Closing, there shall also be
delivered to Purchaser the opinions, and certificates and other Contracts,
documents and instruments to be delivered under Article VI.
1.05 Further Assurances; Post-Closing Cooperation.
(a) At any time or from time to time after the Closing, the Selling
Stockholders shall execute and deliver to Purchaser such other documents and
instruments, provide such materials and information and take such other actions
as Purchaser may reasonably request more effectively to vest title to the Shares
in Purchaser and, to the full extent permitted by Law, to put Purchaser in
actual possession and operating control of the Company and its Assets and
Properties and Books and Records, and otherwise to cause the Selling
Stockholders to fulfill their obligations under this Agreement.
(b) Following the Closing, the Selling Stockholders will afford
Purchaser, its counsel and its accountants, during normal business hours,
reasonable access to the books, records and other data relating to the Business
or Condition of the Company in their possession with respect to periods prior to
the Closing and the right to make copies and extracts therefrom, to the extent
that such access may be reasonably required by Purchaser in connection with (i)
the preparation of tax returns, (ii) the determination or enforcement of rights
and obligations under this Agreement, (iii) compliance with the requirements of
any Governmental or Regulatory Authority, (iv) the determination or enforcement
of the rights and obligations of any party to this Agreement or (v) in
connection with any actual or threatened Action or Proceeding.
(c) If, in order properly to prepare its tax returns, other
documents or reports required to be filed with Governmental or Regulatory
Authorities or its financial statements or to fulfill its obligations hereunder,
it is necessary that a party be furnished with additional information, documents
or records relating to the Business or Condition of the Company not referred to
in paragraph (b) above, and such information, documents or records are in the
possession or control of the other party, such other party shall use its best
efforts to furnish or make available such information, documents or records (or
copies thereof) at the recipient's request, cost and expense. Any information
obtained by the Selling Stockholders in accordance with this paragraph shall be
held confidential by the Selling Stockholders in accordance with Section 11.05.
(d) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with any provision of this Section shall be subject to applicable rules relating
to discovery.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
CONTROLLING STOCKHOLDERS
Each of the Controlling Stockholders, jointly and severally, represents
and warrants to Purchaser as follows:
2.01 Authority. This Agreement has been duly and validly executed
and delivered by the Controlling Stockholders and constitutes a legal, valid and
binding obligation of each Controlling Stockholder enforceable against each
Controlling Stockholder in accordance with its terms.
2.02 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the Province
of Alberta, and has full corporate power and authority to conduct its business
as and to the extent now conducted and to own, use and lease its Assets and
Properties. Section 2.02 of the Disclosure Schedule lists all lines of business
in which the Company is participating or engaged. The Company is duly qualified,
licensed or admitted to do business and is in good standing in those
jurisdictions specified in Section 2.02 of the Disclosure Schedule, which are
the only jurisdictions in which the ownership, use or leasing of its Assets and
Properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for those jurisdictions in which the
adverse effects of all such failures by the Company and the Subsidiaries to be
qualified, licensed or admitted and in good standing can in the aggregate be
eliminated without material cost or expense by the Company or a Subsidiary, as
the case may be, becoming qualified or admitted and in good standing. The name
of each director and officer of the Company on the date hereof, and the position
with the Company held by each, are listed in Section 2.02 of the Disclosure
Schedule. The Company has prior to the execution of this Agreement delivered to
Purchaser true and complete copies of the charter documents of the Company as in
effect on the date hereof.
2.03 Capital Stock. The authorized capital stock of the Company
consists solely of Common Stock, of which only the Shares have been issued. The
Shares are duly authorized, validly issued, outstanding, fully paid and
nonassessable.
2.04 Subsidiaries. The Company does not have, nor has it ever had,
any Subsidiaries.
2.05 No Conflicts. The execution and delivery by each Controlling
Stockholder of this Agreement does not, and the performance by each Controlling
Stockholder of its obligations under this Agreement and the consummation of the
transactions contemplated hereby will not:
(a) Conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation or by-laws (or
other comparable corporate charter documents) of the Company;
(b) Conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to any Controlling Stockholder or the
Company or any of their respective Assets and Properties; or
(c) (i) Conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require any Controlling Stockholder or the Company to obtain any consent,
approval or action of, make any filing with or give any notice to any Person as
a result or under the terms of, (iv) result in or give to any Person any right
of termination, cancellation, acceleration or modification in or with respect
to, (v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under, or (vi) result
in the creation or imposition of any Lien upon any Controlling Stockholder or
the Company or any of their respective Assets and Properties under, any Contract
or License to which any Controlling Stockholder or the Company is a party or by
which any of their respective Assets and Properties is bound.
2.06 Governmental Approvals and Filings. No consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority on
the part of Controlling Stockholder or the Company is required in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
2.07 Books and Records. The minute books and other similar records
of the Company as made available to Purchaser prior to the execution of this
Agreement contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written consents in lieu of meetings of
the stockholders, the boards of directors and committees of the board of
directors of the Company. The stock transfer ledgers and other similar records
of the Company as made available to Purchaser prior to the execution of this
Agreement accurately reflect all record transfers prior to the execution of this
Agreement in the capital stock of the Company. The Company does not have any of
its Books and Records recorded, stored, maintained, operated or otherwise wholly
or partly dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.
2.08 Financial Statements. Prior to the execution of this Agreement,
the Company has delivered to Purchaser true and complete copies of the following
financial statements:
(a) The unaudited balance sheets of the Company for its fiscal year
ended August 31, 1998 and for the period between such date and November 4, 1998,
along with the related unaudited consolidated statements of operations,
stockholders' equity and cash for each such period. All such financial
statements (i) fairly present the financial condition and results of operations
of the Company as of the respective dates thereof and for the respective periods
covered thereby, and (ii) were compiled from the Books and Records of the
Company regularly maintained by management and used to prepare the financial
statements of the Company in accordance with the principles stated therein. The
August 31, 1998 financial statements were prepared in accordance with Canadian
GAAP. The Company has maintained its respective Books and Records in a
manner sufficient to permit the preparation of financial statements in
accordance with Canadian GAAP.
2.09 Absence of Changes. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on or prior to
the Closing Date, since August 31, 1998, there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to result in a material adverse
change, in the Business or Condition of the Company.
2.10 No Undisclosed Liabilities. Except as reflected or reserved
against in the balance sheet included in the Financial Statements, there are no
Liabilities against, relating to or affecting the Company or any of its
respective Assets and Properties, other than Liabilities (i) incurred in the
ordinary course of business consistent with past practice and (ii) which,
individually or in the aggregate, are not material to the Business or Condition
of the Company.
2.11 Legal Proceedings.
(a) There are no Actions or Proceedings pending or, to the Knowledge
of any of the Controlling Stockholders, threatened against, relating to or
affecting the Company or any of its Assets and Properties which (i) could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or otherwise result in a
material diminution of the benefits contemplated by this Agreement to Purchaser,
or (ii) if determined adversely against the Company, could reasonably be
expected to result in (x) any injunction or other equitable relief against the
Company that would interfere in any material respect with its business or
operations or (y) Losses by the Company, individually or in the aggregate with
Losses in respect of other such Actions or Proceedings, exceeding $5,000.00;
(b) There are no facts or circumstances Known to any Controlling
Stockholder that could reasonably be expected to give rise to any Action or
Proceeding that would be required to be disclosed pursuant to clause (a) above;
and
(c) There are no Orders outstanding against the Company.
2.12 Compliance With Laws and Orders. The Company is not, nor has at
any time been, nor has it received any notice that it is nor has at any time
been, in violation of or in default under, in any material respect, any Law or
Order applicable to the Company or any of its Assets and Properties.
2.13. Employee Benefit and Compensation Plans. Section 2.13 of the
Disclosure Schedule contains a true and complete list of each Benefit Plan of
the Company. The Company has no Liabilities and the Purchaser will incur no
Liabilities with respect to, or on account of, any Benefit Plan of the Company,
any of its Affiliates or any predecessor employer
of any employee, including, but not limited to, Liabilities the Company may have
to such employees under all employee benefit schemes, incentive compensation
plans, bonus plans, pension and retirement plans, vacation, profit-sharing plans
(including any profit-sharing plan with a cash-or-deferred arrangement) share
purchase and option plans, savings and similar plans, medical, dental, travel,
accident, life, disability and other insurance and other plans or arrangements,
whether written or oral and whether "qualified" or "non-qualified," or to any
employee as a result of termination of employment by the Company as contemplated
by this Agreement. The Company has not, with respect to any employee, maintained
or contributed to, or been obligated or required to contribute to, any
retirement or pension plan or any employee benefit plan. The Company is not a
party to any collective bargaining agreement covering any employee, and no
Controlling Stockholder knows of any effort to organize any such employee as a
part of any collective bargaining unit.
2.14 Real Property.
(a) Section 2.14 of the Disclosure Schedule contains a true and
correct list of each parcel of real property leased by the Company (as lessor or
lessee). The Company owns no real property.
(b) The Company has a valid and subsisting leasehold estate in and
the right to quiet enjoyment of the real properties leased by it for the full
term of the lease thereof. Each lease referred to in paragraph (a) above is a
legal, valid and binding agreement, enforceable in accordance with its terms, of
the Company and of each other Person that is a party thereto, and except as set
forth in Section 2.14 of the Disclosure Schedule, there is no, and the Company
has received no notice of any, default (or any condition or event which, after
notice or lapse of time or both, would constitute a default) thereunder. The
Company owes no brokerage commissions with respect to any such leased space.
(c) The Company has delivered to Purchaser prior to the execution of
this Agreement true and complete copies of all such leases (including any
amendments and renewal letters).
(d) The improvements on the real property identified in Section 2.14
of the Disclosure Schedule are in good operating condition and in a state of
good maintenance and repair, ordinary wear and tear excepted, are adequate and
suitable for the purposes for which they are presently being used and, to the
Knowledge of each Controlling Stockholder, there are no condemnation or
appropriation proceedings pending or threatened against any of such real
property or the improvements thereon.
2.15 Tangible Personal Property; Investment Assets.
(a) The Company is in possession of and has good title to, or has
valid leasehold interests in or valid rights under Contract to use, all tangible
personal property used in
or reasonably necessary for the conduct of their business, including all
tangible personal property reflected on the balance sheet included in the
Financial Statements and tangible personal property acquired since the Financial
Statement Date other than property disposed of since such date in the ordinary
course of business consistent with past practice. All such tangible personal
property is free and clear of all Liens, other than Permitted Liens, and is in
good working order and condition, ordinary wear and tear excepted, and its use
complies in all material respects with all applicable Laws.
(b) Section 2.15 of the Disclosure Schedule describes each
Investment Asset owned by the Company or any Subsidiary on the date hereof. All
such Investment Assets are owned by the Company free and clear of all Liens
other than Permitted Liens.
2.16 Intellectual Property Rights. The Company owns or licenses only
the Intellectual Property disclosed in Section 2.16 of the Disclosure Schedule,
as to which the Company either has all right, title and interest in or a valid
and binding right under Contract to use. No other Intellectual Property is used
or necessary in the conduct of the Business of the Company. Except as disclosed
in Section 2.16 of the Disclosure Schedule, (i) the Company has the exclusive
right to use the Intellectual Property disclosed in Section 2.16 of the
Disclosure Schedule, (ii) all registrations with and applications to
Governmental or Regulatory Authorities in respect of such Intellectual Property
are valid and in full force and effect and are not subject to the payment of any
Taxes or maintenance fees or the taking of any other actions by the Company to
maintain their validity or effectiveness, (iii) there are no restrictions on the
direct or indirect transfer of any Contract, or any interest therein, held by
the Company in respect of such Intellectual Property, (iv) Seller will have
delivered on or before the Closing Date to Purchaser in-line documentation with
respect to any source code related to any such Intellectual Property, which
in-line documentation is accurate in all material respects and reasonably
sufficient in detail and content to identify and explain such source code and to
facilitate its full and proper use without reliance on the special knowledge or
memory of any Person; and Seller has no other documentation with respect to any
other invention, process, design, computer program or other know-how or trade
secret included in such Intellectual Property, (v) the Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of their trade secrets, (vi) the Company is not, nor has it received any notice
that it is, in default (or with the giving of notice or lapse of time or both,
would be in default) under any Contract to use such Intellectual Property and
(vii) except as disclosed in Section 2.16 of the Disclosure Schedule, no such
Intellectual Property is being infringed by any other Person. Neither any
Controlling Stockholder nor the Company has received notice that the Company is
infringing any Intellectual Property of any other Person, no claim is pending
or, has been made to such effect that has not been resolved and, to the
Knowledge of each Controlling Stockholder, the Company's Intellectual Property
does not infringe any Intellectual Property of any other Person.
2.17 Contracts.
(a) Section 2.17 of the Disclosure Schedule (with paragraph
references corresponding to those set forth below) contains a true and complete
list of each Contract or other arrangement (true and complete copies or, if
none, reasonably complete and accurate written descriptions of which, together
with all amendments and supplements thereto and all waivers of any terms
thereof, have been delivered to Purchaser prior to the execution of this
Agreement), to which the Company is a party or by which any of its Assets and
Properties is bound.
(b) Each Contract disclosed in Section 2.17 of the Disclosure
Schedule is in full force and effect and constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms, of each party thereto; and
neither the Company nor, to the Knowledge of any Controlling Stockholder, any
other party to such Contract is, or has received notice that it is, in violation
or breach of or default under any such Contract (or with notice or lapse of time
or both, would be in violation or breach of or default under any such Contract)
in any material respect.
2.18 Licenses. Section 2.18 of the Disclosure Schedule contains a
true and complete list of all Licenses used in and material, individually or in
the aggregate, to the business or operations of the Company (and all pending
applications for any such Licenses), setting forth the grantor, the grantee, the
function and the expiration and renewal date of each. Prior to the execution of
this Agreement, the Company has delivered to Purchaser true and complete copies
of all such Licenses. Except as disclosed in Section 2.18 of the Disclosure
Schedule:
(i) The Company owns or validly holds all Licenses that are
material, individually or in the aggregate, to its business or operations;
(ii) Each License listed in Section 2.18 of the Disclosure Schedule
is valid, binding and in full force and effect; and
(iii) The Company is not, nor has it received any notice that it is,
in default (or with the giving of notice or lapse of time or both, would
be in default) under any such License.
2.19 Insurance. The Company has not maintained and is not currently
maintaining any liability, property, workers' compensation, directors' and
officers' liability and other insurance policies insuring the business,
operations or employees of the Company.
2.20 Affiliate Transactions. Except as disclosed in Section 2.20 of
the Disclosure Schedule, there are no intercompany Liabilities between the
Company, on the one hand, and any Selling Stockholder or any officer, director
or Affiliate of any Selling Stockholder,
on the other, (ii) neither any Selling Stockholder nor any such officer,
director or Affiliate provides or causes to be provided any assets, services or
facilities to the Company, (iii) the Company does not provide or cause to be
provided any assets, services or facilities to any Seller or any such officer,
director or Affiliate and (iv) the Company does not beneficially own, directly
or indirectly, any Investment Assets issued by any Selling Stockholder or any
such officer, director or Affiliate.
2.21 Employees; Labor Relations. Section 2.21 of the Disclosure
Schedule contains a list of the name of each officer and employee of the Company
at the date hereof, together with each such person's position or function,
annual base salary or wages and any incentive or bonus arrangement with respect
to such person in effect on such date. No Controlling Stockholder has received
any information that would lead it to believe that a material number of such
persons will or may cease to be employees, or will refuse offers of employment
from Purchaser, because of the consummation of the transactions contemplated by
this Agreement. All employees, consultants, officers, directors and shareholders
of the Company that have had access to the Business are parties to a written
agreement (a "Confidentiality Agreement"), under which each such person or
entity (i) is obligated to disclose and transfer to the Company, without the
receipt by such person of any additional value therefor (other than normal
salary or fees for consulting services), all inventions, developments and
discoveries which, during the period of employment with or performance of
services for the Company, he or she makes or conceives of either solely or
jointly with others, that relate to any subject matter with which his or her
work for the Company in the Business may be concerned, and (ii) is obligated to
maintain the confidentiality of proprietary information of the Business. To each
Controlling Stockholder's knowledge, none of the Company's employees,
consultants, officers or directors is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would conflict with their obligation to promote the interests of the Company
with regard to the Business or the Assets or that would conflict with the
Business or the Assets. Neither the execution nor the delivery of this
Agreement, nor the carrying on of the Business by its employees and consultants,
will conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any of such persons or entities are now obligated. It is currently not
necessary nor will it be necessary for the Company to utilize in the Business
any inventions of any of such persons or entities (or people it currently
intends to hire) made or owned prior to their employment by or affiliation with
the Company, nor is it or will it be necessary to utilize any other assets or
rights of any such persons or entities (or people it currently intends to hire)
made or owned prior to their employment with or engagement by the Company, in
violation of any registered patents, trade names, trademarks or copyrights or
any other limitations or restrictions to which any such persons or entity is a
party or to which any of such assets or rights may be subject. To each
Controlling Stockholder's knowledge, none of the Company's employees,
consultants, officers, directors or shareholders that has had knowledge or
access to information relating to the Assets has taken, removed or made use of
any proprietary documentation, manuals, products, materials, or any other
tangible item from his or her previous employer
relating to the Assets by such previous employer which has resulted in the
Company's access to or use of such proprietary items included in the Assets, and
Company will not gain access to or make use of any such proprietary items in the
Business.
2.22 Bank and Brokerage Accounts; Investment Assets. Section 2.22 of
the Disclosure Schedule sets forth (a) a true and complete list of the names and
locations of all banks, trust companies, securities brokers and other financial
institutions at which the Company has an account or safe deposit box or
maintains a banking, custodial, trading or other similar relationship; (b) a
true and complete list and description of each such account, box and
relationship, indicating in each case the account number and the names of the
respective officers, employees, agents or other similar representatives of the
Company having signatory power with respect thereto; and (c) a list of each
Investment Asset, the name of the record and beneficial owner thereof, the
location of the certificates, if any, therefor, the maturity date, if any, and
any stock or bond powers or other authority for transfer granted with respect
thereto.
2.23 No Powers of Attorney. The Company does not have any powers of
attorney or comparable delegations of authority outstanding.
2.24 Accounts Receivable. The accounts and notes receivable of the
Company reflected on the balance sheet included in the Financial Statements, and
all accounts and notes receivable arising subsequent to August 31, 1998, (i)
arose from bona fide sales transactions in the ordinary course of business and
are payable on ordinary trade terms, (ii) are legal, valid and binding
obligations of the respective debtors enforceable in accordance with their
terms, (iii) are not subject to any valid set-off or counterclaim, (iv) do not
represent obligations for goods sold on consignment, on approval or on a
sale-or-return basis or subject to any other repurchase or return arrangement,
(v) are collectible in the ordinary course of business consistent with past
practice in the aggregate recorded amounts thereof, net of any applicable
reserve reflected in the balance sheet included in the Financial Statements, and
(vi) are not the subject of any Actions or Proceedings brought by or on behalf
of the Company. Section 2.24 of the Disclosure Schedule sets forth a description
of any security arrangements and collateral securing the repayment or other
satisfaction of receivables of the Company. All steps necessary to render all
such security arrangements legal, valid, binding and enforceable, and to give
and maintain for the Company, a perfected security interest in the related
collateral, have been taken.
2.25 Inventory. All inventory of the Company reflected on the
balance sheet included in the Financial Statements consisted, and all such
inventory acquired since the August 31, 1998 consists, of a quality and quantity
usable and salable in the ordinary course of business consistent with past
practice, subject to normal and customary allowances in the industry for
spoilage, damage and outdated items. Except as disclosed in the notes to the
Financial Statements, all items included in the inventory of the Company are the
property of the Company, free and clear of any Lien other than Permitted Liens,
have not been pledged as collateral, are not held by the Company on consignment
from others and conform in all material respects to all standards applicable to
such inventory or its use or sale imposed by Governmental or Regulatory
Authorities.
2.26 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Selling
Stockholders directly with Purchaser without the intervention of any Person on
behalf of the Selling Stockholders in such manner as to give rise to any valid
claim by any Person against Purchaser or the Company for a finder's fee,
brokerage commission or similar payment.
2.27 Taxes. The Company has filed all tax returns which are required
to have been filed in any jurisdiction, and has paid all Taxes shown to be due
and payable on such returns and all other Taxes payable by the Company to the
extent the same have become due and payable and before they have become
delinquent. No Selling Stockholder knows of any proposed material assessment for
Taxes against the Company and in the opinion of the Selling Stockholders, all
liabilities for Taxes are adequately provided for on the books of the Company.
2.28 Disclosure. All material facts relating to the Business or
Condition of the Company have been disclosed to Purchaser in or in connection
with this Agreement. No representation or warranty contained in this Agreement,
and no statement contained in the Disclosure Schedule or in any certificate,
list or other writing furnished to Purchaser pursuant to any provision of this
Agreement (including without limitation the Financial Statements), contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
2.29 Paying Accounts. The current number of the Company's customer
accounts under contract is 400, and of those more than 35 are Paying Accounts at
rates no less than those set forth on the attached Exhibit C with the minimum
rate not less than Thirty Dollars ($30.00) per month. The Paying Accounts are
the subject of agreements in the form of the attached Exhibit B.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS
Each Selling Stockholder, severally but not jointly, represents and
warrants to the Purchaser as of the date hereof and as of the Closing Date that:
3.01 Title. Such Selling Stockholder has good and marketable title
to the number of Shares shown opposite each such Selling Stockholder's name on
Schedule 1 hereto. Such Selling Stockholder's Shares are duly and validly
issued, fully paid and nonassessable and free and clear of all Liens.
3.02 Authorization. Such Selling Stockholder has all requisite power
and authority to execute and deliver this Agreement and any other documents or
agreements to which such Selling Stockholder is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereunder and thereunder. Each of this Agreement and any other
document or agreement to which such Selling Stockholder is a party contemplated
hereby or thereby has been (or on the Closing Date will have been) duly
authorized, executed and delivered by, and each is (or, when duly executed and
delivered on the Closing Date, will be) the valid and binding obligation of,
each such Selling Stockholder, enforceable in accordance with its terms, except
as may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws or by legal or equitable principles relating to
or limiting creditors' rights generally.
3.03 No Conflict. None of the execution and delivery of this
Agreement, or the sale of the Shares by such Selling Stockholder, or the
consummation of the transactions herein contemplated or compliance with the
terms and provisions hereof will conflict with or result in a breach of, or
require any consent under, any applicable law or regulation, or any Order, writ,
injunction or decree of any court or governmental authority or agency, or any
Contract or instrument to which such Selling Stockholder is bound or to which
such Selling Stockholder is subject, or constitute a default under any Contract
or instrument, or result in the creation or imposition of any Lien upon any of
the revenues or assets of such Selling Stockholder pursuant to the terms of any
such agreement or instrument.
3.04 No Consents. No consent, approval or authorization of, or
registration, filing or declaration with, any Governmental or Regulatory
Authority is required for the sale of the Shares by such Selling Stockholder or
the valid delivery of such Shares or for the performance by such Selling
Stockholder of this Agreement and any other documents or agreements contemplated
hereby.
3.05 Representations Regarding Shares. The Exchangeable Shares and
the NetGateway Shares will be acquired for investment for each Selling
Stockholder's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and each Selling Stockholder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Selling Stockholders
further represent that such Selling Stockholder has no Contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of such
Shares.
3.06. Restricted Shares. Each Selling Stockholder understands that
the Exchangeable Shares being acquired, and the NetGateway Shares into which the
Exchangeable Shares are exchangeable, are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired in a transaction not involving a public offering and that under such
laws and applicable regulations such Shares may be resold without registration
under the Securities Act of 1933, as amended (the "Act"), only in certain
limited circumstances. In this
connection, each Selling Stockholder represents that he or she is familiar with
SEC Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Act. In addition, the Exchangeable Shares, and the
NetGateway Shares into which the Exchangeable Shares are exchangeable, are
issued or issuable subject to the terms and conditions hereof, including the
performance requirements set forth herein and the pledge set forth in Exhibit D
hereto.
3.07. Legends. It is understood that the certificates evidencing the
Exchangeable Shares and the NetGateway Shares into which the Exchangeable Shares
are exchangeable may bear one or all of the following legends:
(a) "THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SHARES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
OR THAT SUCH SHARES ARE BEING SOLD PURSUANT TO RULE 144 OF SUCH ACT.
IN ADDITION, ALL OF THE SHARES ARE SUBJECT TO RESTRICTIONS ON RESALE
AND OTHER OBLIGATIONS SET FORTH IN AN ASSET PURCHASE AGREEMENT AND A
PLEDGE AGREEMENT, EACH DATED NOVEMBER 1, 1998."
(b) Any legend required by the laws of the State of California, including any
legend required by the California Department of Corporations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PURCHASER AND NETGATEWAY
Purchaser or NetGateway, as indicated below, represent and warrant to the
Selling Stockholders as follows:
4.01 Authority. This Agreement has been duly and validly executed
and delivered by Purchaser and NetGateway and constitutes a legal, valid and
binding obligation of each such party enforceable against each such party in
accordance with its terms.
4.02 Organization. Purchaser and NetGateway are corporations duly
organized, validly existing and in good standing under the laws of the province
of Alberta and the State of
Nevada, respectively. Each such party has full corporate power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its Assets and Properties. NetGateway is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions specified
in Section 4.02 of the Disclosure Schedule, which are the only jurisdictions in
which the ownership, use or leasing of its Assets and Properties, or the conduct
or nature of its business, makes such qualification, licensing or admission
necessary, except for those jurisdictions in which the adverse effects of all
such failures by the Company and the Subsidiaries to be qualified, licensed or
admitted and in good standing can in the aggregate be eliminated without
material cost or expense by the Company or a Subsidiary, as the case may be,
becoming qualified or admitted and in good standing. Purchaser and NetGateway
have prior to the execution of this Agreement delivered to the Selling
Stockholders true and complete copies of the charter documents of each such
party as in effect on the date hereof.
4.03 Capital Stock. The authorized capital stock of Purchaser
consists of Class A Preferred Stock, Class A Common Stock, Class B Common Stock
and Exchangeable Shares, of which 100 shares of Class A Preferred Stock and the
Exchangeable Shares have been issued. The Exchangeable Shares are duly
authorized, validly issued, outstanding, fully paid and nonassessable.
4.04 Subsidiaries. The Purchaser does not have, nor has it ever had,
any Subsidiaries. NetGateway has the subsidiaries listed on Section 4.04 of the
Disclosure Schedule.
4.05 No Conflicts. The execution and delivery by Purchaser and
NetGateway of this Agreement does not, and the performance by each such party of
its obligations under this Agreement and the consummation of the transactions
contemplated hereby will not:
(a) Conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation or by-laws (or
other comparable corporate charter documents) of Purchaser or NetGateway;
(b) Conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Purchaser or NetGateway or any of
their respective Assets and Properties; or
(c) (i) Conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require Purchaser or NetGateway to obtain any consent, approval or action
of, make any filing with or give any notice to any Person as a result or under
the terms of, (iv) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, (v) result in
or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under, or (vi) result in the
creation or imposition of any Lien upon Purchaser or NetGateway or any of their
respective Assets and Properties under, any Contract or License to which
Purchaser
or NetGateway is a party or by which any of their respective Assets and
Properties is bound.
4.06 Governmental Approvals and Filings. Except for any necessary
federal, state or provincial securities law filings, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority on
the part of Purchaser or NetGateway is required in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
4.07 Books and Records. The minute books and other similar records
of NetGateway as made available to the Selling Stockholders prior to the
execution of this Agreement contain a true and complete record, in all material
respects, of all action taken at such meetings and by such written consents in
lieu of meetings of the stockholders, the boards of directors and committees of
the board of directors of NetGateway. NetGateway does not have any of its Books
and Records recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not) which (including all means of
access thereto and therefrom) are not under the exclusive ownership and direct
control of NetGateway.
4.08 Financial Statements. Prior to the execution of this Agreement,
NetGateway has delivered to the Selling Stockholders true and complete copies of
the following financial statements (the "NetGateway Financial Statements"):
(a) The unaudited financial statements of NetGateway for the period
ended September 30, 1998 (the "NetGateway Financial Statements Date"). All such
financial statements (i) were prepared in accordance with GAAP, (ii) fairly
present the financial condition and results of operations of NetGateway as of
the respective dates thereof and for the respective periods covered thereby, and
(ii) were compiled from the Books and Records of NetGateway regularly maintained
by management and used to prepare the financial statements of NetGateway in
accordance with the principles stated therein. NetGateway has maintained its
respective Books and Records in a manner sufficient to permit the preparation of
financial statements in accordance with GAAP.
4.09 No Undisclosed Liabilities. Except as reflected or reserved
against in the balance sheet included in the NetGateway Financial Statements,
there are no Liabilities against, relating to or affecting NetGateway or any of
its respective Assets and Properties, other than Liabilities (i) incurred in the
ordinary course of business consistent with past practice and (ii) which,
individually or in the aggregate, are not material to the Business or Condition
of NetGateway.
4.10 Legal Proceedings.
(a) There are no Actions or Proceedings pending or, to the Knowledge
of
NetGateway, threatened against, relating to or affecting NetGateway or any of
its Assets and Properties which (i) could reasonably be expected to result in
the issuance of an Order restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by this
Agreement or otherwise result in a material diminution of the benefits
contemplated by this Agreement to the Selling Stockholders, or (ii) if
determined adversely against NetGateway, could reasonably be expected to result
in (x) any injunction or other equitable relief against NetGateway that would
interfere in any material respect with its business or operations or (y) Losses
by NetGateway, individually or in the aggregate with Losses in respect of other
such Actions or Proceedings, exceeding $5,000.00;
(b) There are no facts or circumstances Known to NetGateway that
could reasonably be expected to give rise to any Action or Proceeding that would
be required to be disclosed pursuant to clause (a) above; and
(c) There are no Orders outstanding against NetGateway.
4.11 Compliance With Laws and Orders. NetGateway is not, nor has at
any time been, nor has it received any notice that it is nor has at any time
been, in violation of or in default under, in any material respect, any Law or
Order applicable to any or any of its Assets and Properties.
4.12. Employee Benefit and Compensation Plans. Section 4.12 of the
Disclosure Schedule contains a true and complete list of each Benefit Plan of
NetGateway. NetGateway has no Liabilities and the Selling Stockholders will
incur no Liabilities with respect to, or on account of, any Benefit Plan of
NetGateway, any of its Affiliates or any predecessor employer of any employee,
including, but not limited to, Liabilities NetGateway may have to such employees
under all employee benefit schemes, incentive compensation plans, bonus plans,
pension and retirement plans, vacation, profit-sharing plans (including any
profit-sharing plan with a cash-or-deferred arrangement) share purchase and
option plans, savings and similar plans, medical, dental, travel, accident,
life, disability and other insurance and other plans or arrangements, whether
written or oral and whether "qualified" or "non-qualified," or to any employee
as a result of termination of employment by NetGateway as contemplated by this
Agreement. NetGateway has not, with respect to any employee, maintained or
contributed to, or been obligated or required to contribute to, any retirement
or pension plan or any employee benefit plan. NetGateway is not a party to any
collective bargaining agreement covering any employee, and NetGateway knows of
no effort to organize any such employee as a part of any collective bargaining
unit.
4.13 Real Property.
(a) Section 4.13 of the Disclosure Schedule contains a true and
correct list of
each parcel of real property leased by NetGateway (as lessor or lessee).
NetGateway owns no real property.
(b) NetGateway has a valid and subsisting leasehold estate in and
the right to quiet enjoyment of the real properties leased by it for the full
term of the lease thereof. Each lease referred to in paragraph (a) above is a
legal, valid and binding agreement, enforceable in accordance with its terms, of
NetGateway and of each other Person that is a party thereto, and except as set
forth in Section 4.13 of the Disclosure Schedule, there is no, and NetGateway
has received no notice of any, default (or any condition or event which, after
notice or lapse of time or both, would constitute a default) thereunder.
NetGateway owes no brokerage commissions with respect to any such leased space.
4.14 Tangible Personal Property; Investment Assets.
(a) NetGateway is in possession of and has good title to, or has
valid leasehold interests in or valid rights under Contract to use, all tangible
personal property used in or reasonably necessary for the conduct of their
business, including all tangible personal property reflected on the balance
sheet included in the NetGateway Financial Statements and tangible personal
property acquired since the NetGateway Financial Statements Date other than
property disposed of since such date in the ordinary course of business
consistent with past practice. All such tangible personal property is free and
clear of all Liens, other than Permitted Liens, and is in good working order and
condition, ordinary wear and tear excepted, and its use complies in all material
respects with all applicable Laws.
(b) Section 4.14 of the Disclosure Schedule describes each
Investment Asset owned by NetGateway. All such Investment Assets are owned by
NetGateway free and clear of all Liens other than Permitted Liens.
4.15 Intellectual Property Rights. NetGateway owns or licenses only
the Intellectual Property disclosed in Section 4.15 of the Disclosure Schedule,
as to which NetGateway either has all right, title and interest in or a valid
and binding right under Contract to use. No other Intellectual Property is used
or necessary in the conduct of the Business of NetGateway. Except as disclosed
in Section 4.15 of the Disclosure Schedule, (i) NetGateway has the exclusive
right to use the Intellectual Property disclosed in Section 4.15 of the
Disclosure Schedule, (ii) all registrations with and applications to
Governmental or Regulatory Authorities in respect of such Intellectual Property
are valid and in full force and effect and are not subject to the payment of any
Taxes or maintenance fees or the taking of any other actions by NetGateway to
maintain their validity or effectiveness, (iii) there are no restrictions on the
direct or indirect transfer of any Contract, or any interest therein, held by
NetGateway in respect of such Intellectual Property, (iv) NetGateway has
delivered to the Selling Stockholders prior to the execution of this Agreement
documentation with respect to any invention, process, design, computer program
or other know-how or trade secret included in such Intellectual Property, which
documentation is accurate in all material respects and reasonably sufficient in
detail and
content to identify and explain such invention, process, design, computer
program or other know-how or trade secret and to facilitate its full and proper
use without reliance on the special knowledge or memory of any Person, (v)
NetGateway has taken reasonable security measures to protect the secrecy,
confidentiality and value of their trade secrets, (vi) NetGateway is not, nor
has it received any notice that it is, in default (or with the giving of notice
or lapse of time or both, would be in default) under any Contract to use such
Intellectual Property and (vii) except as disclosed in Section 4.15 of the
Disclosure Schedule, no such Intellectual Property is being infringed by any
other Person. NetGateway has not received notice that NetGateway is infringing
any Intellectual Property of any other Person, no claim is pending or, has been
made to such effect that has not been resolved and, to the Knowledge of
NetGateway, NetGateway's Intellectual Property does not infringe any
Intellectual Property of any other Person.
4.16 Insurance. Section 4.16 of the Disclosure Schedule contains a
true and complete list (including the names and addresses of the insurers, the
names of the Persons to whom such policies have been issued, the expiration
dates thereof, the annual premiums and payment terms thereof, whether it is a
"claims made" or an "occurrence" policy and a brief description of the interests
insured thereby) of all liability, property, workers' compensation, directors'
and officers' liability and other insurance policies currently in effect that
insure the business, operations or employees of NetGateway or affect or relate
to the ownership, use or operation of any of the Assets and Properties of
NetGateway and that (i) have been issued to NetGateway or (ii) have been issued
to any Person (other than NetGateway) for the benefit of NetGateway. The
insurance coverage provided by any of the policies described in clause (i) above
will not terminate or lapse by reason of the transactions contemplated by this
Agreement. Each policy listed in Section 4.16 of the Disclosure Schedule is
valid and binding and in full force and effect, no premiums due thereunder have
not been paid and neither NetGateway, any Subsidiary nor the Person to whom such
policy has been issued has received any notice of cancellation or termination in
respect of any such policy or is in default thereunder. The insurance policies
listed in Section 4.16 of the Disclosure Schedule are placed with financially
sound and reputable insurers and, in light of the respective business,
operations and Assets and Properties of NetGateway, are in amounts and have
coverages that are reasonable and customary for Persons engaged in such
businesses and operations and having such Assets and Properties. Neither
NetGateway nor the Person to whom such policy has been issued has received
notice that any insurer under any policy referred to in this Section is denying
liability with respect to a claim thereunder or defending under a reservation of
rights clause.
4.17 Affiliate Transactions. Except as disclosed in Section 4.17 of
the Disclosure Schedule, there are no intercompany Liabilities between
NetGateway, on the one hand, and any shareholders, director or Affiliate of
NetGateway, on the other, (ii) neither NetGateway nor any such shareholders
officer, director or Affiliate provides or causes to be provided any assets,
services or facilities to NetGateway, (iii) NetGateway does not provide or cause
to be provided any assets, services or facilities to any Seller or any such
Shareholders officer, director or Affiliate and (iv) NetGateway does not
beneficially own, directly or
indirectly, any Investment Assets issued by any Selling Stockholder or any such
shareholders, officer, director or Affiliate.
4.18 Employees; Labor Relations. All employees, consultants,
officers, directors and shareholders of NetGateway that have had access to the
Business are parties to a written agreement (a "Confidentiality Agreement"),
under which each such person or entity (i) is obligated to disclose and transfer
to NetGateway, without the receipt by such person of any additional value
therefor (other than normal salary or fees for consulting services), all
inventions, developments and discoveries which, during the period of employment
with or performance of services for NetGateway, he or she makes or conceives of
either solely or jointly with others, that relate to any subject matter with
which his or her work for NetGateway in the Business may be concerned, and (ii)
is obligated to maintain the confidentiality of proprietary information of the
Business. To NetGateway's knowledge, none of NetGateway's employees,
consultants, officers or directors is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would conflict with their obligation to promote the interests of NetGateway with
regard to the Business or the Assets or that would conflict with the Business or
the Assets. Neither the execution nor the delivery of this Agreement, nor the
carrying on of the Business by its employees and consultants, will conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
persons or entities are now obligated. It is currently not necessary nor will it
be necessary for NetGateway to utilize in the Business any inventions of any of
such persons or entities (or people it currently intends to hire) made or owned
prior to their employment by or affiliation with NetGateway, nor is it or will
it be necessary to utilize any other assets or rights of any such persons or
entities (or people it currently intends to hire) made or owned prior to their
employment with or engagement by NetGateway, in violation of any registered
patents, trade names, trademarks or copyrights or any other limitations or
restrictions to which any such persons or entity is a party or to which any of
such assets or rights may be subject. To NetGateway's knowledge, none of
NetGateway's employees, consultants, officers, directors or shareholders that
has had knowledge or access to information relating to the Assets has taken,
removed or made use of any proprietary documentation, manuals, products,
materials, or any other tangible item from his or her previous employer relating
to the Assets by such previous employer which has resulted in NetGateway's
access to or use of such proprietary items included in the Assets, and Company
will not gain access to or make use of any such proprietary items in the
Business.
4.19 No Powers of Attorney. NetGateway does not have any powers of
attorney or comparable delegations of authority outstanding.
4.20 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by NetGateway and
Purchaser directly with the Selling Stockholders without the intervention of any
Person on behalf of NetGateway or Purchaser in such manner as to give rise to
any valid claim by any Person against the Selling
Stockholders for a finder's fee, brokerage commission or similar payment.
4.21 NetGateway has filed all tax returns which are required to have
been filed in any jurisdiction, and has paid all Taxes shown to be due and
payable on such returns and all other Taxes payable by NetGateway to the extent
the same have become due and payable and before they have become delinquent.
NetGateway knows of no proposed material assessment for Taxes against NetGateway
and in the opinion of NetGateway, all liabilities for Taxes are adequately
provided for on the books of NetGateway.
4.22 Accounts Receivable. The accounts and notes receivable of
NetGateway, including that certain Secured Promissory Note payable by Admor
Memory Corp., reflected on the balance sheet included in the NetGateway
Financial Statements, (i) arose from bona fide sales transactions in the
ordinary course of business and are payable on ordinary trade terms, (ii) are
legal, valid and binding obligations of the respective debtors enforceable in
accordance with their terms, (iii) are not subject to any valid set-off or
counterclaim, (iv) do not represent obligations for goods sold on consignment,
on approval or on a sale-or-return basis or subject to any other repurchase or
return arrangement, (v) are collectible in the ordinary course of business
consistent with past practice in the aggregate recorded amounts thereof, net of
any applicable reserve reflected in the balance sheet included in the NetGateway
Financial Statements, and (vi) are not the subject of any Actions or Proceedings
brought by or on behalf of NetGateway.
4.23 Disclosure. All material facts relating to the Business or
Condition of Purchaser or NetGateway have been disclosed to Seller in or in
connection with this Agreement. No representation or warranty contained in this
Agreement, and no statement contained in the Disclosure Schedule or in any
certificate, list or other writing furnished to Seller pursuant to any provision
of this Agreement (including without limitation the NetGateway Financial
Statements), contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements herein or therein, in
the light of the circumstances under which they were made, not misleading.
4.24 Contracts.
(a) Section 4.24 of the Disclosure Schedule (with paragraph
references corresponding to those set forth below) contains a true and complete
list of each Contract or other arrangement (true and complete copies or, if
none, reasonably complete and accurate written descriptions of which, together
with all amendments and supplements thereto and all waivers of any terms
thereof, have been delivered to the Company prior to the execution of this
Agreement), to which NetGateway is a party or by which any of its Assets and
Properties is bound.
(b) Each Contract disclosed in Section 4.24 of the Disclosure
Schedule is in full force and effect and constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms, of each party thereto; and
neither NetGateway nor, to the Knowledge of NetGateway, any other party to such
Contract is, or has received notice that it is, in violation or breach of or
default under any such Contract (or with notice or lapse of time or both, would
be in violation or breach of or default under any such Contract) in any material
respect.
4.25 Licenses. Section 4.25 of the Disclosure Schedule contains a
true and complete list of all Licenses used in and material, individually or in
the aggregate, to the business or operations of the NetGateway (and all pending
applications for any such Licenses), setting forth the grantor, the grantee, the
function and the expiration and renewal date of each. Prior to the execution of
this Agreement, NetGateway has delivered to the Company true and complete copies
of all such Licenses. Except as disclosed in Section 4.25 of the Disclosure
Schedule:
(i) NetGateway owns or validly holds all Licenses that are material,
individually or in the aggregate, to its business or operations;
(ii) Each License listed in Section 4.25 of the Disclosure Schedule
is valid, binding and in full force and effect; and
(iii) NetGateway is not, nor has it received any notice that it is,
in default (or with the giving of notice or lapse of time or both, would
be in default) under any such License.
ARTICLE V
COVENANTS OF THE CONTROLLING
STOCKHOLDERS AND THE SELLING STOCKHOLDERS
The Controlling Stockholders or the Selling Stockholders, as the
case may be, covenant and agree with Purchaser that, at all times from and after
the date hereof until the Closing and, with respect to any covenant or agreement
by its terms to be performed in whole or in part after the Closing, for the
period specified therein or, if no period is specified therein, indefinitely,
the Controlling Stockholders or the Selling Stockholders, as the case may be,
will comply with all covenants and provisions of this Article V, except to the
extent Purchaser may otherwise consent in writing.
5.01 Regulatory and Other Approvals. The Controlling Stockholders
will, and will cause the Company to, as promptly as practicable, (a) take all
commercially reasonable steps necessary or desirable to obtain all consents,
approvals or actions of, make all filings with and give all notices to
Governmental or Regulatory Authorities or any other Person required of the
Controlling Stockholders or the Company to consummate the transactions
contemplated hereby,
(b) provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as Purchaser or such Governmental or
Regulatory Authorities or other Persons may reasonably request in connection
therewith, and (c) cooperate with Purchaser in connection with the performance
of its obligations hereunder.
5.02 Investigation by Purchaser. The Controlling Stockholders will,
and will cause the Company to, (a) provide Purchaser and its officers,
directors, employees, agents, counsel, accountants, financial advisors,
consultants and other representatives (together "Representatives") with full
access, upon reasonable prior notice and during normal business hours, to all
officers, employees, agents and accountants of the Company and its Assets and
Properties and Books and Records, and (b) furnish Purchaser and such
Representatives with all such information and data (including without limitation
copies of Contracts, Benefit Plans and other Books and Records) concerning the
business and operations of the Company as Purchaser or any of such
Representatives reasonably may request in connection with such investigation.
5.03 No Solicitations. The Controlling Stockholders will not take,
nor will they permit the Company or any Affiliate of the Company (or authorize
or permit any investment banker, financial advisor, attorney, accountant or
other Person retained by or acting for or on behalf of the Controlling
Stockholders, the Company, or any such Affiliate) to take, directly or
indirectly, any action to solicit, encourage, receive, negotiate, assist or
otherwise facilitate (including by furnishing confidential information with
respect to the Company or permitting access to the Assets and Properties and
Books and Records of the Company) any offer or inquiry from any Person
concerning an Acquisition Proposal. If the Controlling Stockholders, the
Company, or any such Affiliate (or any such Person acting for or on their
behalf) receives from any Person any offer, inquiry or informational request
referred to above, the Controlling Stockholders will promptly advise such
Person, by written notice, of the terms of this Section 5.03 and will promptly,
orally and in writing, advise Purchaser of such offer, inquiry or request and
deliver a copy of such notice to Purchaser.
5.04 Conduct of Business. The Controlling Stockholders will cause
the Company to conduct business only in the ordinary course consistent with past
practice.
5.05 Certain Restrictions. The Controlling Stockholders will cause
the Company to refrain from:
(a) Amending its Articles of Incorporation or By-laws (or other
comparable corporate charter documents) or taking any action with respect to any
such amendment or any recapitalization, reorganization, liquidation or
dissolution of any such corporation;
(b) Authorizing, issuing, selling or otherwise disposing of any
shares of capital stock of or any Option with respect to the Company, or
modifying or amending any right
of any holder of outstanding shares of capital stock of or Option with respect
to the Company;
(c) Declaring, setting aside or paying any dividend or other
distribution in respect of the capital stock of the Company, or directly or
indirectly redeeming, purchasing or otherwise acquiring any capital stock of or
any Option with respect to the Company;
(d) Acquiring or disposing of, or incurring any Lien (other than a
Permitted Lien) on, any Assets and Properties, other than in the ordinary course
of business consistent with past practice;
(e) (i) Entering into, amending, modifying, terminating (partially
or completely), granting any waiver under or giving any consent with respect to
(A) any Contract or (B) any material License or (ii) granting any irrevocable
powers of attorney;
(f) Violating, breaching or defaulting under in any material
respect, or taking or failing to take any action that (with or without notice or
lapse of time or both) would constitute a material violation or breach of, or
default under, any term or provision of any License held or used by the Company
or any Contract to which the Company is a party or by which any of its Assets
and Properties is bound;
(g) Incurring Indebtedness in excess of $5,000;
(h) Engaging with any Person in any merger or other business
combination;
(i) Making capital expenditures;
(j) Writing off or writing down any of the Company=s Assets and
Properties; or
(k) entering into any Contract to do or engage in any of the
foregoing.
5.06 Affiliate Transactions. Immediately prior to the Closing, any
Indebtedness and any other amounts owing under Contracts between any Selling
Stockholder, or any officer, director or Affiliate of any Selling Stockholder,
on the one hand, and the Company, on the other, will be paid in full, and the
Selling Stockholders will terminate and will cause any such officer, director or
Affiliate to terminate each Contract with the Company. Prior to the Closing, the
Company will not enter into any Contract or amend or modify any existing
Contract, and will not engage in any transaction outside the ordinary course of
business consistent with past practice or not on an arm's-length basis, with any
Selling Stockholder or any such officer, director or Affiliate thereof.
5.07 Books and Records. On the Closing Date, the Company will
deliver or make available to Purchaser at the offices of the Company all of the
Books and Records, and if at any time after the Closing, any Controlling
Stockholders discover in their possession or under their control any other Books
and Records, they will forthwith deliver such Books and Records to Purchaser.
5.08 Noncompetition.
(a) The Selling Stockholders will, for a period of two (2) years
from the Closing Date, refrain from, either alone or in conjunction with any
other Person, or directly or indirectly through its present or future
Affiliates:
(i) Employing, engaging or seeking to employ or engage any
Person who within the prior twenty four (24) months had been an officer or
employee of the Company, except for that certain Consulting Agreement
between Xxxxx XxxXxxxxx and Xxxxx Xxxxx dated June 1, 1998;
(ii) Causing or attempting to cause (A) any client, customer
or supplier of the Company to terminate or materially reduce its business
with the Company or (B) any officer, employee or consultant of the Company
to resign or sever a relationship with the Company;
(iii) Disclosing (unless compelled by judicial or
administrative process) or using any confidential or secret information
relating to the Company or any of their respective clients, customers or
suppliers; or
(iv) Participating or engaging in (other than through the
ownership of five percent (5%) or less of any class of securities
registered under the Securities Exchange Act of 1934, as amended), or
otherwise lending assistance (financial or otherwise) to any Person
participating or engaged in, the provision of services or software for the
conduct of electronic commerce in those areas actively being pursued by
NetGateway and the Company presently or in the future.
(b) The parties hereto recognize that the Laws and public policies
of the various provinces of Canada and states of the United States may differ as
to the validity and enforceability of covenants similar to those set forth in
this Section. It is the intention of the parties that the provisions of this
Section be enforced to the fullest extent permissible under the Laws and
policies of each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such Laws or policies) of
any provisions of this Section shall not render unenforceable, or impair, the
remainder of the provisions of this Section. Accordingly, if any provision of
this Section shall be determined to be invalid or unenforceable, such invalidity
or unenforceability shall be deemed to apply only with respect to
the operation of such provision in the particular jurisdiction in which such
determination is made and not with respect to any other provision or
jurisdiction.
(c) The parties hereto acknowledge and agree that any remedy at Law
for any breach of the provisions of this Section would be inadequate, and each
Selling Stockholder hereby consents to the granting by any court of an
injunction or other equitable relief, without the necessity of actual monetary
loss being proved, in order that the breach or threatened breach of such
provisions may be effectively restrained.
5.09 Notice and Cure. Each Selling Stockholder will notify Purchaser
in writing (where appropriate, through updates to the Disclosure Schedule) of,
and contemporaneously will provide Purchaser with true and complete copies of
any and all information or documents relating to, and will use all commercially
reasonable efforts to cure before the Closing, any event, transaction or
circumstance, as soon as practicable after it becomes known to each such
Stockholder, occurring after the date of this Agreement that causes or will
cause any covenant or agreement of each such Stockholder under this Agreement to
be breached or that renders or will render untrue any representation or warranty
of each such Stockholder contained in this Agreement as if the same were made on
or as of the date of such event, transaction or circumstance. No notice given
pursuant to this Section shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein or shall in any way
limit Purchaser's right to seek indemnity under Article IX.
5.10 Fulfillment of Conditions. The Selling Stockholders will take
all commercially reasonable steps necessary or desirable and proceed diligently
and in good faith to satisfy each condition to the obligations of Purchaser
contained in this Agreement and will not, and will not permit the Company or any
Subsidiary to, take or fail to take any action that could reasonably be expected
to result in the nonfulfillment of any such condition.
5.11 Employment Agreements. Xxxxx Xxxxxxxxx, Xxxxx XxxXxxxxx and
Xxxxx XxXxxxxx will on or before Closing enter into employment agreements with
Purchaser substantially in the form of Exhibits E, F, and G, respectively,
hereto (the "Employment Agreements").
5.12 Taxes. The Selling Stockholders will pay all Taxes (including
interest and penalties), other than Taxes imposed on the income of Purchaser,
which may be payable in respect of the execution and delivery of this Agreement
or of the sale and delivery of any of the Shares or of any amendment of, or
waiver or consent under or with respect to, this Agreement and will hold
Purchaser and all subsequent holders of the Shares harmless against any loss or
liability resulting from nonpayment or delay in payment of any such Taxes.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder to purchase the Shares are
subject to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by Purchaser
in its sole discretion):
6.01 Representations and Warranties. Each of the representations and
warranties made by the Controlling Stockholders and the Selling Stockholders in
this Agreement (other than those made as of a specified date earlier than the
Closing Date) shall be true and correct in all material respects on and as of
the Closing Date as though such representation or warranty was made on and as of
the Closing Date, and any representation or warranty made as of a specified date
earlier than the Closing Date shall have been true and correct in all material
respects on and as of such earlier date.
6.02 Performance. The Selling Stockholders shall have performed and
complied with, in all material respects, each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by such parties
at or before the Closing.
6.03 Orders and Laws. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement or which could reasonably be expected to otherwise result in a
material diminution of the benefits of the transactions contemplated by this
Agreement to Purchaser, and there shall not be pending on the Closing Date any
Action or Proceeding in, before or by any Governmental or Regulatory Authority
which could reasonably be expected to result in the issuance of any such Order
or the enactment, promulgation or deemed applicability to Purchaser, the
Company, any Subsidiary or the transactions contemplated by this Agreement of
any such Law.
6.04 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Purchaser and the Selling Stockholders to perform their
obligations under this Agreement and to consummate the transactions contemplated
hereby (a) shall have been duly obtained, made or given, (b) shall be in form
and substance reasonably satisfactory to Purchaser, (c) shall not be
subject to the satisfaction of any condition that has not been satisfied or
waived and (d) shall be in full force and effect, and all terminations or
expirations of waiting periods imposed by any Governmental or Regulatory
Authority necessary for the consummation of the transactions contemplated by
this Agreement shall have occurred.
6.05 Third Party Consents. All consents (or in lieu thereof waivers)
to the performance by Purchaser and the Selling Stockholders of their
obligations under this Agreement or to the consummation of the transactions
contemplated hereby as are required under any Contract to which Purchaser, any
Selling Stockholder, the Company or any Subsidiary is a party or by which any of
their respective Assets and Properties are bound (a) shall have been obtained,
(b) shall be in form and substance reasonably satisfactory to Purchaser, (c)
shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (d) shall be in full force and effect, except where the
failure to obtain any such consent (or in lieu thereof waiver) could not
reasonably be expected, individually or in the aggregate with other such
failures, to materially adversely affect Purchaser or the Business or Condition
of the Company or otherwise result in a material diminution of the benefits of
the transactions contemplated by this Agreement to Purchaser.
6.06 Opinion of Counsel. Purchaser shall have received the opinion
of Xxxxxx & Associates, counsel to the Selling Stockholders and the Company,
dated the Closing Date, substantially in the form and to the effect of Exhibit H
hereto.
6.07 Resignations of Directors and Officers. Such members of the
boards of directors and such officers of the Company as are designated in a
written notice delivered at least two (2) Business Days prior to the Closing
Date by Purchaser to the Controlling Stockholders shall have tendered, effective
at the Closing, their resignations as such directors and officers.
6.08 Proceedings. All proceedings to be taken on the part of the
Company, the Controlling Stockholders or the Selling Stockholders in connection
with the transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to Purchaser, and
Purchaser shall have received copies of all such documents and other evidences
as Purchaser may reasonably request in order to establish the consummation of
such transactions and the taking of all proceedings in connection therewith.
6.09 Employment Agreements. The Controlling Stockholders shall have
duly executed and delivered the Employment Agreements to Purchaser.
6.10 Articles of Incorporation. The Articles of Incorporation of
Purchaser attached hereto as Exhibit A shall be filed and in effect.
6.11 Support Agreement. The Support Agreement attached hereto as
Exhibit I shall have been executed and delivered by the parties hereto.
6.12 Pledge Agreement. The Pledge Agreement attached hereto as
Exhibit D shall have been duly executed and delivered by each Selling
Stockholder and Purchaser.
6.13 Elections. Purchaser and the Company shall have made the income
tax and Goods and Services Tax elections agreed to by the parties.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE SELLING STOCKHOLDERS
The obligations of the Selling Stockholders hereunder to sell the
Shares are subject to the fulfillment, at or before the Closing, of each of the
following conditions (all or any of which may be waived in whole or in part by
the Selling Stockholders in their sole discretion):
7.01 Representations and Warranties. Each of the representations and
warranties made by Purchaser and NetGateway in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date.
7.02 Performance. Purchaser shall have performed and complied with,
in all material respects, each agreement, covenant and obligation required by
this Agreement to be so performed or complied with by Purchaser at or before the
Closing.
7.03 Notice and Cure. Purchaser will notify each Selling Stockholder
in writing (where appropriate, through updates to the Disclosure Schedule) of,
and contemporaneously will provide each Selling Stockholder with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes known to
the Purchaser, occurring after the date of this Agreement that causes or will
cause any covenant or agreement of the Purchaser under this Agreement to be
breached or that renders or will render untrue any representation or warranty of
the Purchaser or NetGateway contained in this Agreement as if the same were made
on or as of the date of such event, transaction or circumstance. No notice given
pursuant to this Section shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein or shall in any way
limit each Selling Stockholder's right to seek indemnity under Article IX.
7.04 Fulfillment of Conditions. The Purchaser will take all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each condition to the obligations of the Selling
Stockholders contained in this Agreement and will not
take or fail to take any action that could reasonably be expected to result in
the nonfulfillment of any such condition.
7.05 Delivery of Agreements. Purchaser or NetGateway will execute
and deliver the Employment Agreements, the Pledge Agreement and the Support
Agreement.
7.06 Elections. Purchaser and the Company shall have made the income
tax and Goods and Services Tax elections agreed to by the parties.
7.07 Opinion of Counsel. The Selling Stockholders shall have
received the opinion of Nida & Xxxxxxx, P.C., counsel to NetGateway, dated the
Closing Date, substantially in the form of Exhibit J hereto.
7.08 The Controlling Stockholders shall have duly executed and
delivered the Employment Agreements to Purchaser.
7.09 Articles of Incorporation. The Articles of Incorporation of
Purchaser attached hereto as Exhibit A shall be filed and in effect.
7.10 Support Agreement. The Support Agreement attached hereto as
Exhibit I shall have been executed and delivered by the parties hereto.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; POST-CLOSING COVENANTS
8.01 Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any right of Purchaser (whether or not exercised) to
investigate the affairs of the Company or any right of any party (whether or not
exercised) to investigate the accuracy of the representations and warranties of
the other parties contained in this Agreement, the Selling Stockholders and
Purchaser have the right to rely fully upon the representations, warranties,
covenants and agreements of the other contained in this Agreement. The
representations, warranties, covenants and agreements of the Selling
Stockholders, the Controlling Stockholders, Purchaser and NetGateway contained
in this Agreement will survive the Closing indefinitely and the covenants and
agreements contained herein will survive until sixty (60) days after the
expiration of all applicable statutes of limitation (including all periods of
extension, whether automatic or permissive) with respect to matters covered
thereby.
8.02 Post-Closing Covenants. Within one year following the Closing,
NetGateway shall become a reporting company pursuant to Section 12 (g) of the
1934 Exchange Act, as amended, and use its best efforts to list its common stock
on a national stock exchange (including
NASDAQ) in the United States. In addition, NetGateway shall (a) make and keep
public information available, as those terms are understood and defined in SEC
Rule 144, at all times after ninety (90) days after the effective date of the
first registration statement filed by NetGateway for the offering of its
securities to the general public so long as NetGateway remains subject to the
periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;
(b) file with the SEC in a timely manner all reports and other documents
required of NetGateway under the Securities Act of 1933, as amended and the
Exchange Act; and (c) upon the request of any Selling Stockholder, but subject
to such Selling Stockholder satisfying NetGateway that the requested action
complies with all applicable laws, NetGateway shall remove the legends from the
certificates representing such Selling Stockholder's NetGateway Shares. In
addition, within a reasonable period following the Closing, Purchaser or
NetGateway shall either obtain: (a) a Section 116 Order from the Alberta
Securities Commission exempting the re-sale of NetGateway Shares by the Selling
Stockholders form the restrictions on re-sale contained in Section 110 of the
Securities Act (Alberta); or (b) an unqualified opinion of Xxxxxxx Xxxxx in form
reasonably acceptable to the Controlling Stockholders, stating that NetGateway
Shares may be sold by the Selling Stockholders on a U.S. exchange or the NASDAQ
without regard to the provisions of the Securities Act (Alberta), the
regulations or rules enacted thereunder, or the policies of the Alberta
Securities Commission.
8.03 Additional Post-Closing Covenants. NetGateway shall pay off or
eliminate the $1,800,000 liability to Pro-Soft reflected in the NetGateway
Financial Statements. The parties have agreed upon the initial budget (the
"Initial Budget") of Buyer for the twelve-month period commencing November 1,
1998. The Initial Budget is attached hereto as Exhibit K, and NetGateway shall
provide, from time to time, the resources necessary to implement the provisions
of the Initial Budget. NetGateway, in its reasonable discretion, and upon review
and approval of each subsequent annual budget for Buyer, shall provide from time
to time the resources required to implement the provisions of each subsequent
budget.
ARTICLE IX
INDEMNIFICATION
9.01 Controlling Stockholders. Subject to Section 9.05 hereof, the
Controlling Stockholders, jointly and severally, shall indemnify the Purchaser
Indemnified Parties in respect of, and hold each of them harmless from and
against, any Losses suffered, incurred or sustained by any of them or to which
any of them becomes subject, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the party of the Company or the Controlling
Stockholders contained in this Agreement or any other documents or agreements
contemplated hereby; provided, however, that, subject to Section 9.05 hereof,
each Controlling Stockholder's liability under this Section 9.01 may be
satisfied by the return of up to all of the Exchangeable Shares received
hereunder by such Controlling Stockholder and any other securities pledged
pursuant to the Pledge Agreement, with each Exchangeable Share to have a fair
market value deemed to be the lesser of the ADP or $10.00 USD.
9.02 Selling Stockholders. Subject to Section 9.05 hereof, each of
the Selling Stockholders, severally but no jointly, shall indemnify the
Purchaser Indemnified Parties in respect of, and hold each of them harmless from
and against, any and all Losses suffered, incurred or sustained by any of them
or to which any of them becomes subject, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of such Selling
Stockholder contained in this Agreement or any other documents or agreements
contemplated hereby; provided, however, that, subject to Section 9.05 hereof,
each Selling Stockholder's liability under this Section 9.02 may be satisfied by
the return of up to all of the Exchangeable Shares received by such Selling
Stockholder, and any other securities pledged pursuant to the Pledge Agreement,
with each Exchangeable Share to have a deemed fair market value of the lesser of
the ADP or $10.00 USD.
9.03 Purchaser and NetGateway. Purchaser and NetGateway shall
indemnify the Selling Stockholders in respect of, and hold each of them harmless
from and against, any and all Losses suffered, incurred or sustained by any of
them or to which any of them becomes subject, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the party of the Purchaser and
NetGateway contained in this Agreement or any other documents or agreements
contemplated hereby; provided, however, that the aggregate liability of
Purchaser and NetGateway under this Section 9.03 shall not exceed the aggregate
fair market value of the Shares, which shall be deemed to be the lesser of the
ADP or the Purchase Price.
9.04 Procedures. In the event that any claim is asserted against any
party hereto, or any party hereto is made a party defendant in any action or
proceeding, and such claim, action or proceeding involves a matter which is
subject of a claim for indemnification hereunder, then such party (an
"Indemnified Party") promptly shall give written notice to the Purchaser or the
Selling Stockholders, as the case may be (the "Indemnifying Party"), of such
claim, Action or Proceeding, and such Indemnifying Party's own cost and expense
and, if the Indemnifying Party agrees in writing to be bound by and to promptly
pay the full amount of any final judgment from which no further appeal may be
taken and if the Indemnified Party is reasonably assured of the Indemnifying
Party's ability to satisfy such agreement, then at the option of the
Indemnifying Party, such Indemnifying Party may take over the defense of such
claim, action or proceeding, except that, in such case, the Indemnified Party
shall have the right to join in the defense of said claim, action or proceeding
at its own cost and expense.
9.05 Interpretation. The liability of the Controlling Stockholders
for any breach of the representations set forth in Articles II and III above,
and the Selling Stockholders for any breach of the representations set forth in
Article III above, shall be solely as set forth in this Article IX.
Notwithstanding the foregoing, nothing in this Agreement shall be construed (i)
as limiting the liability of any of the Controlling Stockholders or Selling
Stockholders for any claims, damages or other losses suffered by the Purchaser
(A) arising out of any provisions of this Agreement other than Articles II and
III, (B) for any claims arising out of fraud or intentional misrepresentation,
(C) for any claims for equitable relief, or (D) for any claims not arising out
of this Agreement, or (ii) to deny or limit (except as limited by this Article
IX) Purchaser's ability to pursue any and all legal or equitable remedies
available to Purchaser.
9.06 Arbitration. Any and all disputes arising out of or in
connection with the negotiation, execution, or interpretation of this Agreement
shall be finally settled by arbitration in accordance with the rules of the
American Arbitration Association by arbitrators familiar with software. The
arbitration will be held in Los Angeles, California, on consecutive business
days. The award rendered shall be final and binding upon the parties. Judgment
on any award may be entered in any court having jurisdiction over the parties or
their assets. The costs of the arbitration shall be shared equally by the
parties. Each party will pay their own attorneys' fees and costs.
9.07 Pledge of Shares. As security for the indemnification
obligations of the Selling Stockholders under this Agreement, but without
limitation of the Selling Stockholders' obligations under this Agreement, except
as otherwise set forth in this Article IX, the Selling Stockholders shall pledge
the Exchangeable Shares to Purchaser in accordance with Exhibit D hereto. From
time to time, Purchaser may apply and/or retain all or any part of the
Exchangeable Shares (in such manner as Purchaser shall determine) in order to
pay, or to provide for the payment of, any liability of the Selling Stockholders
arising under the indemnities contained in this Agreement. Purchaser will
release and deliver ten percent (10%) of the Exchangeable Shares per each three
month period following the Closing and will release and deliver any remaining
Exchangeable Shares to the Selling Stockholders on the date which is twelve (12)
months after the Closing Date (to the extent they have not been used to satisfy
any Selling Stockholder's indemnification obligations hereunder). Except as
otherwise set forth in this Article IX, nothing in this Section 9.07 will be
construed as limiting the liability of the Selling Stockholders under this
Agreement or any Exhibit hereto, nor will the Exchangeable Shares be considered
as liquidated damages for any breach under this Agreement or any Exhibit hereto.
ARTICLE X
DEFINITIONS
10.01 Definitions.
(a) Defined Terms. As used in this Agreement, the following defined
terms have the meanings indicated below:
"Acquisition Proposal" means any proposal for a merger or other
business combination to which the Company is a party or the direct or indirect
acquisition of any equity interest in, or a substantial portion of the assets of
the Company, other than the transactions contemplated by this Agreement.
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"Adjustment Date" shall have the meaning ascribed to such term in
Section 1.03(c).
"ADP" shall have the meaning ascribed to such term in Section
1.03(c).
"Affiliate" means any Person that directly, or indirectly through
one of more intermediaries, controls or is controlled by or is under common
control with the Person specified. For purposes of this definition, control of a
Person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such Person whether by Contract or otherwise and,
in any event and without limitation of the previous sentence, any Person owning
ten percent (10%) or more of the voting securities of another Person shall be
deemed to control that Person.
"Agreement" means this Stock Purchase Agreement and the exhibits and
the schedules hereto and the certificates delivered in accordance herewith, as
the same shall be amended from time to time.
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned or leased by such Person, including without
limitation cash, cash equivalents, Investment Assets, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property.
"Benefit Plan" means any Plan established by the Company, or any
predecessor or Affiliate of any of the foregoing, existing at the Closing Date
or prior thereto, to which the Company contributes or has contributed, or under
which any employee, former employee or director of the Company or any
beneficiary thereof is covered, is eligible for coverage or has
benefit rights.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of the Company,
including without limitation financial statements, tax returns and related work
papers and letters from accountants, budgets, pricing guidelines, ledgers,
journals, deeds, title policies, minute books, stock certificates and books,
stock transfer ledgers, Contracts, Licenses, customer lists, computer files and
programs, retrieval programs, operating data and plans and environmental studies
and plans.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the States of Illinois and Texas are authorized or
obligated to close.
"Business or Condition of the Company" means the business, condition
(financial or otherwise), results of operations, Assets and Properties and
prospects of the Company taken as a whole.
"Canadian GAAP" means accounting principles generally accepted at
the relevant time in Canada, and where the "CICA Handbook", as amended from time
to time, or any successor publication published by the Canadian Institute of
Chartered Accountants, contains (i) a single recommendation as to treatment of a
matter, such recommendation shall constitute GAAP and generally accepted
accounting principles herein, or (ii) more than one recommendation as to
treatment of a matter, any of such recommendations shall constitute GAAP and
generally accepted accounting principles herein.
"Closing" means the closing of the transactions contemplated by
Section 1.04.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Common Stock" means the common stock, par value $1.00 per share, of
the Company.
"Company" has the meaning ascribed to it in the forepart of this
Agreement.
"Contingent Shares" shall have the meaning ascribed to it in Section
1.03(b).
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract (whether
written or oral).
"Controlling Stockholders" shall mean Xxxxx Xxxxxxxxx, Xxxxx
XxxXxxxxx and Xxxxx XxXxxxxx.
"Disclosure Schedule" means the record delivered to Purchaser by
Sellers herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Sellers pursuant to this Agreement.
"Employment Agreement" has the meaning ascribed to it in Section
4.11.
"Exchangeable Shares" has the meaning ascribed to it in Section
1.02.
"Financial Statements" means the financial statements of the Company
delivered to Purchaser pursuant to Section 2.08.
"GAAP" means the United States generally accepted accounting
principles, consistently applied throughout the specified period and in the
immediately prior comparable period.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Indebtedness" of any Person means all obligations of such Person
(i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under
any provision of Article VIII.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article VIII.
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service xxxx rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Investment Assets" means all debentures, notes and other evidences
of Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company or
any Subsidiary and issued by any Person other than the Company (other than trade
receivables generated in the ordinary course of business of the Company).
"IRS" means the United States Internal Revenue Service.
"Knowledge" or "Known" means the knowledge of the referenced party.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Loss" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including without limitation interest, court
costs, fees of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment).
"NetGateway Financial Statements" means the financial statements of
NetGateway delivered to the Selling Stockholders pursuant to Section 4.08.
"NetGateway Shares" shall have the meaning ascribed to it in Section
1.02 hereof.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive or exercise any benefits or rights similar to any rights enjoyed by
or
accruing to the holder of shares of capital stock of such Person, including any
rights to participate in the equity or income of such Person or to participate
in or direct the election of any directors or officers of such Person or the
manner in which any shares of capital stock of such Person are voted.
"Order" means any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Paying Account" shall have the meaning ascribed to it in Section
1.03 (b).
"Percentage Interest" shall mean the percentage interest of a
Selling Stockholder which is equal to the number of Shares owned by such Selling
Stockholder divided by the total number of shares purchased by the Purchaser
hereunder.
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with Canadian GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation of
Law with respect to a Liability that is not yet due or delinquent and (iii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the use of such property in the conduct of the
business of the Company or any Subsidiary.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Purchase Price" has the meaning ascribed to it in Section 1.02.
"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
"Purchaser Indemnified Parties" means Purchaser and its officers,
directors, employees, agents, shareholders and Affiliates.
"Representatives" has the meaning ascribed to it in Section 5.02.
"Selling Stockholders" shall have the meaning ascribed to it in the
preamble of this Agreement.
"Shares" has the meaning ascribed to it in the forepart of this
Agreement.
"Subsidiary" means any Person in which the Company, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than fifty
percent (50%) of either the equity interests in, or the voting control of, such
Person.
"Taxes" means any tax, fee, levy, charge, or other amount assessed
by or payable to any Governmental or Regulatory Authority, including without
limitation any interest, penalty, or other amount related thereto.
"Vested Shares" shall have the meaning ascribed to it in Section
1.03(b).
(b) Construction of Certain Terms and Phrases. Unless the context of
this Agreement otherwise requires, (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; (iii) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of the Company or a Subsidiary. Whenever this Agreement refers to a
number of days, such number shall refer to calendar days unless Business Days
are specified. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP or Canadian GAAP, as
applicable.
ARTICLE XI
MISCELLANEOUS
11.01 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Seller, addressed to:
Spartan Multimedia, Inc.
00 Xxxxx Xxxxx Xxxxxxx XX
Xxxxxxx, Xxxxxxx Xxxxxx X0X 0X0
With a copy to:
Xxxxxx & Associates
Suite 1250 Standard Life Building
639-5th Avenue S.W.
Calgary, Alberta
TRP 0M9
Attn: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
If to Purchaser or NetGateway, addressed to:
NetGateway, Inc.
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
Attn: Xxx Xxxxxxx, Xx., President
Fax: (000) 000-0000
With a copy to:
Nida & Xxxxxxx, P.C.
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Attn: C. Xxxxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon i, and (iii) if delivered by mail
in the manner described above to the address as provided in this Section, be
deemed given upon receipt (in each case regardless of whether such notice,
request or other communication is received by any other Person to whom a copy of
such notice, request or other communication is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.
11.02 Entire Agreement. This Agreement supersedes all prior
discussions and
agreements between the parties with respect to the subject matter hereof,
including without limitation that certain letter agreement between the parties
dated October 30, 1998 and contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
11.03 Expenses. Within thirty (30) days of the Closing, Purchaser
shall reimburse the Selling Stockholders for their reasonable expenses incurred
in consummating the transactions contemplated herein; provided, however, that
Purchaser shall only be obligated to reimburse the Selling Stockholders for up
to an aggregate of Twenty-Five Thousand Dollars ($25,000.00) and the any such
expenses must be approved by Purchasers prior to their being incurred. Except
for the foregoing, whether or not the transactions contemplated hereby are
consummated, each party will pay its own costs and expenses, and the Selling
Stockholders shall pay the costs and expenses of the Company, incurred in
connection with the negotiation, execution and closing of this Agreement and the
transactions contemplated hereby.
11.04 Public Announcements. At all times at or before the Closing,
the Selling Stockholders and Purchaser will not issue or make any reports,
statements or releases to the public or generally to the employees, customers,
suppliers or other Persons to whom the Company sells goods or provides services
or with whom the Company otherwise has significant business relationships, with
respect to this Agreement or the transactions contemplated hereby without the
consent of the other, which consent shall not be unreasonably withheld. If
either party is unable to obtain the approval of its public report, statement or
release from the other party and such report, statement or release is, in the
opinion of legal counsel to such party, required by Law in order to discharge
such party's disclosure obligations, then such party may make or issue the
legally required report, statement or release and promptly furnish the other
party with a copy thereof. Purchaser may without obtaining the Selling
Stockholders' approval, issue one or more press releases following the Closing
announcing the consummation of the transactions contemplated by this Agreement.
11.05. Each party hereto will hold, and will use its best efforts
to cause its Affiliates, and their respective Representatives to hold, in strict
confidence from any Person (other than any such Affiliate or Representative),
unless (i) compelled to disclose by judicial or administrative process
(including without limitation in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby of
Governmental or Regulatory Authorities) or by other requirements of Law or (ii)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such
documents or information hereunder) through no fault of such receiving party or
(c) later acquired by the receiving party from another source if the receiving
party is not aware that such source is under an obligation to another party
hereto to keep such documents and information confidential; provided that
following the Closing the foregoing restrictions will not apply to Purchaser's
use of documents and information concerning the Company furnished by Sellers
hereunder. In the event the transactions contemplated hereby are not
consummated, upon the request of the other party, each party hereto will, and
will cause its Affiliates and their respective Representatives to, promptly
redeliver or cause to be redelivered all copies of documents and information
furnished by the other party in connection with this Agreement or the
transactions contemplated hereby and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other writings related thereto
or based thereon prepared by the party furnished such documents and information
or its Representatives.
11.06 Section 85. Purchaser and the Company shall, at the written
request of the Selling Stockholders, exercise jointly with the Selling
Stockholders, an election in the form prescribed for the purposes of Section 85
of the Income Tax Act (Canada).
11.07 Waiver. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
11.08 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
11.09 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article VIII.
11.10 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except for assignments and transfers by operation of Law.
Subject to the preceding sentence, this Agreement is binding upon, inures to the
benefit of and is enforceable by the parties hereto and their respective
successors and assigns. Notwithstanding this Section 11,09 and the restrictions
set forth in
Section 1.02 hereof, in the event of a Selling Stockholder's death, all right,
title and interest of Sellers in the Exchangeable Shares may be transferred to a
successor or assign of such Selling Stockholder (or by operation of intestate
laws).
11.11 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
11.12 Consent to Jurisdiction and Service of Process. Subject to the
provisions of Section 9.06, each party hereby irrevocably submits to the
non-exclusive jurisdiction of the federal and state courts located in Los
Angeles, California in any such action, suit or proceeding arising out of or
relating to this Agreement or any of the transactions contemplated hereby,
provided, however, that such consent to jurisdiction is solely for the purpose
referred to in this Section 11.11 and shall not be deemed to be a general
submission to the jurisdiction of said courts or in the State of California
other than for such purpose. Each party hereby irrevocably waives, to the
fullest extent permitted by Law, any objection that it may now or hereafter have
to the laying of the venue of any such action, suit or proceeding brought in
such a court and any claim that any such action, suit or proceeding brought in
such a court has been brought in an inconvenient forum. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
Law or to commence legal proceedings or otherwise proceed against the other in
any other jurisdiction.
11.13 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom.
11.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of California applicable to a
Contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
11.15 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be forwarded to the Purchaser or its counsel and
the Purchaser or its counsel will provide all of the parties hereto with a copy
of the entire Agreement.
11.16 Registration Rights; Additional NetGateway Obligation. As an
additional condition to the Closing, the parties shall enter into the
Registration Rights Agreement attached
hereto as Exhibit L. In the event that Purchaser is unable for any reason to
retract the Exchangeable Shares as contemplated by Article 5 of the Purchaser's
Articles of Incorporation, then if requested in writing by the Selling
Stockholders, NetGateway will pay the Retraction Price (as defined in such
Articles) directly to the Selling Stockholders.
[Signatures on following page]
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
PURCHASER: XXXXXXXXXXXX.XXX LTD.,
an Alberta corporation
By: /s/ Xxxxxx X. Xxxxxxx, Xx.
------------------------------------
Name: Xxxxxx X. Xxxxxxx, Xx.
Title: President
NETGATEWAY: NETGATEWAY, INC.,
a Nevada corporation
By: /s/ Xxxxxx X. Xxxxxxx, Xx.
------------------------------------
Name: Xxxxxx X. Xxxxxxx, Xx.
Title: President
/s/ Xxxxx Xxxxxxxxx
SELLING STOCKHOLDERS ---------------------------------------
Xxxxx Xxxxxxxxx
/s/ Xxxxx XxxXxxxxx
---------------------------------------
Xxxxx XxxXxxxxx
/s/ Xxxxx XxXxxxxx
---------------------------------------
Xxxxx XxXxxxxx
/s/ Xxxxx Xxxxx
---------------------------------------
Xxxxx Xxxxx
/s/ Xxx Xxxxxxxx
---------------------------------------
Xxx Xxxxxxxx
/s/ Cani Services Inc.
---------------------------------------
Cani Services Inc.
/s/ Xxxxxx X. Xxxxx
---------------------------------------
Xxxxxx X. Xxxxx
/s/ Xx Xxxxxx
---------------------------------------
Xx Xxxxxx
DISCLOSURE
SCHEDULE
Disclosure Schedule - [November 1, 1998]
4.01 Authority
4.02 Organization NetGateway is qualified to do business and in good standing
in the state of California and is incorporated and in good standing in
the state of Nevada.
4.03 Capital Stock
None
4.03 Subsidiaries
o NetGateway, a Nevada corporation
o eKnowledge, a Nevada corporation
o XxxxxxXxxxxx.xxx, Inc., a California corporation
o XxxxxxXxxxxx.xxx, Ltd., a Canadian corporation
4.04 No Conflicts
None
4.06 Governmental Approvals and Filings
None
4.07 Books and Records
None
4.08 (a) Financial Statements
Unaudited financial statements of NetGateway for the period ended
September 30, 1998.
4.09 Undisclosed Liabilities
None
4.10 Legal Proceedings
None
4.11 Compliance with Laws and Orders
None
4.12 Employee Benefit and Compensation Plans
o Compensation - cash plus options.
o Medical, dental, and vision insurance coverage for each employee and
one dependent are paid by NetGateway. Coverage for additional dependents
is available at the employees' expense.
o Sick Leave - 40 hours per calendar year. Sick leave cannot be carried
into the following year and will not be paid out at the end of the year
or upon termination of employment.
o Vacation Leave - 80 hours per calendar year after 1 year of continuous
employment.
4.13 Real Property
NetGateway leases and occupies approximately 4,400 square feet of office
space at 000 Xxxxxxxxx, Xxxxx 000, Xxxx Xxxxx, XX 00000.
4.14 Tangible Personal Property and Investment Assets
Secured promissory note in the principal amount of $800,000 payable to
NetGateway by Admor Memory Corporation.
4.15 Intellectual Property Rights
o Applications for the trademarks, tradenames and service marks used in
connection with NetGateway's business are pending
o Prosoft Training License pursuant to which NetGateway has the
non-exclusive right to reproduce and sell certain Prosoft courseware
titles in the educational market [NetGateway is currently negotiating
with Prosoft to give up its right to exclusivity in the educational
market in consideration for the termination of its continuing
obligations under this license]
o Prosoft Training License pursuant to which NetGateway has the
exclusive right to reproduce and sell certain Prosoft courseware titles
in the federal government market
4.16 Insurance
Name of Insurer: Cigna
Name of Insured: NetGateway, Inc.
Expiration Date: 01/22/99
Annual Premium: $20,000
Payment Terms: Monthly
Type of Coverage: Computer related technology errors and omissions based
on $10,000,000 limit.
Name of Insurer: Hartford Fire Insurance Company
Name of Insured: NetGateway, Inc.
Expiration Date: 01/22/99
Annual Premium: $5,300
Payment Terms: Annual
Type of Coverage: Comprehensive Business Liability including bodily
injury and property damage liability. $1,000,000 each
occurrence and $2,000,000 general aggregate.
4.17 Affiliate Transactions
NetGateway resells the help desk support services of Action Call, a
Limited Liability Company, which is owned by a member of NetGateway's
Board of Directors
4.18 Employees; Labor Relations
None
4.19 Powers of Attorney
None
4.20 Brokers
None
4.21 Taxes
None
4.22 Accounts Receivable
None
4.23 Disclosure
None
4.24 Contracts
o Office Lease Agreement
o Employment Agreements
o Vendor Service Agreements
- Nida & Xxxxxxx - Legal
- KPMG Peat Marwick - Accounting
- BSMG Worldwide - Corporate Communications
- North Coast Capital - Consulting
- Burchmont Equities Group - Consulting
- XxXxxxx Associates - Investor Relations
- PaymentNet Inc. - Payment Processing
o Customer Contracts
- Admor Memory Corp.
- Westin Bonaventure Hotel
- ImageOne
- Satisbuy
- JD Power & Associates
- Advanced Business Graphics
o Agreements Related to the Acquisition of Assets or Intellectual
Property
- NetGateway transferred 400,000 shares of NetGateway common
stock to Digital Genesis, a Limited Liability Company
("Digital Genesis"), in consideration for substantially all
of the assets of Digital Genesis
- NetGateway transferred 35,000 shares of NetGateway common
stock to Shopping Planet, in consideration for the rights to
certain software developed by Shopping Planet and the
services of an employee on a consultancy basis
4.25 Licenses
o Prosoft Educational Training License
o Prosoft Government Training License
o Microsoft Certification
EXHIBIT D
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is made as of
November 1, 1998 by and among the individuals listed on the signature pages
hereto (the "Selling Stockholders"), XXXXXXXXXXXX.XXX LTD., an Alberta
corporation ("Buyer") and NETGATEWAY, INC., a Nevada corporation ("NetGateway").
R E C I T A L S
WHEREAS, the Selling Stockholders, NetGateway and Buyer have entered
into the Stock Purchase Agreement dated as of November 1, 1998 (the "Stock
Purchase Agreement");
WHEREAS, in connection with the consummation of the Stock Purchase
Agreement, the Selling Stockholders will be entitled to receive, subject to
adjustment as provided therein, up to 260,000 restricted Exchangeable Shares of
Buyer (referred to herein as the "Shares"); and
WHEREAS, pursuant to the Stock Purchase Agreement, the Selling
Stockholders hereby agree to pledge the Shares as security for their
indemnification obligations under the Stock Purchase 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
Section 1. Definitions and Interpretation
Section 1.01. Certain Defined Terms. Capitalized terms used herein without
definition shall have the meanings set forth in the Stock Purchase Agreement. In
addition, the following terms shall have the following meanings under this
Agreement:
"Collateral" shall have the meaning assigned to that term in Section
2.01.
"Collateral Account" shall have the meaning assigned to that term in
Section 3.01.
"Obligations" shall mean collectively:
(i) All obligations, covenants, agreements, and liabilities of
the Selling Stockholders to Buyer, in connection with the Stock Purchase
Agreement or any Exhibits thereto;
(ii) Any and all other indebtedness of the Selling
Stockholders to Buyer now or hereafter owing, whether direct or indirect,
primary or secondary, fixed or contingent, joint or
several, regardless of how evidenced or arising;
(iii) All obligations of the Selling Stockholders under this
Agreement; and
(iv) Any extensions or renewals of all such obligations
described in clauses (i) through (iii) above, whether or not any extension
agreements or renewal instruments are executed.
"Pledged Stock" shall have the meaning assigned to that term in
Section 2.01(A).
"Stock Collateral" shall have the meaning assigned to that term in
Section 2.01(A).
"Uniform Commercial Code" shall mean the Uniform Commercial Code as
in effect in the State of California from time to time or, by reason of
mandatory application, any other applicable jurisdiction.
Section 1.02. Interpretation. In this Agreement, unless otherwise
indicated, the singular includes the plural and plural the singular; words
importing any gender include the others; references to statutes or regulations
are to be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" include printing, typing, lithography and other means of
reproducing words in a tangible visible form; the words "including," "includes"
and "include" shall be deemed to be followed by the words "without limitation";
references to articles, sections (or subdivisions of sections), exhibits,
annexes or schedules are to this Agreement; references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments,
extensions and other modifications to such instruments; and references to
persons and entities include their respective permitted successors and assigns.
Section 2. Collateral
Section 2.01. Grant. As security for the full and prompt payment and
faithful performance of the Obligations, the Selling Stockholders hereby
absolutely and unconditionally PLEDGE, HYPOTHECATE, TRANSFER, ASSIGN, SET OVER
AND DELIVER to Buyer, for the benefit of Buyer and grant to Buyer, for the same
benefit, a continuing security interest in all of the Selling Stockholders'
right, title and interest in and to the following property, whether now owned or
hereafter acquired by the Selling Stockholders and whether now existing or
hereafter coming into existence (collectively, the "Collateral"):
(A) (i) all of the Shares represented by the certificates therefor
and all other Shares of capital stock of whatever class of the Buyer or
NetGateway, now owned or hereafter acquired by the Selling Stockholders,
including the NetGateway common stock for which the Shares are exchangeable,
together with, in each case, the certificates representing the same
(collectively, the "Pledged Stock"); and
(ii) all shares, monies or property representing a dividend
on, or a distribution or return of capital in respect of any of the Pledged
Stock, resulting from a split-up, revision, reclassification or other like
change of any of the Pledged Stock or otherwise received in exchange for any of
the Pledged Stock and any and all other rights issued to the holders of, or
otherwise in respect of, any of the Pledged Stock (collectively, and together
with the property described in clause (i) above, the "Stock Collateral").
(B) to the extent related to all or any part of the other
Collateral, all books, correspondence, credit files, records, invoices, tapes,
cards, computer runs and other papers and documents in the possession or under
the control of the Selling Stockholders or any computer bureau or service Buyer
from time to time acting for the Selling Stockholders; and
(C) all proceeds and products of and to any of the property of the
Selling Stockholders described in clause (A) of this Section 2.01.
Section 2.02. Perfection. Concurrently with the execution and delivery of
this Agreement, the Selling Stockholders shall (i) deliver to Buyer all
certificates for the Shares, accompanied by undated stock powers duly executed
in blank and (ii) take all such other reasonable actions as shall be necessary
or as Buyer may request to perfect and establish the priority of the liens
granted by this Agreement.
Section 2.03. Preservation and Protection of Security Interests. The
Selling Stockholders shall:
(A) upon the acquisition after the date hereof by the Selling
Stockholders of any Stock Collateral, promptly notify Buyer in writing of such
acquisition and either (i) transfer and deliver to Buyer all such Stock
Collateral (together with any certificates representing such Stock Collateral
duly endorsed in blank or accompanied by undated stock powers duly executed in
blank) or (ii) take such other action as Buyer shall deem necessary or
appropriate to perfect, and establish the priority of, the liens granted by this
Agreement in such Stock Collateral; and
(B) give, execute, deliver, file or record any and all financing
statements, notices, contracts, agreements or other instruments, obtain any and
all governmental approvals and take any and all steps that may be necessary or
as Buyer may request to create, perfect, establish the priority of, or to
preserve the validity, perfection or priority of, the liens granted by this
Agreement or to enable Buyer to exercise and enforce its rights, remedies,
powers and privileges under this Agreement with respect to such liens, including
causing any or all of the Stock Collateral to be transferred of record into the
name of Buyer or its nominee (and Buyer agrees that if any Stock Collateral is
transferred into its name or the name of its nominee, Buyer will thereafter
promptly give to the Selling Stockholders copies of any notices and
communications received by it with respect to the Stock Collateral pledged by
the Selling Stockholders).
Section 2.04. Attorney-in-Fact. Subject to the rights of the Selling
Stockholders under Section 2.05, Buyer is hereby appointed the attorney-in-fact
of the Selling Stockholders for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instruments which Buyer may deem necessary or advisable to
accomplish the purposes of this Agreement, to preserve the validity, perfection
and priority of the liens granted by this Agreement and, following any default
of the Obligations, to exercise its rights, remedies, powers and privileges
under this Agreement, and to transfer the Collateral and to collect the proceeds
thereof. This appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, Buyer shall be
entitled under this Agreement upon the occurrence and continuation of any
default under the Obligations until such default is timely cured (i) to ask,
demand, collect, xxx for, recover, receive and give receipt and discharge for
amounts due and to become due under and in respect of all or any part of the
Collateral; (ii) to receive, endorse and collect any drafts, instruments,
documents and chattel paper in connection with clause (i) above; (iii) to file
any claims or take any action or proceeding that Buyer may deem necessary or
advisable for the collection of all or any part of the Collateral; and (iv) to
execute, in connection with any sale or disposition of the Collateral under
Section 5, any endorsements, assignments, bills of sale or other instruments of
conveyance or transfer with respect to all or any part of the Collateral.
Section 2.05. Special Provisions Relating to Stock Collateral.
(A) So long as no default of the Obligations shall have occurred and
be continuing, the Selling Stockholders shall have the right to exercise any
voting, consensual and other powers of ownership pertaining to the Stock
Collateral for all purposes not inconsistent with the terms of the Stock
Purchase Agreement or any of the documents related thereto, provided that the
Selling Stockholders agree that they will not vote the Stock Collateral in any
manner that is inconsistent with the terms hereof or of the Stock Purchase
Agreement or any of the documents related thereto; and Buyer shall, at the
Selling Stockholders' expense, execute and deliver to the Selling Stockholders
or cause to be executed and delivered to the Selling Stockholders any such
proxies, powers of attorney, dividend and other orders and other instruments,
without recourse, as the Selling Stockholders may reasonably request for the
purpose of enabling the Selling Stockholders to exercise any rights and powers
which they are entitled to exercise pursuant to this Section 2.05(A).
(B) So long as no default of the Obligations shall have occurred and
be continuing, the Selling Stockholders shall be entitled to receive and retain
any dividends on the Stock Collateral paid in cash out of earned surplus.
(C) If any default of the Obligations shall have occurred and be
continuing, all dividends and other distributions on the Stock Collateral shall
be paid directly to Buyer and retained by it, and, if Buyer shall so request,
the Selling Stockholders agree to execute and deliver to Buyer appropriate
additional dividend, distribution and other orders and instruments to that end.
Section 2.06. Rights and Obligations. No reference in this Agreement to
proceeds or to the sale or other disposition of Collateral shall authorize the
Selling Stockholders to sell or otherwise dispose of any Collateral.
Section 2.07. Termination. This Agreement shall terminate one (1) year
from the Closing Date of the Stock Purchase Agreement, provided, that, Buyer has
no claims pending with respect to the Stock Purchase Agreement, any document
related thereto, or any of the Obligations and Buyer shall forthwith cause to be
assigned, transferred and delivered, against receipt but without any recourse,
warranty or representation whatsoever, any remaining Collateral and money
received in respect of the Collateral, to or on the order of the Selling
Stockholders. The obligations of the Selling Stockholders under this Agreement
shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of the Selling Stockholders or any other Person or any
other application of funds (including the proceeds of any collateral for all or
any part of the Obligations) in respect of all or any part of the Obligations is
rescinded or must be otherwise restored by any holder of such Obligations,
whether as a result of any proceedings in bankruptcy, reorganization or
otherwise, and the Selling Stockholders agree that they will indemnify Buyer on
demand for all reasonable costs and expenses (including fees and expenses of
counsel) incurred by Buyer in connection with such rescission or restoration.
Section 3. Representations and Warranties
As of the date hereof, the Selling Stockholders, jointly and
severally, represent and warrant to Buyer:
Section 3.01 Title. Each Selling Stockholder is the sole beneficial owner
of the Collateral in which he purports to xxxxx x xxxx pursuant to this
Agreement, and such Collateral is free and clear of all liens (and, with respect
to the Stock Collateral, no right or option to acquire the same exists in favor
of any other Person). The liens granted by this Agreement in favor of Buyer for
the benefit of Buyer have attached and constitute a perfected security interest
in all of such Collateral prior to all other liens.
Section 3.02. Pledged Stock.
(A) Except as set forth herein and in the Support Agreement entered
into among the parties on the date hereof, none of such Pledged Stock is subject
to any contractual restriction.
(B) After giving effect to the transactions contemplated by the
Stock Purchase Agreement, as of the Closing Date, the Pledged Stock constitutes
all of the issued and outstanding Shares of capital stock of all classes of the
Buyer or NetGateway beneficially owned by the Selling Stockholders on the date
hereof (whether or not registered in the name of any Selling Stockholder).
Section 4. Covenants.
Section 4.01. Sales and Other Liens. Without the prior written
consent of Buyer, the Selling Stockholders shall not assign, sell, transfer,
pledge, encumber or dispose of any
Collateral, create, incur, assume or suffer to exist any lien upon any
Collateral or file or suffer to be on file or authorize to be filed, in any
jurisdiction, any financing statement or like instrument with respect to all or
any part of the Collateral;
Section 4.02. Further Assurances. The Selling Stockholders agree that,
from time to time upon the written request of Buyer, the Selling Stockholders
will execute and deliver such further documents and do such other acts and
things as Buyer may reasonably request in order to fully effect the purposes of
this Agreement.
Section 5. Remedies
Section 5.01. Events of Default, Etc. If any default of the Obligations
shall have occurred and be continuing: (A) Buyer in its discretion may, in its
name or in the name of any Selling Stockholders or otherwise, demand, xxx for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for all or any part of the Collateral, but shall be
under no obligation to do so; (B) Buyer in its discretion may, upon ten business
days prior written notice to the Selling Stockholders of the time and place,
with respect to all or any part of the Collateral which shall then be or shall
thereafter come into the possession, custody or control of Buyer or its agents,
sell or otherwise dispose of all or any part of such Collateral, at such place
or places as Buyer deems best, for cash, for credit or for future delivery
(without thereby assuming any credit risk) and at public or private sale,
without demand of performance or notice of intention to effect any such
disposition or of time or place of any such sale (except such notice as is
required above or by applicable statute and cannot be waived), and Buyer or any
other Person may be the Buyer or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale) and thereafter hold the same absolutely, free from any claim or
right of whatsoever kind, including any right or equity of redemption (statutory
or otherwise), of the Selling Stockholders, or any such demand, notice and right
or equity being hereby expressly waived and released. Buyer may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the sale may be so
adjourned; and (C) Buyer shall have, and in its discretion may exercise, all of
the rights, remedies, powers and privileges with respect to the Collateral of a
Buyer under the Uniform Commercial Code (whether or not the Uniform Commercial
Code is in effect in the jurisdiction where such rights, remedies, powers and
privileges are asserted) and such additional rights, remedies, powers and
privileges to which a Buyer is entitled under the laws in effect in any
jurisdiction where any rights, remedies, powers and privileges in respect of
this Agreement or the Collateral may be asserted, including the right, to the
maximum extent permitted by law, to exercise all voting, consensual and other
powers of ownership pertaining to the Collateral as if Buyer were the sole and
absolute owner of the Collateral (and the Selling Stockholders agree to take all
such action as may be appropriate to give effect to such right).
The proceeds of, and other realization upon, the Collateral by virtue of the
exercise of remedies under this Section 5.01 shall be applied in accordance with
Section 5.04.
Section 5.02. Deficiency. If the proceeds of, or other realization upon,
the Collateral by virtue of the exercise of remedies under Section 5 are
insufficient to cover the costs and expenses of such exercise and the payment in
full of the other Obligations, the Selling Stockholders shall remain liable for
any deficiency to the extent and only to the extent the Selling Stockholders
shall otherwise be liable for such Obligations.
Section 5.03. Private Sale. Buyer shall incur no liability as a result of
the sale, lease or other disposition of all or any part of the Collateral at any
private sale pursuant to Section 5 conducted in a commercially reasonable
manner. The Selling Stockholders hereby waive any claims against Buyer arising
by reason of the fact that the price at which the Collateral may have been sold
at such a private sale was less than the price which might have been obtained at
a public sale or was less than the aggregate amount of the Obligations, even if
Buyer accepts the first offer received and does not offer the Collateral to more
than one offered. The Selling Stockholders recognize that, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, and other
applicable Shares laws, Buyer may be compelled, with respect to any sale of all
or any part of the Collateral, to limit Buyers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to distribution or resale. The Selling Stockholders
acknowledge that any such private sales may be at prices and on terms less
favorable to Buyer than those obtainable through a public sale without such
restrictions, and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that Buyer shall have no obligation to engage in public sales and no
obligation to delay the sale of any Collateral for the period of time necessary
to permit the respective issuer of such Collateral to register it for public
sale.
Section 5.04. Application of Proceeds. Except as otherwise expressly
provided in this Agreement and except as provided below in this Section 5.04,
the proceeds of, or other realization upon, all or any part of the Collateral by
virtue of the exercise of remedies under this Section 5 or this Section 5, shall
be applied by Buyer:
First, to the payment of the costs and expenses of such exercise of
remedies, including reasonable out-of-pocket costs and expenses of Buyer, the
fees and expenses of its agents and counsel and all other expenses incurred and
advances made by Buyer in that connection;
Next, to the payment in full of the remaining Obligations; and
Finally, to the payment to the Selling Stockholders, or their
respective successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining.
As used in this Section 5, "proceeds" of Collateral shall mean cash,
shares and other property realized in respect of, and distributions in kind of,
Collateral, including any property received under any bankruptcy, reorganization
or other similar proceeding as to the Selling Stockholders or any issuer of, or
account debtor or other obligor on, any of the Collateral.
Section 6. Miscellaneous
Section 6.01. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission, recognized overnight courier
(carriage prepaid) or mail (first class postage prepaid) to the parties at the
following addresses or facsimile numbers:
If to the Selling Stockholders, addressed to:
00 Xxxxx Xxxxx Xxxxxxx XX
Xxxxxxx, Xxxxxxx Xxxxxx X0X 0X0
With a copy to:
Xxxxxx & Associates
Suite 1250 Standard Life Building
639-5th Avenue S.W.
Calgary, Alberta
TRP 0M9
Attn: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
If to Buyer, addressed to:
NetGateway, Inc.
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Xx., President
Fax : (000) 000-0000
With a copy to:
Nida & Xxxxxxx, P.C.
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Attn: C. Xxxxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
Section 6.02. Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other
term or condition of this Agreement on any future occasion. All remedies, either
under this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
Section 6.03. Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
Section 6.04. Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
Section 6.05. Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance here from and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
Section 6.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of California applicable to a
contract executed and performed in such State without giving effect to the
conflicts of laws principles thereof.
Section 6.07. Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be forwarded to Buyer or its counsel and Buyer or
its counsel will provide all of the parties hereto with a copy of the entire
Agreement.
Section 6.08. Dispute Resolution. Any dispute under this Pledge and
Security Agreement shall be submitted to arbitration in accordance with the
Stock Purchase Agreement.
[Signature Page to Follow]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above
written.
BUYER:
XXXXXXXXXXXX.XXX,
an Alberta corporation
By: ____________________________
Name:
Title:
NETGATEWAY, INC.,
A Nevada corporation
By: ____________________________
THE SELLING STOCKHOLDERS:
________________________________
Xxxxx Xxxxxxxxx
________________________________
Xxxxx XxxXxxxxx
________________________________
Xxxxx XxXxxxxx
________________________________
Name:
________________________________
Name:
________________________________
Name:
________________________________
Name:
________________________________
Name:
EXHIBIT E
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into as of this 1st day of
November, 1998, between XxxxxxXxxxxx.xxx Ltd., an Alberta corporation (the
"Company") and Xxxxx Xxxxxxxxx (the "Executive").
WHEREAS, NetGateway, Inc. ("NetGateway") and the shareholders of
Spartan Multimedia, Inc. ("Spartan") have entered into a Stock Purchase
Agreement dated of even date herewith (the "Stock Purchase Agreement"); and
WHEREAS, as a condition precedent to the consummation of the Stock
Purchase Agreement, the Company desires to employ the Executive and to enter
into an agreement embodying the terms of such employment (the "Agreement") and
the Executive desires to accept such employment and to enter into the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Company and the Executive (individually a "Party" and together the "Parties")
agree as follows:
1. Definitions.
All terms not otherwise defined herein shall have the meanings given
such terms in the Stock Purchase Agreement.
(a) "Affiliate" shall mean any corporation, partnership or other
entity in which the Company owns, directly or indirectly, an equity interest of
50% or more or which owns, directly or indirectly, an equity interest of 50% in
the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean (i) the Executive is convicted of a felony
involving moral turpitude, (ii) the Executive, in carrying out his duties under
this Agreement, is guilty of continued willful gross neglect or continued
willful gross misconduct resulting, in either case, in material economic harm to
the Company, unless such act, or failure to act, was believed by the Executive
in good faith to be in the best interests of the Company or any Affiliate, (iii)
the breach by Executive of Sections 8, 9 or 10 hereof, or (iv) any other action
or inaction that a court of competent jurisdiction in Alberta has deemed or
deems to be just cause for termination.
(d) "Confidential Information" shall mean all nonpublic information
respecting the Company's business including, but not limited to, its products,
research and development, processes, customer lists, marketing plans and
strategies and any other trade secrets. Confidential information does
not include information that is, or becomes, available to the public unless such
availability occurs through an unauthorized act on the part of the Executive.
(e) "Disability" shall mean the Executive's inability to render, for
180 consecutive days, full and effective services hereunder by reason of
permanent physical or mental disability, whether resulting from illness,
accident or otherwise.
(f) "Salary" shall mean the salary provided for in Section 3 of this
Agreement or any adjusted salary granted to the Executive by the Board.
(g) "Salary Continuation Period" shall mean the period after the
termination of the Executive's employment pursuant to the terms of this
Agreement during which the Executive is entitled to continued payment of the
Salary.
(h) "Term of this Agreement" shall mean that period of time
specified in Section 2(b).
(i) "Term of Employment" shall mean the period of the Executive's
employment by the Company.
2. Term of Agreement, Position and Duties.
(a) The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company for the Term of this Agreement in the
position and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
(b) The term of this Agreement shall commence as of November __,
1998 and shall terminate upon the first to occur of (i) the termination of this
Agreement as provided herein or (ii) three years from such date.
(c) During the Term of this Agreement, the Executive shall be
employed as President of the Company. During the time as he serves in this
position, the Executive shall serve under the direction of and report directly
to the Board of Directors of the Company. During the Term of Employment, the
Executive agrees to devote his full time and attention to carrying out his
duties and responsibilities hereunder and shall use his best efforts, skills and
abilities to further the interests of the Company. Notwithstanding the
foregoing, the Executive shall be entitled to complete any consulting agreements
with third parties in effect on the date hereof and to consult on any other
non-commercial matters, provided that such consulting does not materially
adversely affect the performance of Executive's duties. During the Term of
Employment, the Executive may not serve on the board of directors of any other
business entities without the express written permission of the Board and
subject to such limitations as may be imposed by the Board in granting such
permission.
3. Salary.
During the Term of this Agreement, the Executive shall be paid a
salary at the annual rates set forth below by the Company. Such salary shall be
payable in accordance with the
Company's standard payroll practice and subject to the other provisions of this
Section 3. The Executive shall receive a salary at an annual rate of Forty
Thousand Dollars ($40,000 USD) for the first ninety (90) days following the date
hereof. Following such 90-day period, the Executive shall receive a salary at an
annual rate of Sixty Thousand Dollars ($60,000 USD) (the "Pre-Profit Rate")
until the Company is profitable. Once the Company is profitable, the Executive
shall be entitled to receive a minimum salary at an annual rate of Eighty
Thousand Dollars ($80,000.00 USD) or such portion thereof as can be paid out of
the "profits" of the Company, but in no event less than the Pre-Profit Rate.
Notwithstanding the foregoing, once the Company is profitable for two
consecutive fiscal quarters, the Executive shall be entitled to receive a
minimum annual salary of Eighty Thousand Dollars ($80,000 USD). Such salary
shall be reviewed at least annually for adjustment. Subject to the other
provisions of this Section 3, any adjustment shall be determined by the Board,
in its sole discretion. For purposes hereof, "profits" shall be determined based
on EBITDA in accordance with GAAP, and NetGateway, the Company's parent, will
only charge the Company for expenses which are Company-specific and will not
charge the Company for any of the general operating expenses of NetGateway. The
Company shall reimburse Executive for reasonable out-of-pocket expenses incurred
by the Executive in the performance of his duties in accordance with the
Company's standard practices.
4. Annual Bonus.
During the Term of Employment, the Board may grant the Executive an
annual bonus. The amount of such annual bonus, if any, shall be determined by
the Board, in its sole discretion.
5. Employee Benefit Programs.
During the Term of this Agreement, the Executive shall be eligible
to participate in employee benefit plans and programs available, from time to
time, to all senior executives of the Company. Specifically, the Executive shall
be entitled to the current annual vacation entitlement as set by the Board, but
not less than 10 business days of vacation for each employment year with the
Company. The Executive shall be entitled to a pro rata share of an annual
accrual for fractional years of employment with the Company.
6. Termination of Employment.
(a) Termination Due to Death. In the event of the death of the
Executive during the Term of this Agreement, this Agreement shall immediately
terminate and the estate or other legal representative of the Executive shall be
entitled to:
(i) Salary at the rate in effect at the time of the
Executive's death, through the end of the month in which his death occurs;
and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of his death, determined in accordance with the applicable
terms and provisions of such programs.
(b) Termination Due to Disability. The Company may terminate the
Executive's employment due to the Disability of the Executive. In the event of
such a termination of the Executive's employment due to Disability during the
Term of this Agreement, this Agreement shall immediately terminate and the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time the Executive's
Disability is deemed to have commenced, through the date on which he is
terminated due to Disability; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of his Termination Due to Disability, determined in accordance
with the applicable terms and provisions of such programs.
(c) Termination for Cause. The Executive's employment may be
terminated immediately by the Company for Cause. In the event the Executive's
employment is terminated for Cause during the Term of this Agreement, the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time of the
Termination for Cause, through the date on which such Termination for
Cause occurs; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of the Termination for Cause, determined in accordance with
the applicable terms and provisions of such programs.
(d) Termination Without Cause. The Executive's employment under this
Agreement may be terminated without Cause, as provided in this subsection.
"Termination Without Cause" shall mean a termination of the Executive's
employment by the Company during the Term of this Agreement other than due to
death, due to Disability or for Cause.
In the event there is a Termination Without Cause of the Executive's
employment, the Executive shall be entitled to:
(i) Salary at the rate in effect immediately prior to the
Termination Without Cause, for a period which shall end upon the earlier
of (x) the end of the ninth month following such termination of employment
or (y) the Executive's reemployment in a position comparable to that which
he held with the Company immediately prior to the termination of his
employment ("Comparable Reemployment"), provided, however, any Salary due
the Executive under this subsection shall be off-set by any compensation
earned by the Executive in respect of reemployment other than Comparable
Reemployment, or consulting services provided, during the Salary
Continuation Period; and
(ii) for the length of the Salary Continuation Period, any
other rights and benefits available under employee benefit programs of the
Company in which the Executive was a participant at the time of his
Termination Without Cause, determined in accordance with the applicable
terms and provisions of such programs; and
(iii) any bonus awarded but not yet paid at the time of
Executive's Termination Without Cause.
provided, however, that if at any time during the Salary Continuation Period,
the Company becomes aware of any action on the part of the Executive that would
constitute grounds for termination of the Executive's employment by the Company
for Cause, the Company shall be under no obligation to make any payments or
provide any rights or other benefits due under this Agreement.
Any payments received by the Executive under this Agreement that are
attributable to the termination of the Executive's employment shall be in full
and complete satisfaction of any and all claims the Executive may have against
the Company which are, in any way, related to the employment relationship
between the Executive and the Company.
(e) Contingent Shares. In the event that there is a Termination
Without Cause of Executive's employment prior to the Third Anniversary Date,
NetGateway shall be obligated to issue to Executive his Percentage Interest of
any unissued Contingent Shares. The foregoing shall not apply in the event that
Executive resigns or there is Termination for Cause. In such event, NetGateway's
only obligation shall be to issue to Executive that portion of such Executive's
Percentage Interest of the Contingent Shares to which Executive is entitled in
accordance with Section 1.03 of the Stock Purchase Agreement.
7. Indemnification.
(a) The Company agrees that if the Executive is made a party or is
threatened to be made a party to any action, suit or proceeding by reason of the
fact that he is or was a director or officer of the Company (a "Proceeding"), he
shall be indemnified by the Company to the fullest extent authorized by Alberta
law, consistent with the Company's certificate of incorporation (or charter) and
by-laws, against expenses, liabilities and losses reasonably incurred or
suffered by the Executive in connection therewith; provided, however:
(i) written notice of such Proceeding is given promptly to the
Company by the Executive;
(ii) the Company is permitted to participate in and assume the
defense of such Proceeding; and
(iii) such liability results from the final judgment of a
court of competent jurisdiction or, as a result of a settlement entered
into with the prior written consent of the Company or is required (x) by
such court as a bond, payment into escrow or similar payment, or (y)
otherwise to forestall imminent attachment or similar process against any
of the Executive's Stocks, and,
provided further that the Company agrees to indemnify the Executive if he seeks
indemnification in connection with a Proceeding (or part thereof) initiated by
the Executive only if such Proceeding (or part thereof) was authorized by the
Board.
(b) Notwithstanding anything to the contrary in subsection (a)
above, the Company shall be under no obligation to indemnify the Executive with
respect to any act or acts of the Executive:
(i) in a knowing violation of any written agreement between
the Executive and the Company;
(ii) for which a court, having jurisdiction in the matter,
determines that indemnification is not lawful; or
(iii) which a court, having jurisdiction in the matter,
determines to have been knowingly and fraudulently committed by the
Executive or which is the result of willful misconduct by the Executive.
(c) D&O Insurance. To the extent available on commercially
reasonable terms, the Company agrees to obtain a directors and officers
liability insurance policy covering the Executive and this policy shall be
maintained and provide coverage that is reasonable in relation to the
Executive's position during the Term of Employment.
8. Covenant Not to Engage in Certain Acts.
(a) During the Term of Employment, and for a period equal to the
greater of (x) 12-months following the end of the Term of Employment or (y) the
Salary Continuation Period, the Executive shall not, except when acting on
behalf of the Company or an Affiliate:
(i) take any action to divert any business from the Company,
or from any Affiliate, or any business which was under active
consideration by the Company, or by any Affiliate, during the Term
of Employment; or
(ii) induce customers, suppliers, agents, franchisees or other
persons under contract or franchise or otherwise doing business with
the Company, to terminate, reduce or alter business with or from the
Company or any Affiliate.
The subsections of this Section are intended by the Parties as separate and
divisible provisions and if, for any reason, any one of them is held to be
invalid or unenforceable, neither the validity nor the enforceability of any
other provision shall thereby be affected. It is the intention of the Parties
that the restrictions on the Executive's future employment imposed by this
Section be reasonable in duration. If an Alberta court shall find that the
12-month period set forth in the first paragraph hereof is unreasonable, then
the parties agree that the provisions hereof shall be applicable for a period of
nine (9) months. If such nine (9) month period shall be deemed unreasonable by
an Alberta court, then the parties agree that the provisions hereof shall be
applicable for a period of six (6) months.
The Executive understands that the provisions of this Section may limit
his ability to earn a livelihood in a business similar to the business of the
Company, but nevertheless believes that he shall receive sufficient remuneration
and other benefits hereunder to justify the restrictions contained in such
provisions which, given his education, skills and abilities, he does not believe
would prevent him from earning a living.
(b) The Executive agrees that for the Term of Employment and for the
period described in subsection (a) above, except when acting on behalf of the
Company or any Affiliate, he shall not induce any person in the employment of
the Company or any Affiliate to (i) terminate such employment, (ii) accept
employment with anyone other than the Company or any Affiliate or (iii)
interfere with the business of the Company or any Affiliate in any material
manner.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
9. Inventions.
(a) The Executive shall, during the Term of Employment, disclose to
the Company, immediately after the same is made, discovered or devised, any
improvement, process, development, discovery or invention (including works of
authorship, trade secrets, technology, computer programs, formulas,
compositions, ideas, designs, techniques and data, whether or not patentable or
otherwise capable of being protected and whether or not related to technical or
commercial matters) which he may make, discover or devise (alone or in
conjunction with others) either:
(i) in the course of his normal duties (or of duties specifically
assigned to him);
(ii) as a result of knowledge gained during his employment; or
(iii) as a result of the use by the Executive of materials,
equipment or facilities of the Company.
Subject to subsection (b) below, all such items shall become the absolute
property of the Company without further payment and the Executive shall satisfy
his obligation in this regard by presenting the same to the Company. The
Executive hereby assigns any and all rights in such items to the Company. The
Executive shall not at any time during the Term of Employment (except in the
performance of his duties) or thereafter, disclose any such improvement,
process, development, discovery or invention to any third party and, further,
shall, if and whenever required so to do by the Company (at the Company's
expense), do all acts and things as the Company may reasonably require for
obtaining any patent or other protection in respect thereof and vesting the same
and all rights therein in the Company or as the Company may direct; provided
that the above restriction shall not apply to any such improvement, process,
development, discovery or invention which is or becomes generally available to
the public other than as a result of disclosure by the Executive or by any
person to whom he has made such disclosure.
(b) In respect of any particular improvement, process, development,
discovery or invention which is not covered by subsection (a) above, the
Executive shall (before exploiting or disclosing the same or otherwise
committing himself to a third party) discuss any such item with the Company. If
the Executive shows, to the reasonable satisfaction of the Company, that any
such item is not a corporate opportunity of the Company, then Executive shall be
entitled thereafter to exploit or disclose such item.
(c) The Executive agrees that the provisions of this Section shall
survive the termination
of this Agreement, including, without limitation, his obligation to do all acts
and other things that the Company may reasonably require for obtaining any
patent or other protection in respect of any improvement, process, development,
discovery, or invention, and his obligation to disclose to the Company,
immediately after the same is made, discovered or devised, any improvement,
discovery or invention as provided in subsection (a) above.
10. Covenants to Protect Confidential Information.
(a) The Executive shall not, during the Term of Employment or
thereafter, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership or
corporation, except while employed by the Company in the business of and for the
benefit of the Company or when required to do so by a lawful order of a court of
competent jurisdiction, any Confidential Information.
(b) Except as may be otherwise consented to in writing by the
Company, the Executive shall proffer to an appropriate officer of the Company,
at the termination of his employment, without retaining any copies, notes or
excerpts thereof, all memoranda, diaries, notes, records, cost information,
customer lists, marketing plans and strategies, and any other documents
containing any Confidential Information made or compiled by, or delivered or
made available to, or otherwise obtained by the Executive in his possession or
subject to his control at such time except that the Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
11. Remedy for Violation of Noncompetition, Confidential Information or
Inventions Provisions.
(a) The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed if the Executive breaches or
threatens to breach the provisions of Sections 8, 9 or 10 above, and, therefore,
agrees that the Company shall be entitled to injunctive relief to prevent any
breach or threatened breach of any of those sections, and to specific
performance of the terms of each of such section in addition to any other legal
or equitable remedy it may have. The Executive further agrees that he shall not,
in any equity proceeding involving him relating to the enforcement of Sections
8, 9, or 10 above, raise the defense that the Company has an adequate remedy at
law. Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have or any
other rights that it may have under any other agreement.
(b) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, in no event shall
the Company be obligated to provide payments or benefits pursuant to this
Section if, and to the extent, such payments or benefits would be nondeductible
for Revenue Canada income tax purposes. Any determination to be made with
respect to this clause shall be made by the Company's regular independent
certified accountants.
12. Withholding.
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
13. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred only by will or operation of law and subject to the
limitations of this Agreement.
14. Representation.
The Executive represents and warrants that the performance of the
Executive's duties under this Agreement will not violate any agreement between
the Executive and any other person, firm, partnership, corporation or
organization.
15. Mutual Intent.
The language used in this Agreement is the language chosen by the
Parties to express their mutual intent. The Parties agree that in the event that
any language, section, clause, phrase or word used in this Agreement is
determined to be ambiguous, no presumption shall arise against or in favor of
either Party and that no rule of strict construction shall be applied against
either Party with respect to such ambiguity.
16. Entire Agreement.
This Agreement contains the entire agreement between the Parties
concerning the subject matter hereof and supersedes all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the Parties with respect thereto.
17. Amendment or Waiver.
No provision in this Agreement may be amended or waived unless such
amendment or waiver is approved by the Board of Directors of the Company and set
forth in a writing, signed by the Chairman of the Board of the Company. No
waiver by the Company of any breach by the other Party of any condition or
provision of this Agreement to be performed by such other Party shall be deemed
a waiver of a similar or dissimilar condition or provision at the same or any
prior or subsequent time.
18. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law.
19. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section are in addition to the survivorship provisions of any other section of
this Agreement.
20. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the province of Alberta. The Parties agree to submit
exclusively to the jurisdiction of the courts of the province of Alberta with
respect to any controversy, dispute or claim arising out of this Agreement.
21. Notices.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered (whether by telecopy or otherwise) or
two days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
NetGateway, Inc.
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Xx.
With a copy to:
Nida & Xxxxxxx, P.C.
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: C. Xxxxxx Xxxxxxx, Esq.
If to the Executive:
Xxxxx Xxxxxxxxx
__________________________________
__________________________________
__________________________________
With a copy to:
Xxxxxx & Associates
Suite 1250, Standard Life Xxxxxxxx
000-0xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx X0X 0X0
Attn: Xxxxx X. Xxxxxx, Esq.
22. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
23. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
XXXXXXXXXXXX.XXX LTD.
By:________________________
EXECUTIVE
___________________________
Xxxxx Xxxxxxxxx
EXHIBIT F
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into as of this 1st day of
November, 1998, between XxxxxxXxxxxx.xxx Ltd., an Alberta corporation (the
"Company") and Xxxxx XxxXxxxxx (the "Executive").
WHEREAS, NetGateway, Inc. ("NetGateway") and the shareholders of
Spartan Multimedia, Inc. ("Spartan") have entered into a Stock Purchase
Agreement dated of even date herewith (the "Stock Purchase Agreement"); and
WHEREAS, as a condition precedent to the consummation of the Stock
Purchase Agreement, the Company desires to employ the Executive and to enter
into an agreement embodying the terms of such employment (the "Agreement") and
the Executive desires to accept such employment and to enter into the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Company and the Executive (individually a "Party" and together the "Parties")
agree as follows:
1. Definitions.
All terms not otherwise defined herein shall have the meanings given
such terms in the Stock Purchase Agreement.
(a) "Affiliate" shall mean any corporation, partnership or other
entity in which the Company owns, directly or indirectly, an equity interest of
50% or more or which owns, directly or indirectly, an equity interest of 50% in
the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean (i) the Executive is convicted of a felony
involving moral turpitude, (ii) the Executive, in carrying out his duties under
this Agreement, is guilty of continued willful gross neglect or continued
willful gross misconduct resulting, in either case, in material economic harm to
the Company, unless such act, or failure to act, was believed by the Executive
in good faith to be in the best interests of the Company or any Affiliate, (iii)
the breach by Executive of Sections 8, 9 or 10 hereof, or (iv) any other action
or inaction that a court of competent jurisdiction in Alberta has deemed or
deems to be just cause for termination.
(d) "Confidential Information" shall mean all nonpublic information
respecting the Company's business including, but not limited to, its products,
research and development, processes, customer lists, marketing plans and
strategies and any other trade secrets. Confidential information does
not include information that is, or becomes, available to the public unless such
availability occurs through an unauthorized act on the part of the Executive.
(e) "Disability" shall mean the Executive's inability to render, for
180 consecutive days, full and effective services hereunder by reason of
permanent physical or mental disability, whether resulting from illness,
accident or otherwise.
(f) "Salary" shall mean the salary provided for in Section 3 of this
Agreement or any adjusted salary granted to the Executive by the Board.
(g) "Salary Continuation Period" shall mean the period after the
termination of the Executive's employment pursuant to the terms of this
Agreement during which the Executive is entitled to continued payment of the
Salary.
(h) "Term of this Agreement" shall mean that period of time
specified in Section 2(b).
(i) "Term of Employment" shall mean the period of the Executive's
employment by the Company.
2. Term of Agreement, Position and Duties.
(a) The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company for the Term of this Agreement in the
position and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
(b) The term of this Agreement shall commence as of November __,
1998 and shall terminate upon the first to occur of (i) the termination of this
Agreement as provided herein or (ii) three years from such date.
(c) During the Term of this Agreement, the Executive shall be
employed as Senior Vice President, Technology of the Company. During the time as
he serves in this position, the Executive shall serve under the direction of and
report directly to the President of the Company. During the Term of Employment,
the Executive agrees to devote his full time and attention to carrying out his
duties and responsibilities hereunder and shall use his best efforts, skills and
abilities to further the interests of the Company. Notwithstanding the
foregoing, the Executive shall be entitled to complete any consulting agreements
with third parties in effect on the date hereof and to consult on any other
non-commercial matters, provided that such consulting does not materially
adversely affect the performance of Executive's duties. During the Term of
Employment, the Executive may not serve on the board of directors of any other
business entities without the express written permission of the Board and
subject to such limitations as may be imposed by the Board in granting such
permission.
3. Salary.
During the Term of this Agreement, the Executive shall be paid a
salary at the annual rates set forth below by the Company. Such salary shall be
payable in accordance with the
Company's standard payroll practice and subject to the other provisions of this
Section 3. The Executive shall receive a salary at an annual rate of
Thirty-Seven Thousand Five Hundred Dollars ($37,500 USD) for the first ninety
(90) days following the date hereof. Following such 90-day period, the Executive
shall receive a salary at an annual rate of Fifty-Six Thousand Two Hundred Fifty
Dollars ($56,250 USD) (the Pre-Profit Rate") until the Company is profitable.
Once the Company is profitable, the Executive shall be entitled to receive a
minimum salary at an annual rate of Seventy-Five Thousand Dollars ($75,000.00
USD) or such portion thereof as can be paid out of the "profits" of the Company,
but in no event less than the Pre-Profit Rate. Notwithstanding the foregoing,
once the Company is profitable for two consecutive fiscal quarters, the
Executive shall be entitled to receive a minimum annual salary of Seventy-Five
Thousand Dollars ($75,000.00 USD). Such salary shall be reviewed at least
annually for adjustment. Subject to the other provisions of this Section 3, any
adjustment shall be determined by the Board, in its sole discretion. For
purposes hereof, "profits" shall be determined based on EBITDA in accordance
with GAAP, and NetGateway, the Company's parent, will only charge the Company
for expenses which are Company-specific and will not charge the Company for any
of the general operating expenses of NetGateway. The Company shall reimburse
Executive for reasonable out-of-pocket expenses incurred by the Executive in the
performance of his duties in accordance with the Company's standard practices.
4. Annual Bonus.
During the Term of Employment, the Board may grant the Executive an
annual bonus. The amount of such annual bonus, if any, shall be determined by
the Board, in its sole discretion.
5. Employee Benefit Programs.
During the Term of this Agreement, the Executive shall be eligible
to participate in employee benefit plans and programs available, from time to
time, to all senior executives of the Company. Specifically, the Executive shall
be entitled to the current annual vacation entitlement as set by the Board, but
not less than 10 business days of vacation for each employment year with the
Company. The Executive shall be entitled to a pro rata share of an annual
accrual for fractional years of employment with the Company.
6. Termination of Employment.
(a) Termination Due to Death. In the event of the death of the
Executive during the Term of this Agreement, this Agreement shall immediately
terminate and the estate or other legal representative of the Executive shall be
entitled to:
(i) Salary at the rate in effect at the time of the
Executive's death, through the end of the month in which his death occurs;
and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of his death, determined in accordance with the applicable
terms and provisions of such programs.
(b) Termination Due to Disability. The Company may terminate the
Executive's employment due to the Disability of the Executive. In the event of
such a termination of the Executive's employment due to Disability during the
Term of this Agreement, this Agreement shall immediately terminate and the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time the Executive's
Disability is deemed to have commenced, through the date on which he is
terminated due to Disability; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of his Termination Due to Disability, determined in accordance
with the applicable terms and provisions of such programs.
(c) Termination for Cause. The Executive's employment may be
terminated immediately by the Company for Cause. In the event the Executive's
employment is terminated for Cause during the Term of this Agreement, the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time of the
Termination for Cause, through the date on which such Termination for
Cause occurs; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of the Termination for Cause, determined in accordance with
the applicable terms and provisions of such programs.
(d) Termination Without Cause. The Executive's employment under this
Agreement may be terminated without Cause, as provided in this subsection.
"Termination Without Cause" shall mean a termination of the Executive's
employment by the Company during the Term of this Agreement other than due to
death, due to Disability or for Cause.
In the event there is a Termination Without Cause of the Executive's
employment, the Executive shall be entitled to:
(i) Salary at the rate in effect immediately prior to the
Termination Without Cause, for a period which shall end upon the earlier
of (x) the end of the sixth month following such termination of employment
or (y) the Executive's reemployment in a position comparable to that which
he held with the Company immediately prior to the termination of his
employment ("Comparable Reemployment"), provided, however, any Salary due
the Executive under this subsection shall be off-set by any compensation
earned by the Executive in respect of reemployment other than Comparable
Reemployment, or consulting services provided, during the Salary
Continuation Period; and
(ii) for the length of the Salary Continuation Period, any
other rights and benefits available under employee benefit programs of the
Company in which the Executive was a participant at the time of his
Termination Without Cause, determined in accordance with the applicable
terms and provisions of such programs; and
(iii) any bonus awarded but not yet paid at the time of
Executive's Termination Without Cause.
provided, however, that if at any time during the Salary Continuation Period,
the Company becomes aware of any action on the part of the Executive that would
constitute grounds for termination of the Executive's employment by the Company
for Cause, the Company shall be under no obligation to make any payments or
provide any rights or other benefits due under this Agreement.
Any payments received by the Executive under this Agreement that are
attributable to the termination of the Executive's employment shall be in full
and complete satisfaction of any and all claims the Executive may have against
the Company which are, in any way, related to the employment relationship
between the Executive and the Company.
(e) Contingent Shares. In the event that there is a Termination
Without Cause of Executive's employment prior to the Third Anniversary Date,
NetGateway shall be obligated to issue to Executive his Percentage Interest of
any unissued Contingent Shares. The foregoing shall not apply in the event that
Executive resigns or there is Termination for Cause. In such event, NetGateway's
only obligation shall be to issue to Executive that portion of such Executive's
Percentage Interest of the Contingent Shares to which Executive is entitled in
accordance with Section 1.03 of the Stock Purchase Agreement.
7. Indemnification.
(a) The Company agrees that if the Executive is made a party or is
threatened to be made a party to any action, suit or proceeding by reason of the
fact that he is or was a director or officer of the Company (a "Proceeding"), he
shall be indemnified by the Company to the fullest extent authorized by Alberta
law, consistent with the Company's certificate of incorporation (or charter) and
by-laws, against expenses, liabilities and losses reasonably incurred or
suffered by the Executive in connection therewith; provided, however:
(i) written notice of such Proceeding is given promptly
to the Company by the Executive;
(ii) the Company is permitted to participate in and assume the
defense of such Proceeding; and
(iii) such liability results from the final judgment of a
court of competent jurisdiction or, as a result of a settlement entered
into with the prior written consent of the Company or is required (x) by
such court as a bond, payment into escrow or similar payment, or (y)
otherwise to forestall imminent attachment or similar process against any
of the Executive's Stocks, and,
provided further that the Company agrees to indemnify the Executive if he seeks
indemnification in connection with a Proceeding (or part thereof) initiated by
the Executive only if such Proceeding (or part thereof) was authorized by the
Board.
(b) Notwithstanding anything to the contrary in subsection (a)
above, the Company shall be under no obligation to indemnify the Executive with
respect to any act or acts of the Executive:
(i) in a knowing violation of any written agreement between
the Executive and the Company;
(ii) for which a court, having jurisdiction in the matter,
determines that indemnification is not lawful; or
(iii) which a court, having jurisdiction in the matter,
determines to have been knowingly and fraudulently committed by the
Executive or which is the result of willful misconduct by the Executive.
(c) D&O Insurance. To the extent available on commercially
reasonable terms, the Company agrees to obtain a directors and officers
liability insurance policy covering the Executive and this policy shall be
maintained and provide coverage that is reasonable in relation to the
Executive's position during the Term of Employment.
8. Covenant Not to Engage in Certain Acts.
(a) During the Term of Employment, and for a period equal to the
greater of (x) 12-months following the end of the Term of Employment or (y) the
Salary Continuation Period, the Executive shall not, except when acting on
behalf of the Company or an Affiliate:
(i) take any action to divert any business from the Company,
or from any Affiliate, or any business which was under active
consideration by the Company, or by any Affiliate, during the Term
of Employment; or
(ii) induce customers, suppliers, agents, franchisees or other
persons under contract or franchise or otherwise doing business with
the Company, to terminate, reduce or alter business with or from the
Company or any Affiliate.
The subsections of this Section are intended by the Parties as separate and
divisible provisions and if, for any reason, any one of them is held to be
invalid or unenforceable, neither the validity nor the enforceability of any
other provision shall thereby be affected. It is the intention of the Parties
that the restrictions on the Executive's future employment imposed by this
Section be reasonable in duration. If an Alberta court shall find that the
12-month period set forth in the first paragraph hereof is unreasonable, then
the parties agree that the provisions hereof shall be applicable for a period of
nine (9) months. If such nine (9) month period shall be deemed unreasonable by
an Alberta court, then the parties agree that the provisions hereof shall be
applicable for a period of six (6) months.
The Executive understands that the provisions of this Section may
limit his ability to earn a livelihood in a business similar to the business of
the Company, but nevertheless believes that he shall receive sufficient
remuneration and other benefits hereunder to justify the restrictions contained
in such provisions which, given his education, skills and abilities, he does not
believe would prevent him from earning a living.
(b) The Executive agrees that for the Term of Employment and for the
period described in subsection (a) above, except when acting on behalf of the
Company or any Affiliate, he shall not induce any person in the employment of
the Company or any Affiliate to (i) terminate such employment, (ii) accept
employment with anyone other than the Company or any Affiliate or (iii)
interfere with the business of the Company or any Affiliate in any material
manner.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
9. Inventions.
(a) The Executive shall, during the Term of Employment, disclose to
the Company, immediately after the same is made, discovered or devised, any
improvement, process, development, discovery or invention (including works of
authorship, trade secrets, technology, computer programs, formulas,
compositions, ideas, designs, techniques and data, whether or not patentable or
otherwise capable of being protected and whether or not related to technical or
commercial matters) which he may make, discover or devise (alone or in
conjunction with others) either:
(i) in the course of his normal duties (or of duties specifically
assigned to him);
(ii) as a result of knowledge gained during his employment; or
(iii) as a result of the use by the Executive of materials,
equipment or facilities of the Company.
Subject to subsection (b) below, all such items shall become the absolute
property of the Company without further payment and the Executive shall satisfy
his obligation in this regard by presenting the same to the Company. The
Executive hereby assigns any and all rights in such items to the Company. The
Executive shall not at any time during the Term of Employment (except in the
performance of his duties) or thereafter, disclose any such improvement,
process, development, discovery or invention to any third party and, further,
shall, if and whenever required so to do by the Company (at the Company's
expense), do all acts and things as the Company may reasonably require for
obtaining any patent or other protection in respect thereof and vesting the same
and all rights therein in the Company or as the Company may direct; provided
that the above restriction shall not apply to any such improvement, process,
development, discovery or invention which is or becomes generally available to
the public other than as a result of disclosure by the Executive or by any
person to whom he has made such disclosure.
(b) In respect of any particular improvement, process, development,
discovery or invention which is not covered by subsection (a) above, the
Executive shall (before exploiting or disclosing the same or otherwise
committing himself to a third party) discuss any such item with the Company. If
the Executive shows, to the reasonable satisfaction of the Company, that any
such item is not a corporate opportunity of the Company, then Executive shall be
entitled thereafter to exploit or disclose such item.
(c) The Executive agrees that the provisions of this Section shall
survive the termination
of this Agreement, including, without limitation, his obligation to do all acts
and other things that the Company may reasonably require for obtaining any
patent or other protection in respect of any improvement, process, development,
discovery, or invention, and his obligation to disclose to the Company,
immediately after the same is made, discovered or devised, any improvement,
discovery or invention as provided in subsection (a) above.
10. Covenants to Protect Confidential Information.
(a) The Executive shall not, during the Term of Employment or
thereafter, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership or
corporation, except while employed by the Company in the business of and for the
benefit of the Company or when required to do so by a lawful order of a court of
competent jurisdiction, any Confidential Information.
(b) Except as may be otherwise consented to in writing by the
Company, the Executive shall proffer to an appropriate officer of the Company,
at the termination of his employment, without retaining any copies, notes or
excerpts thereof, all memoranda, diaries, notes, records, cost information,
customer lists, marketing plans and strategies, and any other documents
containing any Confidential Information made or compiled by, or delivered or
made available to, or otherwise obtained by the Executive in his possession or
subject to his control at such time except that the Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
11. Remedy for Violation of Noncompetition, Confidential Information or
Inventions Provisions.
(a) The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed if the Executive breaches or
threatens to breach the provisions of Sections 8, 9 or 10 above, and, therefore,
agrees that the Company shall be entitled to injunctive relief to prevent any
breach or threatened breach of any of those sections, and to specific
performance of the terms of each of such section in addition to any other legal
or equitable remedy it may have. The Executive further agrees that he shall not,
in any equity proceeding involving him relating to the enforcement of Sections
8, 9, or 10 above, raise the defense that the Company has an adequate remedy at
law. Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have or any
other rights that it may have under any other agreement.
(b) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, in no event shall
the Company be obligated to provide payments or benefits pursuant to this
Section if, and to the extent, such payments or benefits would be nondeductible
for Revenue Canada income tax purposes. Any determination to be made with
respect to this clause shall be made by the Company's regular independent
certified accountants.
12. Withholding.
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
13. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred only by will or operation of law and subject to the
limitations of this Agreement.
14. Representation.
The Executive represents and warrants that the performance of the
Executive's duties under this Agreement will not violate any agreement between
the Executive and any other person, firm, partnership, corporation or
organization.
15. Mutual Intent.
The language used in this Agreement is the language chosen by the
Parties to express their mutual intent. The Parties agree that in the event that
any language, section, clause, phrase or word used in this Agreement is
determined to be ambiguous, no presumption shall arise against or in favor of
either Party and that no rule of strict construction shall be applied against
either Party with respect to such ambiguity.
16. Entire Agreement.
This Agreement contains the entire agreement between the Parties
concerning the subject matter hereof and supersedes all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the Parties with respect thereto.
17. Amendment or Waiver.
No provision in this Agreement may be amended or waived unless such
amendment or waiver is approved by the Board of Directors of the Company and set
forth in a writing, signed by the Chairman of the Board of the Company. No
waiver by the Company of any breach by the other Party of any condition or
provision of this Agreement to be performed by such other Party shall be deemed
a waiver of a similar or dissimilar condition or provision at the same or any
prior or subsequent time.
18. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law.
19. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section are in addition to the survivorship provisions of any other section of
this Agreement.
20. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the province of Alberta. The Parties agree to submit
exclusively to the jurisdiction of the courts of the province of Alberta with
respect to any controversy, dispute or claim arising out of this Agreement.
21. Notices.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered (whether by telecopy or otherwise) or
two days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
NetGateway, Inc.
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Xx.
With a copy to:
Nida & Xxxxxxx, P.C.
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: C. Xxxxxx Xxxxxxx, Esq.
If to the Executive:
Xxxxx XxxXxxxxx
__________________________________
__________________________________
__________________________________
With a copy to:
Xxxxxx & Associates
Suite 1250, Standard Life Xxxxxxxx
000-0xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx X0X 0X0
Attn: Xxxxx X. Xxxxxx, Esq.
22. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
23. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
XXXXXXXXXXXX.XXX LTD.
By:____________________________
EXECUTIVE
_______________________________
Xxxxx XxxXxxxxx
EXHIBIT G
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into as of this 1st day of
November, 1998, between XxxxxxXxxxxx.xxx, Inc., a California corporation (the
"Company") and Xxxxx XxXxxxxx (the "Executive").
WHEREAS, NetGateway, Inc. ("NetGateway") and the shareholders of
Spartan Multimedia, Inc. ("Spartan") have entered into a Stock Purchase
Agreement dated of even date herewith (the "Stock Purchase Agreement"); and
WHEREAS, as a condition precedent to the consummation of the Stock
Purchase Agreement, the Company desires to employ the Executive and to enter
into an agreement embodying the terms of such employment (the "Agreement") and
the Executive desires to accept such employment and to enter into the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Company and the Executive (individually a "Party" and together the "Parties")
agree as follows:
1. Definitions.
All terms not otherwise defined herein shall have the meanings given
such terms in the Stock Purchase Agreement.
(a) "Affiliate" shall mean any corporation, partnership or other
entity in which the Company owns, directly or indirectly, an equity interest of
50% or more or which owns, directly or indirectly, an equity interest of 50% in
the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean (i) the Executive is convicted of a felony
involving moral turpitude, (ii) the Executive, in carrying out his duties under
this Agreement, is guilty of continued willful gross neglect or continued
willful gross misconduct resulting, in either case, in material economic harm to
the Company, unless such act, or failure to act, was believed by the Executive
in good faith to be in the best interests of the Company or any Affiliate, (iii)
the breach by Executive of Sections 8, 9 or 10 hereof, or (iv) any other action
or inaction that a court of competent jurisdiction in Alberta has deemed or
deems to be just cause for termination.
(d) "Confidential Information" shall mean all nonpublic information
respecting the Company's business including, but not limited to, its products,
research and development, processes,
customer lists, marketing plans and strategies and any other trade secrets.
Confidential information does not include information that is, or becomes,
available to the public unless such availability occurs through an unauthorized
act on the part of the Executive.
(e) "Disability" shall mean the Executive's inability to render, for
180 consecutive days, full and effective services hereunder by reason of
permanent physical or mental disability, whether resulting from illness,
accident or otherwise.
(f) "Salary" shall mean the salary provided for in Section 3 of this
Agreement or any adjusted salary granted to the Executive by the Board.
(g) "Salary Continuation Period" shall mean the period after the
termination of the Executive's employment pursuant to the terms of this
Agreement during which the Executive is entitled to continued payment of the
Salary.
(h) "Term of this Agreement" shall mean that period of time
specified in Section 2(b).
(i) "Term of Employment" shall mean the period of the Executive's
employment by the Company.
2. Term of Agreement, Position and Duties.
(a) The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company for the Term of this Agreement in the
position and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
(b) The term of this Agreement shall commence as of November __,
1998 and shall terminate upon the first to occur of (i) the termination of this
Agreement as provided herein or (ii) three years from such date.
(c) During the Term of this Agreement, the Executive shall be
employed as Vice President, Marketing of the Company. During the time he serves
in this position, the Executive shall serve under the direction of and report
directly to the President of the Company's Affiliate, XxxxxxXxxxxx.xxx, Ltd., an
Alberta corporation. During the Term of Employment, the Executive agrees to
devote his full time and attention to carrying out his duties and
responsibilities hereunder and shall use his best efforts, skills and abilities
to further the interests of the Company. Notwithstanding the foregoing, the
Executive shall be entitled to complete any consulting agreements with third
parties in effect on the date hereof and to consult on any other non-commercial
matters, provided that such consulting does not materially adversely affect the
performance of Executive's duties. During the Term of Employment, the Executive
may not serve on the board of directors of any other business entities without
the express written permission of the Board and subject to such limitations as
may be imposed by the Board in granting such permission.
3. Salary.
During the Term of this Agreement, the Executive shall be paid a
salary at the annual rates set forth below by the Company. Such salary shall be
payable in accordance with the Company's standard payroll practice and subject
to the other provisions of this Section 3. The Executive shall receive a salary
at an annual rate of Thirty-Seven Thousand Five Hundred Dollars ($37,500 USD)
for the first ninety (90) days following the date hereof. Following such 90-day
period, the Executive shall receive a salary at an annual rate of Fifty-Six
Thousand Two Hundred Fifty Dollars ($56,250 USD) (the "Pre-Profit Rate") until
the Company is profitable. Once the Company is profitable, the Executive shall
be entitled to receive a minimum salary at an annual rate of Seventy-Five
Thousand Dollars ($75,000.00 USD) or such portion thereof as can be paid out of
the "profits" of the Company, but in no event less than the Pre-Profit Rate.
Notwithstanding the foregoing, once the Company is profitable for two
consecutive fiscal quarters, the Executive shall be entitled to receive a
minimum annual salary of Seventy-Five Thousand Dollars ($75,000.00 USD). Such
salary shall be reviewed at least annually for adjustment. Subject to the other
provisions of this Section 3, any adjustment shall be determined by the Board,
in its sole discretion. For purposes hereof, "profits" shall be determined based
on EBITDA in accordance with GAAP, and NetGateway, the Company's parent, will
only charge the Company for expenses which are Company-specific and will not
charge the Company for any of the general operating expenses of NetGateway. The
Company shall reimburse Executive for reasonable out-of-pocket expenses incurred
by the Executive in the performance of his duties in accordance with the
Company's standard practices.
4. Annual Bonus.
During the Term of Employment, the Board may grant the Executive an
annual bonus. The amount of such annual bonus, if any, shall be determined by
the Board, in its sole discretion.
5. Employee Benefit Programs.
During the Term of this Agreement, the Executive shall be eligible
to participate in employee benefit plans and programs available, from time to
time, to all senior executives of the Company. Specifically, the Executive shall
be entitled to the current annual vacation entitlement as set by the Board, but
not less than 10 business days of vacation for each employment year with the
Company. The Executive shall be entitled to a pro rata share of an annual
accrual for fractional years of employment with the Company.
6. Termination of Employment.
(a) Termination Due to Death. In the event of the death of the
Executive during the Term of this Agreement, this Agreement shall immediately
terminate and the estate or other legal representative of the Executive shall be
entitled to:
(i) Salary at the rate in effect at the time of the
Executive's death, through the end of the month in which his death occurs;
and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of his death, determined in accordance with the applicable
terms and provisions of such programs.
(b) Termination Due to Disability. The Company may terminate the
Executive's employment due to the Disability of the Executive. In the event of
such a termination of the Executive's employment due to Disability during the
Term of this Agreement, this Agreement shall immediately terminate and the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time the Executive's
Disability is deemed to have commenced, through the date on which he is
terminated due to Disability; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of his Termination Due to Disability, determined in accordance
with the applicable terms and provisions of such programs.
(c) Termination for Cause. The Executive's employment may be
terminated immediately by the Company for Cause. In the event the Executive's
employment is terminated for Cause during the Term of this Agreement, the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time of the
Termination for Cause, through the date on which such Termination for
Cause occurs; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant
at the time of the Termination for Cause, determined in accordance with
the applicable terms and provisions of such programs.
(d) Termination Without Cause. The Executive's employment under this
Agreement may be terminated without Cause, as provided in this subsection.
"Termination Without Cause" shall mean a termination of the Executive's
employment by the Company during the Term of this Agreement other than due to
death, due to Disability or for Cause.
In the event there is a Termination Without Cause of the Executive's
employment, the Executive shall be entitled to:
(i) Salary at the rate in effect immediately prior to the
Termination Without Cause, for a period which shall end upon the earlier
of (x) the end of the sixth month following such termination of employment
or (y) the Executive's reemployment in a position comparable to that which
he held with the Company immediately prior to the termination of his
employment ("Comparable Reemployment"), provided, however, any Salary due
the Executive under this subsection shall be off-set by any compensation
earned by the Executive in respect of reemployment other than Comparable
Reemployment, or consulting services provided, during the Salary
Continuation Period; and
(ii) for the length of the Salary Continuation Period, any
other rights and benefits available under employee benefit programs of the
Company in which the Executive was a participant at the time of his
Termination Without Cause, determined in accordance with the applicable
terms and provisions of such programs; and
(iii) any bonus awarded but not yet paid at the time of
Executive's Termination Without Cause.
provided, however, that if at any time during the Salary Continuation Period,
the Company becomes aware of any action on the part of the Executive that would
constitute grounds for termination of the Executive's employment by the Company
for Cause, the Company shall be under no obligation to make any payments or
provide any rights or other benefits due under this Agreement.
Any payments received by the Executive under this Agreement that are
attributable to the termination of the Executive's employment shall be in full
and complete satisfaction of any and all claims the Executive may have against
the Company which are, in any way, related to the employment relationship
between the Executive and the Company.
(e) Contingent Shares. In the event that there is a Termination
Without Cause of Executive's employment prior to the Third Anniversary Date,
NetGateway shall be obligated to issue to Executive his Percentage Interest of
any unissued Contingent Shares. The foregoing shall not apply in the event that
Executive resigns or there is Termination for Cause. In such event, NetGateway's
only obligation shall be to issue to Executive that portion of such Executive's
Percentage Interest of the Contingent Shares to which Executive is entitled in
accordance with Section 1.03 of the Stock Purchase Agreement.
7. Indemnification.
(a) The Company agrees that if the Executive is made a party or is
threatened to be made a party to any action, suit or proceeding by reason of the
fact that he is or was a director or officer of the Company (a "Proceeding"), he
shall be indemnified by the Company to the fullest extent authorized by Alberta
law, consistent with the Company's certificate of incorporation (or charter) and
by-laws, against expenses, liabilities and losses reasonably incurred or
suffered by the Executive in connection therewith; provided, however:
(i) written notice of such Proceeding is given promptly
to the Company by the Executive;
(ii) the Company is permitted to participate in and assume the
defense of such Proceeding; and
(iii) such liability results from the final judgment of a
court of competent jurisdiction or, as a result of a settlement entered
into with the prior written consent of the Company or is required (x) by
such court as a bond, payment into escrow or similar payment, or (y)
otherwise to forestall imminent attachment or similar process against any
of the Executive's Stocks, and,
provided further that the Company agrees to indemnify the Executive if he seeks
indemnification in connection with a Proceeding (or part thereof) initiated by
the Executive only if such Proceeding (or part thereof) was authorized by the
Board.
(b) Notwithstanding anything to the contrary in subsection (a)
above, the Company shall be under no obligation to indemnify the Executive with
respect to any act or acts of the Executive:
(i) in a knowing violation of any written agreement between
the Executive and the Company;
(ii) for which a court, having jurisdiction in the matter,
determines that indemnification is not lawful; or
(iii) which a court, having jurisdiction in the matter,
determines to have been knowingly and fraudulently committed by the
Executive or which is the result of willful misconduct by the Executive.
(c) D&O Insurance. To the extent available on commercially
reasonable terms, the Company agrees to obtain a directors and officers
liability insurance policy covering the Executive and this policy shall be
maintained and provide coverage that is reasonable in relation to the
Executive's position during the Term of Employment.
8. Covenant Not to Engage in Certain Acts.
(a) During the Term of Employment, and for a period equal to the
greater of (x) 12-months following the end of the Term of Employment or (y) the
Salary Continuation Period, the Executive shall not, except when acting on
behalf of the Company or an Affiliate:
(i) take any action to divert any business from the Company,
or from any Affiliate, or any business which was under active
consideration by the Company, or by any Affiliate, during the Term
of Employment; or
(ii) induce customers, suppliers, agents, franchisees or other
persons under contract or franchise or otherwise doing business with
the Company, to terminate, reduce or alter business with or from the
Company or any Affiliate.
The subsections of this Section are intended by the Parties as separate and
divisible provisions and if, for any reason, any one of them is held to be
invalid or unenforceable, neither the validity nor the enforceability of any
other provision shall thereby be affected. It is the intention of the Parties
that the restrictions on the Executive's future employment imposed by this
Section be reasonable in duration. If an Alberta court shall find that the
12-month period set forth in the first paragraph hereof is unreasonable, then
the parties agree that the provisions hereof shall be applicable for a period of
nine (9) months. If such nine (9) month period shall be deemed unreasonable by
an Alberta court, then the parties agree that the provisions hereof shall be
applicable for a period of six (6) months.
The Executive understands that the provisions of this Section may limit
his ability to earn a livelihood in a business similar to the business of the
Company, but nevertheless believes that he shall receive sufficient remuneration
and other benefits hereunder to justify the restrictions contained in such
provisions which, given his education, skills and abilities, he does not believe
would prevent him from earning a living.
(b) The Executive agrees that for the Term of Employment and for the
period described in subsection (a) above, except when acting on behalf of the
Company or any Affiliate, he shall not induce any person in the employment of
the Company or any Affiliate to (i) terminate such employment, (ii) accept
employment with anyone other than the Company or any Affiliate or (iii)
interfere with the business of the Company or any Affiliate in any material
manner.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
9. Inventions.
(a) The Executive shall, during the Term of Employment, disclose to
the Company, immediately after the same is made, discovered or devised, any
improvement, process, development, discovery or invention (including works of
authorship, trade secrets, technology, computer programs, formulas,
compositions, ideas, designs, techniques and data, whether or not patentable or
otherwise capable of being protected and whether or not related to technical or
commercial matters) which he may make, discover or devise (alone or in
conjunction with others) either:
(i) in the course of his normal duties (or of duties specifically
assigned to him);
(ii) as a result of knowledge gained during his employment; or
(iii) as a result of the use by the Executive of materials,
equipment or facilities of the Company.
Subject to subsection (b) below, all such items shall become the absolute
property of the Company without further payment and the Executive shall satisfy
his obligation in this regard by presenting the same to the Company. The
Executive hereby assigns any and all rights in such items to the Company. The
Executive shall not at any time during the Term of Employment (except in the
performance of his duties) or thereafter, disclose any such improvement,
process, development, discovery or invention to any third party and, further,
shall, if and whenever required so to do by the Company (at the Company's
expense), do all acts and things as the Company may reasonably require for
obtaining any patent or other protection in respect thereof and vesting the same
and all rights therein in the Company or as the Company may direct; provided
that the above restriction shall not apply to any such improvement, process,
development, discovery or invention which is or becomes generally available to
the public other than as a result of disclosure by the Executive or by any
person to whom he has made such disclosure.
(b) In respect of any particular improvement, process, development,
discovery or invention which is not covered by subsection (a) above, the
Executive shall (before exploiting or disclosing the same or otherwise
committing himself to a third party) discuss any such item with the Company. If
the Executive shows, to the reasonable satisfaction of the Company, that any
such item is not a corporate opportunity of the Company, then Executive shall be
entitled thereafter to exploit or disclose such item.
(c) The Executive agrees that the provisions of this Section shall
survive the termination
of this Agreement, including, without limitation, his obligation to do all acts
and other things that the Company may reasonably require for obtaining any
patent or other protection in respect of any improvement, process, development,
discovery, or invention, and his obligation to disclose to the Company,
immediately after the same is made, discovered or devised, any improvement,
discovery or invention as provided in subsection (a) above.
10. Covenants to Protect Confidential Information.
(a) The Executive shall not, during the Term of Employment or
thereafter, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership or
corporation, except while employed by the Company in the business of and for the
benefit of the Company or when required to do so by a lawful order of a court of
competent jurisdiction, any Confidential Information.
(b) Except as may be otherwise consented to in writing by the
Company, the Executive shall proffer to an appropriate officer of the Company,
at the termination of his employment, without retaining any copies, notes or
excerpts thereof, all memoranda, diaries, notes, records, cost information,
customer lists, marketing plans and strategies, and any other documents
containing any Confidential Information made or compiled by, or delivered or
made available to, or otherwise obtained by the Executive in his possession or
subject to his control at such time except that the Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
11. Remedy for Violation of Noncompetition, Confidential Information or
Inventions Provisions.
(a) The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed if the Executive breaches or
threatens to breach the provisions of Sections 8, 9 or 10 above, and, therefore,
agrees that the Company shall be entitled to injunctive relief to prevent any
breach or threatened breach of any of those sections, and to specific
performance of the terms of each of such section in addition to any other legal
or equitable remedy it may have. The Executive further agrees that he shall not,
in any equity proceeding involving him relating to the enforcement of Sections
8, 9, or 10 above, raise the defense that the Company has an adequate remedy at
law. Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have or any
other rights that it may have under any other agreement.
(b) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, in no event shall
the Company be obligated to provide payments or benefits pursuant to this
Section if, and to the extent, such payments or benefits would be nondeductible
for Revenue Canada income tax purposes. Any determination to be made with
respect to this clause shall be made by the Company's regular independent
certified accountants.
12. Withholding.
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
13. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred only by will or operation of law and subject to the
limitations of this Agreement.
14. Representation.
The Executive represents and warrants that the performance of the
Executive's duties under this Agreement will not violate any agreement between
the Executive and any other person, firm, partnership, corporation or
organization.
15. Mutual Intent.
The language used in this Agreement is the language chosen by the
Parties to express their mutual intent. The Parties agree that in the event that
any language, section, clause, phrase or word used in this Agreement is
determined to be ambiguous, no presumption shall arise against or in favor of
either Party and that no rule of strict construction shall be applied against
either Party with respect to such ambiguity.
16. Entire Agreement.
This Agreement contains the entire agreement between the Parties
concerning the subject matter hereof and supersedes all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the Parties with respect thereto.
17. Amendment or Waiver.
No provision in this Agreement may be amended or waived unless such
amendment or waiver is approved by the Board of Directors of the Company and set
forth in a writing, signed by the Chairman of the Board of the Company. No
waiver by the Company of any breach by the other Party of any condition or
provision of this Agreement to be performed by such other Party shall be deemed
a waiver of a similar or dissimilar condition or provision at the same or any
prior or subsequent time.
18. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law.
19. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section are in addition to the survivorship provisions of any other section of
this Agreement.
20. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the province of Alberta. The Parties agree to submit
exclusively to the jurisdiction of the courts of the province of Alberta with
respect to any controversy, dispute or claim arising out of this Agreement.
21. Notices.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered (whether by telecopy or otherwise) or
two days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
NetGateway, Inc.
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Xx.
With a copy to:
Nida & Xxxxxxx, P.C.
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: C. Xxxxxx Xxxxxxx, Esq.
If to the Executive:
Xxxxx XxXxxxxx
__________________________________
__________________________________
__________________________________
With a copy to:
Xxxxxx & Associates
Suite 1250, Standard Life Xxxxxxxx
000-0xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx X0X 0X0
Attn: Xxxxx X. Xxxxxx, Esq.
22. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
23. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first written above.
XXXXXXXXXXXX.XXX, INC.
By:________________________
EXECUTIVE
____________________________
Xxxxx XxXxxxxx
EXHIBIT H
[Form of Opinion of Counsel to Company and Selling Stockholders]
[Name and Address of Purchaser]
Ladies and Gentlemen:
We have acted as counsel to Spartan Multimedia, Inc., an Alberta
corporation (the "Company") and all the shareholders thereof (the "Selling
Stockholders"), in connection with the Stock Purchase Agreement dated as of
November ___, 1998 (the "Stock Purchase Agreement"), by and between the Selling
Stockholders, XxxxxxXxxxxx.xxx Ltd., an Alberta corporation, and NetGateway,
Inc., a Nevada corporation and the transactions contemplated thereby.
Capitalized terms used but not defined herein shall have the respective meanings
given to such terms in the Stock Purchase Agreement.
In rendering the opinions expressed below, we have examined (a) the
Stock Purchase Agreement and (b) such corporate records of the Company and such
other documents as we have deemed necessary as a basis for the opinions
expressed below. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the authentic original documents of all documents submitted
to us as copies. When relevant facts were not independently established, we have
relied upon certificates of government officials and of the Company and the
Selling Stockholders and upon representations and warranties made in or pursuant
to the Stock Purchase Agreement.
In rendering the opinions expressed below, we have assumed (other
than as to the Selling Stockholders and the Company) that all of the documents
referred to in this opinion have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid, binding and enforceable
obligations of, all of the parties to such documents, that all signatories to
such documents have been duly authorized and that all such parties are duly
organized and validly existing and have the power and authority (corporate or
other) to execute, deliver and perform such documents.
Based upon and subject to the foregoing, and having considered such
questions of law as we deemed necessary as a basis for the opinions expressed
below, we are of the opinion that:
1. The Selling Stockholders have full power and authority to execute
and deliver the Stock Purchase Agreement, to perform its obligations thereunder
and to consummate
the transactions contemplated thereby.
2. The Stock Purchase Agreement has been duly and validly executed
and delivered by the Selling Stockholders and constitutes a legal, valid and
binding obligation of the Selling Stockholders, enforceable against the Selling
Stockholders in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally and except as the
enforceability of the Stock Purchase Agreement is subject to the application of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law), including without limitation (i) the possible
unavailability of specific performance, injunctive relief or any other equitable
remedy and (ii) concepts of materiality, reasonableness, good faith and fair
dealing.
3. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the province of Alberta, and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its Assets and Properties. The Company is
duly qualified, licensed or admitted to do business and is in good standing in
those jurisdictions where the ownership, use or leasing of its Assets and
Properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for those jurisdictions in which the
adverse effects of all such failures by the Company to be qualified, licensed or
admitted and in good standing can in the aggregate be eliminated without
material cost or expense by the Company, as the case may be, becoming qualified,
licensed or admitted and in good standing.
4. The authorized capital stock of the Company consists solely of
______ shares of Common Stock, of which only the Shares have been issued. The
Shares are duly authorized, validly issued, outstanding, fully paid and
nonassessable. To our knowledge, except for the Stock Purchase Agreement, there
are no outstanding Options with respect to the Company. The delivery of the
certificate or certificates representing the Shares in the manner provided in
Section 1.04 of the Stock Purchase Agreement will transfer to Purchaser good and
valid title to the Shares, free of any adverse claim.
5. The Company does not have, nor has it ever had, any Subsidiaries.
6. The execution, delivery and performance by the Selling
Stockholders of the Stock Purchase Agreement and the consummation of the
transactions contemplated thereby did not and will not (a) conflict with or
result in a violation or breach of any of the terms, conditions or provisions of
the articles of incorporation or by-laws of the Company, (b) conflict with or
result in a violation or breach of any term or provision of any law, statute,
rule or regulation, or of any other Law or Order known to us, applicable to the
Selling Stockholders or the Company or any of their respective Assets and
Properties or (c) (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require the Selling Stockholders or the Company to obtain any consent,
approval or action of, make any filing with or give any notice to any Person as
a result or under the terms of, (iv) result in or give to any Person any right
of termination, cancellation, acceleration or modification in or with respect
to, (v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under or (vi) result
in the creation or imposition of any Lien upon the Selling Stockholders or the
Company or any of their respective Assets and Properties under, any Contract or
License known to us to which the Selling Stockholders or the Company is a party
or by which any of their respective Assets and Properties is bound.
7. No consent, approval or action of, filing with or notice to
any Governmental or Regulatory Authority on the part of the Selling Stockholders
or the Company is required in connection with the execution, delivery and
performance of the Stock Purchase Agreement or the consummation of the
transactions contemplated thereby.
8. There are no Actions or Proceedings pending or threatened
against, relating to or affecting the Selling Stockholders, the Company or any
of the Company's Assets and Properties which (a) could reasonably be expected to
result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated by the Stock Purchase Agreement, or (b) if determined adversely to
the Selling Stockholders or the Company, could reasonably be expected,
individually or in the aggregate with other such Actions or Proceedings, to have
a material adverse effect on the Business or Condition of the Company.
At the request of our clients, this opinion is being provided to
you pursuant to Section 6.06 of the Stock Purchase Agreement, and this opinion
may not be relied upon by any other Person or for any purpose other than in
connection with the transactions contemplated by the Stock Purchase Agreement
without, in each instance, our prior written consent.
Very truly yours,
EXHIBIT I
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of the ____ day of December, 0000,
X X X X X X X:
NETGATEWAY, INC., a corporation incorporated under the laws of the
State of Nevada (hereinafter referred to as "NetGateway")
- and -
XXXXXXXXXXXX.XXX LTD., a corporation incorporated under the laws of
the Province of Alberta and having its head and principal office
located in the City of Calgary, in the Province of Alberta
(hereinafter referred to as the "Corporation")
- and -
XXXXX XXXXXXXXX, an individual resident in the City of Calgary, in
the Province of Alberta ("Rosenvall")
- and -
XXXXX XxxXXXXXX, an individual resident in the City of Calgary, in
the Province of Alberta ("MacDonald")
- and -
XXXXX XxXXXXXX, an individual resident in the City of Calgary, in
the Province of Alberta ("XxXxxxxx")
- and -
(Rosenvall, MacDonald and XxXxxxxx hereinafter referred to
collectively as the "Shareholders")
WHEREAS pursuant to the terms of the Stock Purchase Agreement dated
concurrently herewith and between the parties hereto (the "Purchase Agreement"),
the Shareholders have been issued Exchangeable Shares in the capital of the
Corporation (the "Exchangeable Shares"); and
WHEREAS the Articles of Incorporation of the Corporation dated December
___________, 1998 set forth the rights, privileges, restrictions and conditions
(collectively, the "Exchangeable Share Provisions") attaching to the
Exchangeable Shares; and
WHEREAS the parties hereto desire to make appropriate provision and to
establish a procedure whereby NetGateway will take certain actions and make
certain payments and deliveries necessary to ensure that the Corporation will be
able to make certain payments and to deliver or cause to be delivered shares of
NetGateway Common Stock in satisfaction of the obligations of the Corporation
under the Exchangeable Share Provisions with respect to the payment and
satisfaction of dividends, Liquidation Amounts, Retraction Prices and Redemption
Prices, all in accordance with the Exchangeable Share Provisions.
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this Agreement and in the Purchase Agreement and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms. Each term denoted herein by initial capital letters and not
otherwise defined herein shall have the meaning attributed thereto in the
Exchangeable Share Provisions, unless the context requires otherwise.
1.2 Interpretation not Affected by Headings, etc. The division of this Agreement
into articles, sections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.3 Number, Gender, etc. Words importing the singular number only shall include
the plural and vice versa. Words importing the use of any gender shall include
all genders.
1.4 Date for any Action. If any date on which any action is required to be taken
under this Agreement is not a Business Day, such action shall be required to be
taken on the next succeeding Business Day.
ARTICLE 2
COVENANTS OF NETGATEWAY AND THE CORPORATION
1.5 Covenants of NetGateway Regarding Exchangeable Shares. So long as any
Exchangeable Shares are outstanding, NetGateway will:
(1) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Liquidation Amount in respect of
each issued and outstanding Exchangeable Share upon the liquidation,
dissolution or winding-up of the Corporation, including without
limitation all such actions and all such things as are necessary or
desirable to enable and permit the Corporation to cause to be
delivered shares of NetGateway Common Stock to the holders of
Exchangeable Shares in accordance with the provisions of Article 5
of the Exchangeable Share Provisions;
(2) take all such actions and do all such things as are necessary or
desirable to enable and permit the Corporation, in accordance with
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Retraction Price and the
Redemption Price, including without limitation all such actions and
all such things as are necessary or desirable to enable and permit
the Corporation to cause to be delivered shares of NetGateway Common
Stock to the holders of Exchangeable Shares, upon the retraction or
redemption of the Exchangeable Shares in accordance with the
provisions of Article 6 or Article 7 of the Exchangeable Share
Provisions, as the case may be; and
(3) not exercise its vote as a shareholder to initiate the voluntary
liquidation, dissolution or winding-up of the Corporation nor take
any action or omit to take any action that is designed to result in
the liquidation, dissolution or winding-up of the Corporation.
1.6 Segregation of Funds. NetGateway will cause the Corporation to deposit a
sufficient amount of funds in a separate account and segregate a sufficient
amount of such assets and other property as is necessary to enable the
Corporation to pay or otherwise satisfy the Liquidation Amount, Retraction Price
or Redemption Price, in each case for the benefit of holders from time to time
of the Exchangeable Shares, and use such funds, assets and other property so
segregated exclusively for the payment or other satisfaction of the Liquidation
Amount, the Retraction Price or the Redemption Price, as applicable, net of any
corresponding withholding tax obligations and for the remittance of such
withholding tax obligations.
1.7 Reservation of Shares of NetGateway Common Stock. NetGateway hereby
represents, warrants and covenants that it has irrevocably reserved for issuance
and will at all times keep available, free from pre-emptive and other rights,
out of its authorized and unissued capital stock such number of shares of
NetGateway Common Stock (or other shares or securities into which NetGateway
Common Stock may be reclassified or changed as contemplated by Section 2.6
hereof) (a) as is equal to the sum of (i) the number of Exchangeable Shares
issued and outstanding from time to time and (ii) the number of Exchangeable
Shares issuable upon the exercise of all rights to acquire Exchangeable Shares
outstanding from time to time and (b) as are now and may hereafter be required
to enable and permit the Corporation to meet its obligations hereunder, under
the Exchangeable Share Provisions and under any other security or commitment
pursuant to which NetGateway may now or hereafter be required to issue shares of
NetGateway Common Stock.
1.8 Notification of Certain Events. In order to assist NetGateway to comply with
its obligations hereunder, the Corporation will give NetGateway notice of each
of the following events at the time set forth below:
(1) in the event of any determination by the board of directors of the
Corporation to institute voluntary liquidation, dissolution or
winding-up proceedings with respect to the
Corporation or to effect any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding-up its
affairs, at least 30 days prior to the proposed effective date of
such liquidation, dissolution, winding-up or other distribution;
(2) immediately, upon the earlier of (i) receipt by the Corporation of
notice of, and (ii) the Corporation otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceedings
with respect to the involuntary liquidation, dissolution or
winding-up of the Corporation or to effect any other distribution of
the assets of the Corporation among its shareholders for the purpose
of winding-up its affairs;
(3) immediately, upon receipt by the Corporation of a Retraction Notice
(as defined in the Exchangeable Share Provisions);
(4) at least 70 days prior to any accelerated Automatic Redemption Date
determined by the board of directors of the Corporation in
accordance with the Exchangeable Share Provisions; and
(5) as soon as practicable upon the issuance by the Corporation of any
Exchangeable Shares or rights to acquire Exchangeable Shares.
1.9 Delivery of Shares of NetGateway Common Stock. In furtherance of its
obligations hereunder, upon notice of any event which requires the Corporation
to cause to be delivered shares of NetGateway Common Stock to any holder of
Exchangeable Shares, NetGateway shall forthwith issue and deliver the requisite
shares of NetGateway Common Stock to or to the order of the former holder of the
surrendered Exchangeable Shares, as the Corporation shall direct. All such
shares of NetGateway Common Stock shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim, encumbrance,
security interest or adverse claim ("Encumbrances").
1.10 Equivalence.
(1) In the event that NetGateway:
(1) issues or distributes shares of NetGateway Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire shares of NetGateway Common Stock) to the
holders of all or substantially all of the then outstanding
NetGateway Common Stock by way of stock dividend or other
distribution; or
(2) issues or distributes rights, options or warrants to the
holders of all or substantially all of the then outstanding
shares of NetGateway Common Stock entitling them to subscribe
for or to purchase shares of NetGateway
Common Stock (or securities exchangeable for or convertible
into or carrying rights to acquire shares of NetGateway Common
Stock); or
(3) issues or distributes to the holders of all or substantially
all of the then outstanding shares of NetGateway Common Stock
(A) shares or securities of NetGateway of any class other than
NetGateway Common Stock (other than shares convertible into or
exchangeable for or carrying rights to acquire shares of
NetGateway Common Stock), or (B) rights, options or warrants
other than those referred to in subsection 2.6(a)(ii) above;
then NetGateway shall cause the Corporation to simultaneously issue
or distribute the equivalent on a per share basis of such rights,
options, securities or shares to holders of the Exchangeable Shares
and the Corporation shall issue or distribute such rights, options,
securities or shares simultaneously to holders of the Exchangeable
Shares.
(2) In the event that NetGateway:
(1) subdivides, redivides or changes the then outstanding shares
of NetGateway Common Stock into a greater number of shares of
NetGateway Common Stock; or
(2) reduces, combines or consolidates or changes the then
outstanding shares of NetGateway Common Stock into a lesser
number of shares of NetGateway Common Stock; or
(3) reclassifies or otherwise changes the shares of NetGateway
Common Stock or effects an amalgamation, merger,
reorganization or other transaction affecting the shares of
NetGateway Common Stock;
then NetGateway shall simultaneously cause the Corporation to make
the same or an equivalent change to, or in the rights of holders of,
the Exchangeable Shares and the Corporation shall make the same or
an equivalent change to, or in the rights of the holders of, the
Exchangeable Shares.
(3) NetGateway will ensure that the record date for any event referred
to in subsection 2.6(a) or 2.6(b) above, or (if no record date is
applicable for such event) the effective date for any such event, is
not less than 10 Business Days after the date on which such event is
declared or announced by NetGateway (with simultaneous notice
thereof to be given by NetGateway to the Corporation).
1.11 Tender Offers, etc. In the event that a tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction with respect to NetGateway
Common Stock (an "Offer") is proposed by NetGateway or is proposed to NetGateway
or its shareholders and is recommended by the board
of directors of NetGateway, or is otherwise effected or to be effected with the
consent or approval of the board of directors of NetGateway, NetGateway shall
take all such actions and do all such things as are necessary or desirable to
enable and permit holders of Exchangeable Shares to participate in such Offer to
the same extent and on an equivalent basis as the holders of shares of
NetGateway Common Stock, without discrimination.
1.12 Ownership of Outstanding Shares. Without the prior approval of the
Corporation and the prior approval of the holders of the Exchangeable Shares
given by Special Resolution, NetGateway covenants and agrees that, as long as
any outstanding Exchangeable Shares are owned by any person or entity other than
NetGateway or any of its Subsidiaries, NetGateway will be and remain the direct
or indirect beneficial owner of all issued and outstanding shares in the capital
of the Corporation and all outstanding securities of the Corporation carrying or
otherwise entitled to voting rights in any circumstances, in each case other
than the Exchangeable Shares.
1.13 Copies of Annual Financial Statements. NetGateway shall mail or caused to
be mailed (or otherwise communicate in the same manner as NetGateway utilizes in
communications to holders of NetGateway Common Stock) to each of the holders of
Exchangeable Shares copies of all annual financial statements that are
distributed to holders of shares of NetGateway Common Stock at the same time as
such annual financial statements are first sent to holders of shares of
NetGateway Common Stock.
1.14 Other Materials. Immediately after receipt by NetGateway or any shareholder
of NetGateway of any material sent or given generally to the holders of
NetGateway Common Stock by or on behalf of a third party including, without
limitation, dissident proxy and information circulars (and related information
and material) and tender and exchange offer circulars (and related information
and material), NetGateway shall use its best efforts to obtain and deliver to
the holders of Exchangeable Shares copies thereof as soon as possible
thereafter.
1.15 Due Performance. On and after the date hereof, NetGateway shall duly and
timely perform all of its obligations that may arise upon the exercise of
NetGateway's rights under the Exchangeable Share Provisions.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
1.16 Representations and Warranties of NetGateway. NetGateway hereby represents
and warrants that:
(1) NetGateway is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Nevada and has the
corporate power and authority to enter into and perform its
obligations under this Agreement;
(2) the execution, delivery and performance by NetGateway of this
Agreement:
(1) have been duly authorized by all necessary corporate action on
the part of NetGateway;
(2) do not (or would not with the giving of notice, the lapse of
time or the happening of any other event or condition) result
in a breach or a violation of, or conflict with, any of the
terms or provisions of its constating documents or by-laws or
any contracts or instruments to which it is a party or
pursuant to which any of its assets or property may be
affected; and
(3) will not result in the violation of any law;
(3) this Agreement has been duly executed and delivered by NetGateway
and constitutes a legal, valid and binding obligation of NetGateway,
enforceable against it in accordance with its terms subject to
applicable bankruptcy, insolvency, reorganization and other laws of
general application limiting the enforcement of creditors' rights
generally and to the fact that specific performance is an equitable
remedy available only in the discretion of the court; and
(4) the shares of NetGateway Common Stock (or other shares or securities
into which NetGateway Common Stock may be reclassified or changed as
contemplated by Section 2.6 hereof) to be issued and delivered
hereunder, including for greater certainty, pursuant to the
Exchangeable Share Provisions, shall, at the time of their issuance
to the holders of Exchangeable Shares, be validly created, allotted
and issued as fully paid and non-assessable shares and shall be
issued to such holders free and clear of any Encumbrances.
1.17 Representations and Warranties of the Corporation. The Corporation hereby
represents and warrants that:
(1) the Corporation is a corporation incorporated and existing under the
laws of the Province of Alberta and has the corporate power and
authority to enter into and perform its obligations under this
Agreement;
(2) the execution, delivery and performance by the Corporation of this
Agreement:
(1) have been duly authorized by all necessary corporate action on
the part of the Corporation;
(2) do not (or would not with the giving of notice, the lapse of
time or the happening of any other event or condition) result
in a breach or a violation of, or conflict with, any of the
terms or provisions of its constating documents or by-laws or
any contracts or instruments to which it is a party or
pursuant to which any of its assets or property may be
affected; and
(3) will not result in the violation of any law; and
(3) this Agreement has been duly executed and delivered by the
Corporation and constitutes a legal, valid and binding obligation of
the Corporation, enforceable against it in accordance with its terms
subject to applicable bankruptcy, insolvency, reorganization and
other laws of general application limiting the enforcement of
creditors' rights generally and to the fact that specific
performance is an equitable remedy available only in the discretion
of the court.
ARTICLE 4
NETGATEWAY SUCCESSORS
1.18 Certain Requirements in Respect of Combination, etc. If NetGateway shall
enter into any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets would become the
property of any other person or, in the case of a merger, of the continuing
company resulting therefrom, it shall ensure that such other person or
continuing company (the "NetGateway Successor"), by operation of law, becomes,
without more, bound by the terms and provisions of this Agreement or, if not so
bound, executes, prior to or contemporaneously with the consummation of such
transaction, an agreement supplemental hereto and such other instruments (if
any) as are necessary or advisable to evidence the assumption by the NetGateway
Successor of liability for all monies payable and property deliverable
hereunder, the covenant of such NetGateway Successor to pay and deliver or cause
to be delivered the same and its agreement to observe and perform all the
covenants and obligations of NetGateway under this Agreement.
1.19 Vesting of Powers in Successor. In the event that Section 4.1 hereof
applies, then, upon the NetGateway Successor becoming bound by the terms of this
Agreement by the operation of law or by the execution of an agreement
supplemental hereto, the NetGateway Successor shall possess and from time to
time may exercise each and every right and power of NetGateway under this
Agreement in the name of NetGateway or otherwise and any act or proceeding by
any provision of this Agreement required to be done or performed by the board of
directors of NetGateway or any officers of NetGateway may be done and performed
with like force and effect by the directors or officers of such NetGateway
Successor.
1.20 Subsidiaries. Nothing herein shall be construed as preventing the
amalgamation or merger or combination of any subsidiary of NetGateway with or
into NetGateway or the winding-up, liquidation or dissolution of any subsidiary
of NetGateway provided that all of the assets of such subsidiary are transferred
to NetGateway or another subsidiary of NetGateway, and any such transactions are
expressly permitted by this Article 4.
ARTICLE 5
LIQUIDATION CALL RIGHT
1.21 NetGateway shall have the overriding right (the "Liquidation Call Right"),
in the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of the Corporation pursuant to Article 5 of the Exchangeable Share
Provisions, to purchase from all but not less than all of the holders (other
than NetGateway and any Subsidiary thereof) of Exchangeable Shares on the
Liquidation Date all but not less than all of the Exchangeable Shares held by
each such holder on payment by NetGateway to the holder of the Exchangeable
Share Price applicable on the last Business Day prior to the Liquidation Date
(the "Liquidation Call Purchase Price"), which, as provided in this Section 5.1,
shall be fully paid and satisfied by the delivery by or on behalf of NetGateway
of the Exchangeable Share Consideration representing the Liquidation Call
Purchase Price. In the event of the exercise of the Liquidation Call Right by
NetGateway, each holder shall be obligated to sell all the Exchangeable Shares
held by the holder to NetGateway on the Liquidation Date on payment by
NetGateway to the holder of the Liquidation Call Purchase Price for each such
share. In connection with payment of the Exchangeable Share Consideration
representing the total Liquidation Call Purchase Price, NetGateway shall be
entitled to liquidate some of the NetGateway Common Stock that would otherwise
be deliverable to the particular holder of Exchangeable Shares in order to fund
any statutory withholding tax obligation.
1.22 To exercise the Liquidation Call Right, NetGateway must notify the holders
of Exchangeable Shares and the Corporation of NetGateway's intention to exercise
such right at least 30 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding-up of the Corporation and at least
five Business Days before the Liquidation Date in the case of an involuntary
liquidation, dissolution or winding-up of the Corporation. The Corporation will
notify the holders of Exchangeable Shares as to whether or not NetGateway has
exercised the Liquidation Call Right forthwith after the expiry of the date by
which the same may be exercised by NetGateway. If NetGateway exercises the
Liquidation Call Right, NetGateway will, on the Liquidation Date, purchase and
the holders will sell all of the Exchangeable Shares then outstanding for a
price per share equal to the Liquidation Call Purchase Price and all obligations
of the Corporation under Section 5.1 of the Exchangeable Share Provisions shall
terminate.
1.23 For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, NetGateway shall, at its option, deposit
or cause to be deposited, on or before the Liquidation Date, the Exchangeable
Share Consideration representing the total Liquidation Call Purchase Price with
the Corporation or in a custodial account with any chartered bank or trust
company in Canada. Provided that such Exchangeable Share Consideration has been
so deposited, on and after the Liquidation Date, the rights of each holder of
Exchangeable Shares will be limited to receiving such holder's proportionate
part of the total Liquidation Call Purchase Price payable by NetGateway without
interest upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the holder shall on
and after the Liquidation Date be considered and deemed for all purposes to be
the holder of the NetGateway Common Stock delivered to it. Upon surrender to the
Corporation of a certificate or certificates representing Exchangeable Shares,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Business Corporations Act (Alberta)
and the by-laws of the Corporation and such additional documents and instruments
as the Corporation may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to receive in exchange
therefor, and the Corporation on behalf of NetGateway shall deliver to such
holder, the Exchangeable Share Consideration to which the holder is entitled. If
NetGateway does not exercise the Liquidation Call Right in the manner described
above, on the Liquidation Date the holders of the Exchangeable Shares will be
entitled to receive in exchange therefor the liquidation price otherwise payable
by the Corporation in connection with the liquidation, dissolution or winding-up
of the Corporation pursuant to Article 5 of the Exchangeable Share Provisions.
ARTICLE 6
REDEMPTION CALL RIGHT
1.24 NetGateway shall have the overriding right (the "Redemption Call Right"),
notwithstanding the proposed redemption of the Exchangeable Shares by the
Corporation pursuant to Article 7 of the Exchangeable Share Provisions, to
purchase from all but not less than all of the holders (other than NetGateway or
any Subsidiary thereof) of Exchangeable Shares on the Automatic Redemption Date
all but not less than all of the Exchangeable Shares held by each such holder on
payment by NetGateway to the holder of the Exchangeable Share Price applicable
on the last Business Day prior to the Automatic Redemption Date (the "Redemption
Call Purchase Price") which, as provided in this Section 6.1, shall be fully
paid and satisfied by the delivery by or on behalf of NetGateway of the
Exchangeable Share Consideration representing the Redemption Call Purchase
Price. In the event of the exercise of the Redemption Call Right by NetGateway,
each holder shall be obligated to sell all the Exchangeable Shares held by the
holder to NetGateway on the Automatic Redemption Date on payment by NetGateway
to the holder of the Redemption Call Purchase Price for each such share. In
connection with payment of the Exchangeable Share Consideration representing the
total Redemption Call Purchase Price, NetGateway shall be entitled to liquidate
some of the NetGateway Common Stock that would be otherwise deliverable to the
particular holder of Exchangeable Shares in order to fund any statutory
withholding tax obligation.
1.25 To exercise the Redemption Call Right, NetGateway must notify the holders
of Exchangeable Shares and the Corporation of NetGateway's intention to exercise
such right at least 65 days before the Automatic Redemption Date. The
Corporation will notify the holders of the Exchangeable Shares as to whether or
not NetGateway has exercised the Redemption Call Right forthwith after the date
by which the same may be exercised by NetGateway. If NetGateway exercises the
Redemption Call Right, NetGateway will, on the Automatic Redemption Date,
purchase and the holders will sell all of the Exchangeable Shares then
outstanding for a price per share equal to the Redemption Call Purchase Price
and all of the obligations of the Corporation under Section 7.1 of the
Exchangeable Share Provisions shall terminate.
1.26 For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, NetGateway shall, at its option, deposit
or cause to be deposited, on or before the Automatic Redemption Date, the
Exchangeable Share Consideration representing the total Redemption Call Purchase
Price with the Corporation or in a custodial account with any
chartered bank or trust company in Canada. Provided that such Exchangeable Share
Consideration has been so deposited, on and after the Automatic Redemption Date
the rights of each holder of Exchangeable Shares will be limited to receiving
such holder's proportionate part of the total Redemption Call Purchase Price
payable by NetGateway upon presentation and surrender by the holder of
certificates representing the Exchangeable Shares held by such holder and the
holder shall on and after the Automatic Redemption Date be considered and deemed
for all purposes to be the holder of the NetGateway Common Stock delivered to
such holder. Upon surrender to the Corporation of a certificate or certificates
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
the Business Corporations Act (Alberta) and the by-laws of the Corporation and
such additional documents and instruments as the Corporation may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitled to receive in exchange therefor, and the Corporation on behalf of
NetGateway shall deliver to such holder, the Exchangeable Share Consideration to
which the holder is entitled. If NetGateway does not exercise the Redemption
Call Right in the manner described above, on the Automatic Redemption Date the
holders of the Exchangeable Shares will be entitled to receive in exchange
therefor the redemption price otherwise payable by the Corporation in connection
with the redemption of the Exchangeable Shares pursuant to Article 7 of the
Exchangeable Share Provisions.
ARTICLE 7
DEEMED REPRESENTATION, WARRANTY AND ACKNOWLEDGMENT
1.27 Upon the issuance of any shares of NetGateway Common Stock to a holder of
Exchangeable Shares and provided that such shares of NetGateway Common Stock
have not been registered under the United States Securities Act of 1933, as
amended, such holder shall be deemed to represent and warrant to NetGateway that
it is acquiring the shares of NetGateway Common Stock for its own account for
investment and not with a view to or in connection with any distribution or
resale thereof.
1.28 Each holder of Exchangeable Shares shall be deemed to acknowledge that
neither the Exchangeable Shares nor the shares of NetGateway Common Stock
issuable in exchange therefor have been registered under the United States
Securities Act of 1933, as amended, and that the Exchangeable Shares and the
NetGateway Common Stock may be offered and sold by the holder thereof in the
United States of America or to citizens or residents thereof only if such
Exchangeable Shares or NetGateway Common Stock, as the case may be, have been
registered under the United States Securities Act of 1933, as amended, or unless
an exemption from registration is available.
ARTICLE 8
GENERAL
1.29 Term. This Agreement shall come into force and be effective as of the date
hereof and shall terminate and be of no further force and effect at such time as
no Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire
Exchangeable Shares) are held by any party other than NetGateway and any of its
Subsidiaries.
1.30 Changes in Capital of NetGateway and the Corporation. At all times after
the occurrence of any event effected pursuant to Section 2.6 or 2.7 hereof, as a
result of which either NetGateway Common Stock or the Exchangeable Shares or
both are in any way changed, this Agreement shall forthwith be amended and
modified as necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which NetGateway Common Stock or
the Exchangeable Shares or both are so changed and the parties hereto shall
execute and deliver an agreement in writing giving effect to and evidencing such
necessary amendments and modifications.
1.31 Severability. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remainder of this Agreement shall not in any way be affected or impaired thereby
and this Agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions.
1.32 Ministerial Amendments. The parties to this Agreement may in writing, at
any time and from time to time, without the approval of the holders of the
Exchangeable Shares, amend or modify this Agreement for the purposes of:
(1) adding to the covenants of either or both parties for the protection
of the holders of the Exchangeable Shares;
(2) making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters
or questions which, in the opinion of the board of directors of each
of the Corporation and NetGateway, it may be expedient to make,
provided that each such boards of directors shall be of the opinion
that such amendments or modifications will not be prejudicial to the
interests of the holders of the Exchangeable Shares; or
(3) making such changes or corrections which, on the advice of counsel
to the Corporation and NetGateway, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent
provision or clerical omission or mistake or manifest error,
provided that the boards of directors of each of the Corporation and
NetGateway shall be of the opinion that such changes or corrections
will not be prejudicial to the interests of the holders of the
Exchangeable Shares.
1.33 Meeting to Consider Amendments. the Corporation, at the request of
NetGateway, shall call a meeting or meetings of the holders of the Exchangeable
Shares for the purpose of considering any proposed amendment or modification
requiring approval of such shareholders. Any such meeting or meetings shall be
called and held in accordance with the by-laws of the Corporation, the
Exchangeable Share Provisions and all applicable laws.
1.34 Amendments Only in Writing. No amendment to or modification or waiver of
any of the
provisions of this Agreement otherwise permitted hereunder shall be effective
unless made in writing and signed by both of the parties hereto.
1.35 Execution of Supplemental Agreements. From time to time the parties hereto
may, subject to the provisions of these presents, and they shall, when so
directed by these presents, execute and deliver (by their proper officers, if
applicable) agreements or other instruments supplemental hereto, which
thereafter shall form part hereof, for any one or more of the following
purposes:
(1) evidencing the succession of any NetGateway Successors to NetGateway
and the covenants of and obligations assumed by each such NetGateway
Successor in accordance with the provisions of Article 4;
(2) making any additions to, deletions from or alterations of the
provisions of this Agreement which, will not be prejudicial to the
interests of the holders of Exchangeable Shares or are necessary or
advisable in order to incorporate, reflect or comply with any
legislation, the provisions of which apply to the parties hereto or
this Agreement; and
(3) for any other purposes not inconsistent with the provisions of this
Agreement including, without limitation, to make or evidence any
amendment or modification to this Agreement as contemplated hereby,
provided that, the rights of the holders of Exchangeable Shares will
not be prejudiced thereby.
1.36 Inurement. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and the holders, from time to time, of Exchangeable Shares
and each of their respective heirs, successors and assigns. No transfer of any
Exchangeable Shares shall be recognized or binding upon the Corporation or
NetGateway unless and until the transferee of such Exchangeable Shares has
executed and become a party to this Agreement, as amended. Certificates
evidencing the Exchangeable Shares shall contain or have affixed thereto a
legend in form and on terms satisfactory to the Board of Directors of the
Corporation with respect to the terms of this Support Agreement, and stating
that the shares represented by the said certificates are subject to the
provisions of this agreement and that such shares are not transferrable on the
books of the Corporation except in compliance with the terms of this Support
Agreement and the Exchangeable Share Provisions.
1.37 Notices to Parties. All notices and other communications between the
parties shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for either such party as shall be specified in like
notice):
(1) if to Rosenvall at:
With a copy to:
Xxxxxx & Associates
Suite 1250 Standard Life Building
000 - 0 Xxxxxx X.X.
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
(2) if to MacDonald at:
o
With a copy to:
Xxxxxx & Associates
Suite 1250 Standard Life Building
000 - 0 Xxxxxx X.X.
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
(3) if to XxXxxxxx at:
o
With a copy to:
Xxxxxx & Associates
Suite 1250 Standard Life Building
000 - 0 Xxxxxx X.X.
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
(d) if to the Corporation or NetGateway, addressed to:
NetGateway, Inc.
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
Attn: Xxx Xxxxxxx, Xx., President
Fax: (000) 000 0000
With a copy to:
Nida & Xxxxxxx, P.C.
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Attn: C. Xxxxxx Xxxxxxx, Esq.
Fax: (000) 000 0000
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
1.38 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same instrument.
1.39 Jurisdiction. This Agreement shall be construed and enforced in accordance
with the laws of the Province of Alberta and the laws of Canada applicable
therein.
1.40 Attornment. NetGateway agrees that any action or proceeding arising out of
or relating to this Agreement may be instituted in the courts of Alberta, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said courts in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints the
Corporation at its registered office in the Province of Alberta as NetGateway's
attorney for service of process.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
NETGATEWAY, INC. XXXXXXXXXXXX.XXX LTD.
Per: ______________________________ Per: ______________________________
____________________________________ Witness XXXXX XXXXXXXXX
____________________________________ Witness XXXXX XxxXXXXXX
____________________________________ Witness XXXXX XxXXXXXX
Exhibit J
NIDA & XXXXXXX
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
PHONE 000-000-0000
FAX 000-000-0000
Los Angeles Xxxxxx
000 Xxxx 000xx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
PHONE 000-000-0000
FAX 000-000-0000
January 13, 1999
Xxxxx Xxxxxxxxx
Xxxxx XxxXxxxxx
Xxxxx XxXxxxxx
Xxxxx Xxxxx
Xxx Xxxxxxxx
Cani Services Inc.
Xxxxxx X. Xxxxx
Xx Xxxxxx
00 Xxxxx Xxxxx Xxxxxxx XX
Xxxxxxx, Xxxxxxx Xxxxxx X0X 0X0
Ladies and Gentlemen:
We have acted as counsel to NetGateway, Inc., a Nevada corporation
(the "Company"), in connection with the Stock Purchase Agreement dated as of
November 1, 1998 (the "STOCK PURCHASE AGREEMENT"), by and between NetGateway
XxxxxxXxxxxx.xxx Ltd., an Alberta corporation, and all the shareholders of
Spartan Multimedia, Inc., and Alberta corporation, and the transactions
contemplated thereby. Capitalized terms used but not defined herein shall
have the respective meanings given to such terms in the Stock Purchase
Agreement.
We have also examined and relied upon the accuracy of original,
certified, conformed, photographic or telecopied copies of such records,
agreements, certificates of government officials and of officers of the
Company, and other documents, and have made such other investigations as we
have deemed necessary or appropriate as a basis for such opinion. In all such
examinations, we have assumed the genuineness of all signatures on original
documents, the authenticity of all documents submitted to us as originals,
and the conformity to such original documents of all copies submitted to us
as certified, conformed, photographic or telecopied copies and, as to
certificates and telephonic confirmations given by public officials, we have
assumed the same to have been properly given and to be accurate. As to any
matters of fact bearing upon such opinion, we have relied solely upon the
accuracy of the statements, representations and warranties made in the
Agreement, and certificates of the Company and of governmental officials, and
we have made no independent investigation or inquiry with respect to such
factual matters.
With your consent, and for purposes of the opinion set forth below, we
have assumed the accuracy of the following matters, but we have not made any
independent investigation or inquiry with respect thereto and we render no
opinion on such matters:
(i) Each party to the Stock Purchase Agreement (other than the
Company) have duly and validly authorized, executed and delivered
the Stock Purchase Agreement.
(ii) The Stock Purchase Agreement constitutes the legal, valid and
binding obligation of each party to Stock Purchase Agreement (other than
the Company), enforceable against such party in accordance with the terms
of the Stock Purchase Agreement, except as may be limited by (a)
bankruptcy, insolvency, reorganization, receivership, fraudulent
conveyance, preferential transfer, moratorium or other similar laws or
court decisions affecting the rights and remedies of creditors
generally, or (b) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
(iii) Each party to the Stock Purchase Agreement (other than the
Company) has obtained any and all consents, permits and approvals
required by or from any and all federal, state, local or foreign
governmental agencies and authorities in connection with the
transactions contemplated thereby, to the extent necessary for the
legality, validity, binding effect or enforceability against such
party of the Stock Purchase Agreement, and all such consents, permits
and approvals are in full force and effect.
(iv) There are no understandings, agreements, actions, prceedings,
orders, rulings or judgments to which any party to the Stock Purchase
Agreement is a party or by which any such party or the assets of any
such party are bound or affected, and there are no other facts, in each
case other than as set forth or expressed in the Stock Purchase
Agreement, that would enlarge, diminish or otherwise modify or affect the
right, title, interest, obligations or liabilities of any such party
under or in connection with the Stock Purchase Agreement and which would
have an effect on the opinion set forth below.
Based upon the foregoing and subject to the matters and qualifications
hereinafter set forth, we are of the opinion that:
1. The Company has full power and authority to execute and deliver
the Stock Purchase Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby.
2. The Stock Purchase Agreement has been duly and validly
executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally and except as the enforceability
of the Stock Purchase Agreement is
subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including without
limitation (i) the possible unavailability of specific performance,
injunctive relief or any other equitable remedy and (ii) concepts of
materiality, reasonableness, good faith and fair dealing.
3. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada, and has full
corporate power and authority to conduct its business as and to the extent
now conducted and to own, use and lease its Assets and Properties.
The opinion set forth above is subject to the following additional
qualifications:
(a) We express no opinion as to any laws other than the laws of the
State of California and the federal laws of the United States of America, and
we express no opinion as to the laws, regulations or ordinances of any county
or municipality or governmental subdivision or agency of the State of
California.
(b) We express no opinion with respect to the need for any consent or
approval of, the giving of notice to, the registration with, or the taking of
any action with respect to, any Governmental or Regulatory Authority which
may be required by reason of the business activities of any party to the
Stock Purchase Agreement.
(c) We express no opinion as to (i) the effectiveness of any indemnity
provision contained in the Stock Purchase Agreement which is contrary to
public policy considerations, (ii) the effectiveness of any provision in the
Stock Purchase Agreement which purports to release a party from liability for
its own wrongful or negligent acts, (iii) the effectiveness of any waiver in
the Stock Purchase Agreement of any statutory right or of any broadly or
vaguely stated rights or unknown future rights, or any waiver which is
contrary to public policy considerations, (iv) the effectiveness of any
waiver of a right to trial by jury or of the right to file any counterclaim,
(v) the effectiveness of any provision establishing or waiving jurisdiction
or venue, (vi) the effectiveness of any provision in the Stock Purchase
Agreement which provides that it may be amended or varied, or any provision
thereof waived, only by an instrument in writing, (vii) any provision
requiring the payment of any amount, or providing for the release or
extinguishment of any right, to the extent that such provision is deemed to
constitute or result in a penalty or forfeiture, (viii) the severability of
any provision of any of the Stock Purchase Agreement, (ix) any provision
authorizing or permitting any person to act in a manner which is not in good
faith, diligent or commercially reasonable, (x) any provision in the Stock
Purchase Agreement which is inconsistent with any other provision in the
Stock Purchase Agreement or is ambiguous, and (xi) any federal, state or
provincial securities or "blue sky" laws, or any federal, state or provincial
laws relating to community property, tax, antitrust, safety, health,
environmental matters, hazardous or toxic materials, national security,
foreign persons, or endangered species.
(d) We express no opinion as to (i) the specific remedy that any court,
other governmental authority or arbitrator may grant, impose or render, and
(ii) the availability of equitable remedies (including, without limitation,
specific performance, injunctive relief and the exercise of any
powers-of-attorney) for the enforcement of any provisions of the Stock
Purchase
Agreement. The availability or enforceability of particular remedies, or
waivers contained in or in respect of the Stock Purchase Agreement, may be
limited or rendered unenforceable by applicable law, but such law does not,
in our opinion, make the remedies afforded by the Stock Purchase Agreement
(taken as whole) inadequate for the ultimate practical realization of the
benefits intended to be provided thereby.
(e) We express no opinion as to any provision which constitutes (i) a
waiver of illegality as a defense to performance or of any other defense to
performance that cannot, as a matter of law, be effectively waived, (ii) a
waiver or limitation of rights to seek protection under federal or state
bankruptcy, insolvency, reorganization or other similar laws or (iii) a
waiver or limitation of any parties rights to seek indemnification from or
other recourse against a party that has breached its fiduciary duties or
other obligations, committed fraud or otherwise made some misrepresentation.
(f) The opinion set forth above is given only as of the date hereof and
we disavow any undertaking or obligation to advise you of any changes in law
or any facts or circumstances that may hereafter occur or come to our
attention that could affect such opinion.
(g) We have assumed that there has not been any mutual mistake of fact
or misunderstanding, fraud, duress or undue influence on the part of any
party to the Stock Purchase Agreement in connection with the execution and
delivery thereof.
(h) We have assumed that the parties to the Stock Purchase Agreement
have complied and will comply with any covenants of good faith and fair
dealing.
(i) Our opinion expressed in numbered PARAGRAPH 2 includes our opinion
that the choice of governing law provisions set forth in the Stock Purchase
Agreement are enforceable; PROVIDED, HOWEVER, we express no opinion as to
whether or not such choice of governing law provisions would be enforced by a
federal, state or provincial court located outside of the State of California.
At the request of our clients, this opinion is being provided to
you pursuant to SECTION 7.07 of the Stock Purchase Agreement, and this
opinion may not be relied upon by any other Person or for any purpose other
than in connection with the transactions contemplated by the Stock Purchase
Agreement without, in each instance, our prior written consent.
Very truly yours,
/s/ NIDA & XXXXXXX, P.C.
-------------------------------
NIDA & XXXXXXX, P.C.
Exhibit L
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Registration Rights Agreement")
is made as of November 30, 1998, by and between NetGateway, Inc., a Nevada
corporation (the "Company"), and the Selling Stockholders identified on Schedule
1 hereto (each a "Holder" and collectively, the "Holders").
A. The Selling Stockholders are parties to the Stock Purchase Agreement
with the Company and XxxxxxXxxxxx.xxx Ltd., an Alberta corporation
("StoresOnline"), of even date herewith (the "Agreement"), pursuant to which the
Selling Stockholders have purchased shares of Exchangeable Shares of
StoresOnline which are exchangeable for shares of common stock ("Common Stock")
of the Company; and
B. The Company has agreed to grant to the Selling Stockholders
registration rights in respect of its Common Stock.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 Definition. The following terms shall have the meanings indicated (all
terms not otherwise defined herein shall have the meaning ascribed thereto in
the Stock Purchase Agreement):
(a) The term the "Act" shall mean the Securities Act of 1933, as
amended, and the term the "1934 Act" shall mean the Securities Exchange Act of
1934, as amended;
(b) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(c) The term "Registrable Securities" means the Common Stock
issuable or issued upon exchange of the Exchangeable Shares;
(d) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(e) The term "Form S-3 " means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the Securities and Exchange Commission (the "SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
1.2 S-3 Demand Rights.
(a) If, not earlier than two years following the Closing Date, the
Holders of at least fifty percent (50%) of the Registrable Securities then
outstanding request, in writing, that the Company file a registration statement
under the Act covering the registration of at least fifty percent (50%) of the
Registrable Securities then outstanding, then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such request to all Holders
and shall, subject to the limitations of subsection 1.2(b) below effect, as soon
as practicable, and in any event shall use its best efforts to effect within one
hundred twenty (120) days of the receipt of such request, the registration under
the Act on Form S-3 of all Registrable Securities which the Holders request to
be registered within ten (10) days of the mailing of such notice by the Company
in accordance with Section 2.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a) above. The underwriter or underwriters will be selected by the Company
and shall be reasonably acceptable to a majority in interest of the Initiating
Holders. In such event, the right of any Holder to include his or her
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e) below) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder.
(c) In addition, the Holders of a majority of Registrable Securities
shall be entitled to make two additional written demands that the Company file
an S-3 registration statement covering a number of Registrable Securities all in
accordance with the other provisions of this Section 1.2; provided, however,
that the Holders shall be solely responsible for all costs and expenses related
to such additional demand registrations.
(d) The Company is obligated to effect only three (3) such
registrations pursuant to this Section 1.2.
(e) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders.
1.3 Piggyback Rights. If (but without any obligation to do so) the Company
proposes to register any of its Common Stock under the Act in connection with
the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company employee benefits plan, or a registration relating to corporate
reorganization or other transactions under Rule 145 of the Act) the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within ten (10) days
after mailing of such notice by the Company in accordance with Section 2.5
hereof, the Company shall, subject to the provisions of Section 1.7 hereof,
cause to be registered under the Act all of the Registrable Securities that each
such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best reasonable efforts to
cause such registration statement to become effective and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to one hundred twenty (120)
days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening, of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances then existing.
1.5 Expenses of Demand Registration. All expenses, other than underwriting
discounts and commissions incurred in connection with the registration, filing
or qualification pursuant to Section 1.2 hereof, including (without limitation)
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 hereof
(a) following the first such registration or (b) if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all Participating
Holders, shall bear such expenses).
1.6 Expenses of Piggyback Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 hereof for each Holder (which right may be assigned as provided in Section
1.11 below), including (without limitation) all registration, filing and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.7 Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.3 hereof to include any of the Holders' securities
in such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling Holders according to the total amount of securities
entitled to be included therein owned by each selling Holder or in such other
proportions as shall mutually be agreed to by such selling Holders) but in no
event shall (i) the amount of securities of the selling Holders included in the
offering be reduced below twenty percent (20%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities, in which case the selling Holders may be excluded
if the underwriters make the determination
described above and no other shareholder's securities are included or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 1.2 hereof be
excluded from such offering. For purposes of the preceding parenthetical
concerning, apportionment, for any selling Holder which is a Holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and shareholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons, shall be deemed to be a single "Selling
Holder," any pro rata reduction with respect to such "Selling Holder" shall be
based upon the aggregate amount of shares carrying registration rights owned by
all entities and individuals included in such "Selling Holder," as defined in
this sentence.
1.8 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages or
liabilities, joint or several) to which they may become subject under the Act,
or the 1934 Act, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, or any
rule or regulation promulgated under the Act, or the 1934 Act; and the Company
will pay to each such Holder, underwriter or controlling person any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, or the 1934 Act, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.9(b), in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 1.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability (action if such settlement is effected without
the consent of the Holder, which consent shall not unreasonably withheld);
provided, that, in no event shall any indemnity under this subsection 1.9(b)
exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof, the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense therewith counsel mutually satisfactory
to the parties; provided, however, that any indemnified parties (together with
all other indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 1.9, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to indemnified party otherwise than under this
Section 1.9.
(d) The obligations of the Company and Holders under this Section 1
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Assignment Of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned (but
only with all related obligations) by a Holder to a transferee or assignee of
such securities who, after such assignment or transfer, holds at least 50,000
shares of Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), provided the
Company is, within thirty (30) days, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is, in
the written opinion of counsel to the Company reasonably acceptable to the
Holder, not restricted under the Act. For the purposes of determining the number
of
shares of Registrable Securities held by a transferee or assignee, the holdings
of transferees and assignees of a partnership who are partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings as of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.11 Amendment of Registration Rights. Any provision of this Section 1 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities then outstanding. Any amendment or waiver to this Registration Rights
Agreement shall be binding upon each holder of any Registrable Securities then
outstanding and the Company.
2. MISCELLANEOUS.
2.1 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Registration Rights Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series B Preferred Stock of the Company
held by the Investor or any Common Stock of the Company issued upon conversion
thereof). Nothing in this Registration Rights Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Registration Rights Agreement, except as
expressly provided in this Registration Rights Agreement.
2.2 Governing. This Registration Rights Agreement shall be governed by and
construed under the laws of the State of California.
2.3 Counterparts. This Registration Rights Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this
Registration Rights Agreement are used for convenience only and are not to be
considered in construing or interpreting this Registration Rights Agreement.
2.5 Notices. Unless otherwise provided, any notice required or permitted
under this Registration Rights Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified or
four days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
2.6 Severability. If one or more provisions of this Registration Rights
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Registration Rights Agreement and the balance of
this Registration Rights Agreement shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
NETGATEWAY, INC., a Nevada corporation
By: ____________________________________
Name:
Title:
Address:
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
SELLING STOCKHOLDERS
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
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