SECURITIES PURCHASE AGREEMENT
AMONG
PURCHASE PRO INTERNATIONAL, INC.
AND
THE PURCHASERS LISTED ON
SCHEDULE I HERETO
DATED AS OF JUNE 1, 1998
TABLE OF CONTENTS
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1. SALE AND PURCHASE OF SHARES................................. 1
1.1 Sale and Purchase of Shares................................. 1
2. PURCHASE PRICE.............................................. 1
2.1 Amount of Purchase Price.................................... 1
2.2 Payment of the Purchase Price............................... 1
3. CLOSING; TERMINATION OF AGREEMENT........................... 1
3.1 Closing Date................................................ 1
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 2
4.1 Organization and Good Standing.............................. 2
4.2 Authorization of Agreement; Enforceability.................. 2
4.3 Subsidiaries................................................ 3
4.4 Consents of Third Parties................................... 3
4.5 Authorization of Preferred Shares........................... 3
4.6 Financial Statements........................................ 4
4.7 No Undisclosed Liabilities.................................. 4
4.8 Absence of Certain Developments............................. 4
4.9 Taxes....................................................... 6
4.10 Real Property............................................... 7
4.11 Tangible Personal Property.................................. 8
4.12 Intangible Property......................................... 8
4.13 Material Contracts.......................................... 10
4.14 Employee Benefits........................................... 11
4.15 Employees................................................... 12
4.16 Litigation.................................................. 12
4.17 Compliance with Laws; Permits............................... 13
4.18 Environmental Matters....................................... 13
4.19 Investment Company Act...................................... 14
4.20 Transactions with Affiliates................................ 14
4.21 Disclosure; Survival........................................ 14
4.22 Financial Advisors.......................................... 15
4.23 Insurance................................................... 15
4.24 Improper Actions............................................ 15
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............ 15
5.1 Organization and Good Standing.............................. 15
5.2 Authorization of Agreement.................................. 16
5.3 Purchaser Representation.................................... 16
5.4 Investment Intention........................................ 16
5.5 Financial Advisors.......................................... 16
5.6 Reliance.................................................... 17
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6. FURTHER AGREEMENTS OF THE PARTIES........................... 17
6.1 Covenants................................................... 17
6.2 Use of Proceeds............................................. 17
6.3 Access to Information....................................... 17
6.4 Confidentiality............................................. 17
6.5 Other Actions............................................... 18
6.6 Indemnity................................................... 18
6.7 U.S. Real Property Holding Corporation...................... 18
6.8 Financial Statements, Reports, Etc.......................... 18
6.9 Issuance of Stock........................................... 20
6.10 Life Insurance.............................................. 20
7. DOCUMENTS TO BE DELIVERED AT THE CLOSING.................... 20
7.1 Documents to be Delivered by the Company.................... 20
7.2 Delivery of Purchase Price.................................. 20
8. MISCELLANEOUS............................................... 21
8.1 Certain Definitions......................................... 21
8.2 Tax Treatment of Preferred Stock............................ 25
8.3 Expenses.................................................... 25
8.4 Specific Performance........................................ 25
8.5 Further Assurances.......................................... 25
8.6 Submission to Jurisdiction; Consent to Service of Process... 25
8.7 Entire Agreement; Amendments and Waivers.................... 26
8.8 Governing Law............................................... 26
8.9 Table of Contents; Headings; Interpretive Matters........... 26
8.10 Notices..................................................... 26
8.11 Severability................................................ 27
8.12 Binding Effect; Assignment.................................. 27
8.13 Counterparts................................................ 27
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of June 1, 1998 (this "Agreement"),
among Purchase Pro International, Inc., a Nevada corporation (the "Company"),
the Purchasers listed on Schedule I (the "Purchasers") and Charles E. Johnson,
Jr.
W I T N E S S E T H :
WHEREAS, the Company desires to issue to each Purchaser, and each Purchaser
desires to purchase from the Company, the Shares (as such term is defined below)
in such amounts as set forth next to such Purchaser on Schedule 1; and
WHEREAS, Charles E. Johnson, Jr. is the principal stockholder of the
Company; and
WHEREAS, certain terms used in this Agreement are defined in Section 8.1
hereof;
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter contained, the parties hereto hereby agree as follows:
1. Sale and purchase of Shares.
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1.1 Sale and Purchase of Shares. Subject to the terms and conditions of
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this Agreement, on the Closing Date (as defined in Section 3.1 hereof) the
Company shall sell, assign, transfer, convey and deliver to each Purchaser, and
each Purchaser shall purchase from the Company the number of shares of Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred
Stock") listed next to such Purchaser on Schedule I (the "Shares"), for the
Purchase Price (as defined in Section 2.1 below) and upon the terms and
conditions hereinafter set forth.
2. Purchase Price.
---------------
2.1 Amount of Purchase Price. The purchase price for the Shares shall be
as indicated on Schedule I (the "Purchase Price"). The Purchase Price shall be
payable as provided in Section 2.2 hereof.
2.2 Payment of the Purchase Price. At the Closing, the Purchasers shall
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pay the Purchase Price by wire transfer of clearinghouse funds or by such other
method as may be reasonably acceptable to the Company and the Purchasers to such
account of the Company as shall have been designated in advance to the
Purchasers by the Company.
3. Closing; Termination of Agreement.
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3.1 Closing Date. The closing of the sale and purchase of the Shares
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provided for in Section 1.1 (the "Closing") shall take place at 2:00 p.m. at the
offices of the Company in Las Vegas, Nevada (or at such other place as the
parties hereto may mutually agree) on the date hereof, or on such other date as
the parties hereto may mutually agree. The date on which the Closing is held is
referred to in this Agreement as the "Closing Date." At the Closing, the parties
shall execute and deliver the documents referred to in Section 7 hereof.
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4. Representations and Warranties of the Company. The Company and Charles
----------------------------------------------
E. Johnson, Jr. jointly and severally represent and warrant to each Purchaser
that:
4.1 Organization and Good Standing.
------------------------------
(a) The Company is duly organized, validly existing and in good standing
under the laws of the State of Nevada and has full corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
as now conducted and as it is proposed to be conducted. The Company is duly
qualified or authorized to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which the conduct of its
business or the ownership of its properties or assets requires such
qualification or authorization, except for those jurisdictions where the failure
to be so qualified would not, individually or in the aggregate, have or result
in a material adverse effect on the business, properties, results of operations,
prospects or conditions (financial or otherwise) of the Company.
(b) The authorized capital stock of the Company is as set forth on
Schedule 4.1(b). Except as disclosed on Schedule 4.1(b), there is no existing
option, warrant, call, right, commitment or other agreement of any character to
which the Company is a party requiring, and there are no securities of the
Company outstanding which upon conversion or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
equity securities of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares of
capital stock or other equity securities of the Company. Except as disclosed on
Schedule 4. l(b), the Company is not a party to, nor aware of, any voting trust
or other voting agreement with respect to any of the securities of the Company
or to any agreement relating to the issuance, sale, redemption, transfer or
other disposition of the capital stock of the Company.
(c) Immediately after the Closing, the Shares (assuming immediate
conversion into Common Stock) would represent approximately 19.8% of the
outstanding Common Stock of the Company on a fully-diluted basis (assuming
exercise of all outstanding options, warrants or other rights to acquire Common
Stock).
4.2 Authorization of Agreement; Enforceability. The Company has all
------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and each other agreement, document, instrument or certificate contemplated by
this Agreement or to be executed by the Company in connection with the
consummation of the transactions contemplated by this Agreement (the
"Transaction Documents"), and to perform fully its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of this
Agreement and the Transaction Documents have been duly authorized by all
necessary corporate action on the part of the Company and its shareholders. This
Agreement and each of the Transaction Documents have been duly and validly
executed and delivered by the Company and (assuming the due authorization,
execution and delivery thereof by each Purchaser) this Agreement and each of the
Transaction Documents constitutes the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting
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creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.3 Subsidiaries.
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The Company has no Subsidiaries.
4.4 Consents of Third Parties. None of the execution and delivery by the
-------------------------
Company of this Agreement and the Transaction Documents, the consummation of the
transactions contemplated hereby or thereby, or compliance by the Company with
any of the provisions hereof or thereof will (a) conflict with, or result in the
breach of, any provision of the articles of incorporation or by-laws of the
Company; (b) conflict with, violate, result in the breach or termination of, or
constitute a default or give rise to any right of termination or acceleration or
right to increase the obligations or otherwise modify the terms thereof under
any Contract, Permit or Order to which the Company is a party or by which the
Company or any of its properties or assets is bound; (c) constitute a violation
of any Law applicable to the Company, or (d) result in the creation of any Lien
upon the properties or assets of the Company, other than, in the case of clauses
(b), (c) and (d), any such conflict, violation, breach, termination,
acceleration or other event which, individually or in the aggregate, could not
reasonably be expected to cause a Material Adverse Change. Other than those
which have been obtained or made, no consent, waiver, approval, Order, Permit or
authorization of, or declaration or filing with, or notification to, any Person
or Governmental Body is required on the part of the Company in connection with
the execution and delivery of this Agreement or the Transaction Documents, or
the compliance by the Company with any of the provisions hereof or thereof.
4.5 Authorization of Preferred Shares. The issuance, sale, and delivery
---------------------------------
of the Shares have been duly authorized by all requisite action of the Company,
and, when issued, sold, and delivered in accordance with this Agreement, the
Shares and the Common Stock deliverable upon conversion of the Shares will be
validly issued and outstanding, fully paid, and non-assessable, with no personal
liability attaching to the ownership thereof, and, except as may be set forth in
the Stockholders Agreement, not subject to preemptive or any other similar
rights of the shareholders of the Company or others.
4.6 Financial Statements. The Company has provided prior to the Closing
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Date (a) copies of the unaudited balance sheets of the Company as of March 31,
1998 and the related unaudited statements of income and cash flows for the
quarter then ended (the "Unaudited Financial Statements") and (b) the [audited]
balance sheets of the Company as of December 31, 1997 and the related
consolidated statements of income and cash flows for such year ended (such
statements, including the related notes and schedules thereto, and the Unaudited
Financial Statements, are referred to herein as the "Financial Statements").
Each of the Financial Statements was prepared in good faith by the Company, is
complete and correct in all material respects, has been prepared in accordance
with GAAP and in conformity with the practices consistently applied by the
Company and presents fairly the financial position, results of operations and
cash flows of the Company as of the dates and for the periods indicated, except,
with respect to the Unaudited Financial Statements, for the absence of footnotes
and year end adjustments.
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4.7 No Undisclosed Liabilities.
--------------------------
(a) Except as set forth on Schedule 4.7, the Company has no liabilities
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due or asserted or unasserted), except (i) obligations under Contracts
described in Schedule 4.13 or under Contracts that are not required to be
disclosed thereon as a result of dollar thresholds therein; (ii) liabilities
provided for in the Unaudited Financial Statements; (iii) liabilities (other
than accounts payable) incurred since the Unaudited Financial Statements, in the
ordinary course of business, the sum of which is, in the aggregate, no greater
than $50,000; and (iv) accounts payable in excess of those shown on the
Unaudited Financial Statements, incurred in the ordinary course of business, the
sum of which is, in the aggregate, not greater than $50,000. Unless specifically
disclosed as a breach on Schedule 4.7, disclosure of a Contract on Schedule 4.13
shall not be indicative of a breach of any provision of such Contract.
(b) The Company does not have any indebtedness to Charles E. Johnson,
Jr.
4.8 Absence of Certain Developments.
-------------------------------
(a) Except as set forth in Schedule 4.8(a), the general nature of the
business of the Company (the "Business") is described in the Information
Memorandum dated April 1998 (the "Information Memorandum") which previously has
been delivered to the Purchasers.
(b) Except as set forth in Schedule 4.8(b) and since the date of the
Unaudited Financial Statements:
(i) there has not been any Material Adverse Change nor has any event
occurred which could reasonably be expected to result in any Material Adverse
Change; or
(ii) there has not been any damage, destruction or loss, whether or not
covered by insurance, with respect to the property and assets of the Company
having a replacement cost of more than $10,000 for any single loss or $50,000
for all such losses;
(iii) there has not been any declaration, setting a record date, setting
aside or authorizing the payment of, any dividend or other distribution in
respect of any shares of capital stock of the Company or any repurchase,
redemption or other acquisition by the Company, of any of the outstanding shares
of capital stock or other securities of, or other ownership interest in, the
Company;
(iv) except for proposed grants of options to purchase 485,000 shares
under the Company's stock option plan, there has not been any transfer, issue,
sale or other disposition by the Company of any shares of capital stock or other
securities of the Company or any grant of options, warrants, calls or other
rights to purchase or otherwise acquire shares of such capital stock or such
other securities;
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(v) except with respect to the hiring of new Employees in the ordinary
course of business whose annual compensation in the aggregate is not greater
than $250,000 (exclusive of benefits), the Company has not awarded or paid any
bonuses to Employees of the Company nor has the Company entered into any
employment, deferred compensation, severance or similar agreements (nor amended
any such agreement) or agreed to increase the compensation payable or to become
payable by it to any of the Company's directors, officers, Employees, agents or
Representatives or agreed to increase the coverage or benefits available under
any severance pay, termination pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with such directors, officers, Employees,
agents or Representatives, other than in the ordinary course of business
consistent with past practice which increases in the aggregate do not exceed
$50,000 in annual cost to the Company, and other than as may have been required
by law or insurers;
(vi) the Company has not made any loans, advances or capital
contributions to, or investments in, any Person or paid any fees or expenses to
any Affiliate of the Company, other than for reimbursement of expenses in the
ordinary course of business consistent with past practices;
(vii) the Company has not mortgaged, pledged or subjected to any Lien any
of its assets, or acquired any assets or sold, assigned, transferred, conveyed,
leased or otherwise disposed of any assets, except for assets acquired or sold,
assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary
course of business consistent with past practice;
(viii) the Company has not discharged or satisfied any Lien, or paid any
obligation or liability (fixed or contingent), except in the ordinary course of
business consistent with past practice and which, in the aggregate, would not be
material to the Company;
(ix) the Company has not canceled or compromised any debt or claim or
amended, canceled, terminated, relinquished, waived or released any Contract or
right except in the ordinary course of business consistent with past practice
and which, in the aggregate, would not be material to the Company;
(x) the Company has not transferred or granted any rights under any
contracts, leases, licenses, agreements or Intangible Property (as defined in
Section 4.12 hereof) used by the Company in its business which reasonably could
be expected to result in a Material Adverse Change; and
(xi) the Company has not made any binding commitment to make any capital
expenditures or capital additions or betterments in excess of $50,000 in the
aggregate.
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4.9 Taxes.
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(a) The amount, if any, shown on the Unaudited Financial Statements, as
provision for Taxes is sufficient for payment of all accrued and unpaid federal,
state, county, local and foreign Taxes for the period then ended and all prior
periods.
(b) The Company has filed all Tax Returns (federal, state, county, local
and foreign) required to be filed by it and all such returns are true and
correct in all material respects. All Taxes shown to be due and payable on such
returns, any assessments imposed, and to the Company's knowledge all other Taxes
due and payable by the Company on or before the Closing have been paid or will
be paid prior to the time they become delinquent, other than those being
contested in good faith and listed on Schedule 4.9(b).
(c) Federal Income Tax Returns of the Company have not been audited by the
Internal Revenue Service, and no controversy with respect to Taxes of any type
is pending or, to the best of the Company's knowledge, threatened.
(d) Neither the Company nor any of its stockholders has ever filed (i) an
election pursuant to Section 1362 of the Code that the Company be taxed as an S
Corporation or (ii) consent pursuant to Section 341(f) of the Code relating to
collapsible corporations.
(e) Except as set forth on Schedule 4.9(e) , the Company's net operating
losses, if any, for federal income tax purposes, as set forth in the Financial
Statements, are not subject to any limitations imposed by Section 382 of the
Code, and consummation of the transactions contemplated by this Agreement or by
any other agreement, understanding or commitment, contingent or otherwise, to
which the Company is a party or by which it is otherwise bound will not have the
effect of limiting the Company's ability to use such net operating losses in
full to offset such taxable income.
(f) The Company has not waived any statute of limitation in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(g) The Company is not a party to any Income Tax allocation or sharing
agreement.
(h) The Company is not and has never been a member of an Affiliated Group
filing a consolidated Federal Income Tax Return.
(i) The Company is not a "United States real property holding corporation"
within the meaning of Section 847(c)(2) of the Internal Revenue Code of 1986, as
amended. 4.10 Real Property.
4.10 Real Property.
-------------
(a) The Company does not own any real property other than as set forth on
Schedule 4.10(a).
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(b) Except as set forth on Schedule 4.10(b), the Company has good, legal,
and marketable title to all of its assets, including all properties and assets
free and clear of all Liens, except those assets disposed of since the date of
the Unaudited Financial Statements in the ordinary course of business and except
for Liens incurred in the ordinary course of business which would not impair the
Company's use of such property in any material way.
(c) Schedule 4.10(c) sets forth a complete list of all real property and
interests in real property leased by the Company (each a "Real Property Lease,"
and collectively, the "Real Property Leases") as lessee or lessor. The Company
has good and marketable title to the leasehold estates in all Real Property
Leases in each case free and clear of all Liens, except for Liens incurred in
the ordinary course of business which would not impair the Company's use of such
property in any material way. The Company has no reason to believe that such
title would not be insurable subject to customary exceptions.
(d) Each of the Real Property Leases is valid and enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity), and there is no material default under any Real Property Lease by the
Company or, to the best knowledge of the Company, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of notice or
both would constitute a material default thereunder. The Company has made
available to each Purchaser true, correct and complete copies of the Real
Property Leases, together with all amendments, modifications, supplements or
side letters affecting the obligations of any party thereunder.
(e) No previous or current party to any Real Property Lease has given
notice of or made a claim with respect to any breach or default thereunder. With
respect to those Real Property Leases that were assigned or subleased to the
Company by a third party, all necessary consents to such assignments or
subleases have been obtained.
4.11 Tangible Personal Property.
--------------------------
(a) Schedule 4.11(a) sets forth all leases of personal property ("Personal
Property Leases") involving annual payments in excess of $50,000 relating to
personal property used in the business of the Company or to which the Company is
a party or by which the Company or any of its respective properties or assets is
bound. The Company has made available to each Purchaser true, correct and
complete copies of the Personal Property Leases, together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder.
(b) (i) Each of the Personal Property Leases is in full force and effect
and is valid, binding and enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity),
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and there is no material default under any Personal Property Lease by the
Company or, to the best knowledge of the Company, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of notice or
both would constitute a material default thereunder; and
(ii) No previous or current party to any such Personal Property Lease has
given notice of or made a claim with respect to any breach or default
thereunder.
(c) With respect to those Personal Property Leases that were assigned or
subleased to the Company by a third party, all necessary consents to such
assignments or subleases have been obtained.
(d) The Company has good, legal and marketable title to all of the
material items of tangible personal property used by it (except as sold or
disposed of subsequent to the date hereof in the ordinary course of business
consistent with past practice), free and clear of any and all Liens, except for
Liens incurred in the ordinary course of business which would not impair the
Company's use of such property in any material way. All such items of tangible
personal property which, individually or in the aggregate, are material to the
operation of the business of the Company are suitable for the purposes used for
the operation of the business of the Company.
4.12 Intangible Property.
-------------------
(a) "Proprietary Rights" shall mean any and all of the following which
have been or are used and/or owned by, and/or issued or licensed to the Company,
along with all income, royalties, damages and payments due or payable at the
Closing or thereafter, including, without limitation, damages and payments for
past, present or future infringements or misappropriations thereof, the right to
sue and recover for past infringements or misappropriations thereof and any and
all corresponding rights that, now or hereafter, may be secured throughout the
world: patents, patent applications, patent disclosures and inventions (whether
or not patentable and whether or not reduced to practice) and any reissue,
continuation, continuation-in-part, division, revision, extension or
reexamination thereof, utility model registrations and applications; design
registrations and applications; trademarks, service marks, trade dress, logos,
trade names and corporate names together with all goodwill associated therewith,
copyrights registered or unregistered and copyrightable works; mask works; and
all registrations, applications, and renewals for any of the foregoing; trade
secrets and confidential information (including without limitation, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research and developmental information, drawings, specifications,
designs, plans, proposals, technical data, financial, business and marketing
plans, and customer and supplier lists and related information); computer
software and software systems (including, without limitation, data, databases,
object code, source code, macrocyte and firmware and related documentation);
other proprietary and intellectual property rights; licenses or other agreements
including but not limited to those assigning, waiving or relating to rights of
publicity, moral rights or neighboring rights to or from third parties; and all
copies and tangible embodiments of the foregoing
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(in whatever form or medium), in each case including, without limitation, the
items set forth on the Schedule 4.12(b) attached hereto.
(b) Schedule 4.12(b) sets forth a complete and correct list of (i) all
patents, trademark and servicemark registrations, copyright registrations and
other registered Proprietary Rights as well as all pending applications
therefor; (ii) all corporate names, trade names and unregistered trademarks used
by the Company (to the extent not reflected on other schedules attached hereto)
as their own marks; (iii) all material unregistered copyrightable works
authorized by the Company, mask works, and material computer software owned or
licensed by the Company (other than commercial software products generally
available to consumers); and (iv) all material licenses or similar agreements to
which the Company is or just prior to closing was a party either as licensee or
licensor for the Proprietary Rights, in each case identifying the subject
Proprietary Rights.
(c) Except as set forth on Schedule 4.12(c), (i) the Company owns and
possesses all right, title and interest, free and clear of all Liens, in and to,
and, to the best knowledge of the Company, has a valid and enforceable right to,
each of the Proprietary Rights as described on Schedule 4.12(b), and no claim by
any third party contesting the validity, enforceability, use or ownership of any
of the Proprietary Rights has been made, is currently outstanding or, to the
best knowledge of the Company, is threatened, except for those which could not
reasonably be expected, individually or in the aggregate, to cause a Material
Adverse Change; (ii) the Proprietary Rights comprise all material intellectual
property rights which are currently being used by the Company or which are
necessary for the operation of the business as currently conducted by the
Company, and as currently proposed to be conducted; (iii) no loss or expiration
of any Proprietary Right or related group of Proprietary Rights is, to the
Company's knowledge, threatened, or is pending or reasonably foreseeable, except
for those which could not reasonably be expected, individually or in the
aggregate, to cause a Material Adverse Change; (iv) the Company has not received
any notices of, nor is the Company aware of any facts which indicate a
likelihood of any infringement or misappropriation by, or conflict with, any
third party with respect to any of the Proprietary Rights including, without
limitation, any demand or request by the Company that such third party license
any of the Proprietary Rights from the Company or to the Company; (v) to the
best of the Company's knowledge, the Company has not infringed, misappropriated
or otherwise conflicted with any rights, including intellectual property rights,
of any third parties, and the Company is not aware of any infringement,
misappropriation or conflict by the Company of any third-party patent,
trademark, copyright or other intellectual property right, or of any such
infringement, misappropriation or conflict which shall occur as a result of the
continued operation of the business by the Company, as currently conducted or as
currently proposed to be conducted, and there is no demand or request from a
third party that the Company take a license under any intellectual property
right; and (vi) none of the Proprietary Rights owned by or licensed to the
Company are, to the best knowledge of the Company, being infringed,
misappropriated or conflicted by any third party.
(d) All of the Proprietary Rights are owned by, or properly assigned or
licensed to, the Company or use thereof is otherwise authorized, except to the
extent that
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the failure to be so owned, assigned, licensed or otherwise authorized could not
reasonably be expected to, individually or in the aggregate, cause a Material
Adverse Change. The Company has not disclosed, and is not aware of any
disclosure by any other Person of, any of its trade secrets or confidential
information to any third party other than pursuant to a written confidentiality
agreement or disclosure to the Company's shareholders.
4.13 Material Contracts.
------------------
(a) Except as set forth on Schedule 4.13(a), neither the Company nor any
of its respective properties or assets is a party to or bound by any (i)
Contract not made in the ordinary course of business, or involving a commitment
or payment in excess of $50,000 or otherwise material to the business of the
Company; (ii) employment, consulting, non-competition, severance, "golden
parachute" or indemnification Contract involving, individually or in the
aggregate, annual payments of more than $100,000 (including, without limitation,
in each case any Contract to which the Company is a party involving Employees of
the Company); (iii) Contract among shareholders or granting a right of first
refusal or for a partnership or a joint venture or for the acquisition, sale or
lease of any assets (except in the ordinary course of business) or capital stock
of the Company or any other Person or involving a sharing of profits; (iv)
mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar Contract with respect to any real or tangible
personal property of the Company; (v) loan agreement, credit agreement,
promissory note, guarantee, subordination agreement, letter of credit or any
other similar type of Contract; (vi) Contract with any Governmental Body; (vii)
Contract with respect to the discharge, storage or removal of Hazardous
Materials; or (viii) binding commitment or agreement to enter into any of the
foregoing. The Company has delivered or otherwise made available to each
Purchaser true, correct and complete copies of the Contracts listed on Schedule
4.13(a) (except as noted thereon), together with all amendments, modifications,
supplements or side letters affecting the obligations of any party thereunder.
(b) (i) Each of the Contracts listed on Schedule 4.13(a) is valid and
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there is no material default under any
Contract listed on Schedule 4.13(a) by the Company or, to the best knowledge of
the Company, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a material
default thereunder.
(ii) No previous or current party to any Contract has given notice to the
Company of or made a claim with respect to any breach or default thereunder and
the Company is not aware of any notice of or claim to any such breach or
default.
-10-
(c) With respect to the Contracts listed on Schedule 4.13(a) that were
assigned to the Company by a third party, all necessary consents to such
assignment have been obtained.
4.14 Employee Benefits.
-----------------
(a) The Company has not made contributions to any pension, defined
benefit, or defined contribution plans for its Employees which are subject to
ERISA.
(b) Set forth on Schedule 4.14(b) is a true and complete list of each
Company Benefit Plan and each Employee Agreement providing for annual
compensation in excess of $75,000. Except as set forth on Schedule 4.14(b), the
Company does not have any plan or commitment, whether legally binding or not,
to establish any new Company Benefit Plan, to enter into any Employee Agreement
or to modify or to terminate any Company Benefit Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Benefit
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to the Purchasers, or as required by this
Agreement), nor has any intention to do any of the foregoing been communicated
to Employees.
(c) Except as set forth on Schedule 4.14(c), (i) the Company does not
maintain or contribute to any Company Benefit Plan which provides, or has any
liability to provide, life insurance, medical, severance or other employee
welfare benefits to any Employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the Code; and (ii) the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical, severance
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by Section 4980B of the Code.
(d) The Company (i) is in compliance with all applicable federal, state
and local laws, rules and regulations (domestic and foreign) respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, in each case, with respect to Employees, except where the
failure to be in such compliance could not reasonably be expected, individually
or in the aggregate, to cause a Material Adverse Change; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to Employees; (iii) is not liable for any arrearages of wages
or any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees.
(e) No work stoppage or labor strike against the Company by Employees is
pending or, to the best knowledge of the Company, threatened. The Company (i) is
not involved in or, to the best knowledge of the Company, threatened with any
significant labor dispute, grievance, or litigation relating to labor matters
involving any Employees, including, without limitation, violation of any
federal, state or local labor, safety or
-11-
employment laws (domestic of foreign), charges of significant unfair labor
practices or discrimination complaints; (ii) has not engaged in any unfair labor
practices within the meaning of the National Labor Relations Act or the Railway
Labor Act which would cause a Material Adverse Change; or (iii) is not presently
bound by, nor has been in the past a party to or bound by, any collective
bargaining agreement or union contract with respect to Employees and no such
agreement or contract is currently being negotiated by the Company or any of its
affiliates. No Employees are currently represented by any labor union for
purposes of collective bargaining and, to the best knowledge of the Company, no
activities the purpose of which is to achieve such representation of all or some
of such Employees are ongoing or threatened.
(f) Except as set forth on Schedule 4.14(f), no benefits shall accrue,
become payable vest or accelerate as a result of the Transaction under any
Company Benefit Plan or Employee Agreement, including, but not limited to, the
vesting of benefits under any "employee benefit plan" within the meaning of
Section 3(3) of ERISA, the acceleration of stock or stock related awards, or the
payment of any amount under any Employee Agreement or Company Benefit Plan.
4.15 Employees. Except as set forth on Schedule 4.15, to the best knowledge
---------
of the Company, no key executive Employee and no group of Employees or
independent contractors of the Company has any plans to terminate his, her or
its employment or relationship as an Employee or independent contractor with the
Company.
4.16 Litigation. There are no Legal Proceedings pending or, to the best
----------
knowledge of the Company, threatened that question the validity of this
Agreement or the Transaction Documents or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby. Schedule 4.16 sets forth a true, correct and complete list of
all Legal Proceedings pending or, to the best knowledge of the Company,
threatened against or affecting the Company or any of its properties or assets
(including Company Benefit Plans) of the Company, at law or in equity, and, to
the best knowledge of the Company, there is no reasonable basis for any other
such Legal Proceeding. There is no outstanding or, to the best knowledge of the
Company, threatened Order of any Governmental Body against, affecting or naming
the Company or affecting any of its properties or assets.
4.17 Compliance with Laws; Permits.
-----------------------------
(a) The Company is and at all times has been in compliance with all Laws
and Orders promulgated by any Governmental Body applicable to the Company or to
the conduct of the business or operations of the Company or the use of its
properties (including any leased properties) and assets, except where the
failure to be in such compliance could not reasonably be expected, individually
or in the aggregate, to cause a Material Adverse Change. The Company has not
received, and does not know of the issuance of, any notices of violation or
alleged violation of any such Law or Order by any Governmental Body.
-12-
(b) The Company has obtained all Permits necessary for the conduct of its
business as currently conducted, except where the failure to obtain a Permit
could not reasonably be expected, individually or in the aggregate, to cause a
Material Adverse Change. Schedule 4.17(b) lists all material Permits of the
Company obtained (or for which applications have been made for) from all
Governmental Bodies, indicating, in each case, the expiration date thereof,
which are required by the nature of the operations of the Company to permit the
operation thereof in the manner in which they are currently conducted. Such
Permits have been issued pursuant to valid applications by the Company to the
appropriate Governmental Bodies made in compliance with all applicable Laws, and
the Company has substantially complied with all conditions of such Permits
applicable to it. No material default or violation, or event that with the lapse
of time or giving of notice or both would become a material default or
violation, has occurred in the due observance of any such Permit. All such
Permits are in full force and effect without further consent or approval of any
Person. The Company has not received any notice from any source to the effect
that there is lacking any such Permit required in connection with the current
operations of the Company. The Company has made all required filings with
Governmental Bodies, except where the failure to make such filings could not
reasonably be expected, individually or in the aggregate, to cause a Material
Adverse Change.
4.18 Environmental Matters. (a) Except as set forth on Schedule 4.18, the
---------------------
operations of the Company have been and, as of the Closing Date, will be in
compliance with all Environmental Laws, except where the failure to be in such
compliance could not reasonably be expected, individually or in the aggregate,
to cause a Material Adverse Change; (b) the Company has obtained, currently
maintains and, as of the Closing Date, will have all Environmental Permits
necessary for its operations, other than such Environmental Permits the lack of
which could not reasonably be expected, individually or in the aggregate, to
cause a Material Adverse Change; all such Environmental Permits are and, as of
the Closing Date, will be, in good standing; there are no Legal Proceedings
pending or, to the best knowledge of the Company, threatened to revoke any such
Environmental Permit; the Company is, and as of the Closing Date will be, in
compliance with such Environmental Permits; and the Company has not received any
notice from any source, and has not otherwise obtained knowledge, to the effect
that there is lacking any Environmental Permit required in connection with the
current use or operation of any Real Property Lease; (c) the Company and all of
its past and current Facilities and operations are not subject to any
outstanding written Order or Contract, including Environmental Laws, with any
Governmental Body or Person, or to the best knowledge of the Company, subject to
any federal, state, local or foreign investigation respecting (1) Environmental
Laws, (2) any Remedial Action or (3) any Environmental Claim arising from the
Release or threatened Release of a Hazardous Material; (d) the Company is not
subject to any Legal Proceeding alleging the violation of any Environmental Law
or Environmental Permit; (e) the Company has not received (nor, to the best
knowledge of the Company, has there been issued) any written communication,
whether from a Governmental Body, citizens' group, Employee or any other Person,
that alleges that the Company is not in compliance with any Environmental Law or
Environmental Permit; (f) the Company has not caused or permitted any Hazardous
Materials to remain or be disposed of, either on or under real property legally
or beneficially owned or operated by the Company or on any real property not
permitted to accept, store or dispose of such Hazardous Materials; (g) the
Company does not have any liabilities with respect to Hazardous Materials, and
no facts
-13-
or circumstances exist which, in the aggregate, could give rise to liabilities
with respect to Hazardous Materials; (h) none of the operations of the Company
involves the generation, transportation, treatment, storage or disposal of
hazardous waste or subject waste, as defined under 40 C.F.R. Parts260-270 (in
effect as of the date of this Agreement); and (i) there is not now on or in any
property of the Company (1) any underground storage tanks or surface tanks,
dikes or impoundments; (2) any asbestos-containing materials or (3) any
polychlorinated biphenyls, that, in any such case described in this clause (i),
could reasonably be expected, individually or in the aggregate, to cause a
Material Adverse Change.
4.19 Investment Company Act. The Company is not, nor is it directly or
----------------------
indirectly controlled by or acting on behalf of any Person that is, an
investment company within the meaning of the Investment Company Act of 1940, as
amended.
4.20 Transactions with Affiliates. Except as set forth on Schedule 4.20,
----------------------------
the Company has not made any payment to, or received any payment from, or made
or received any investment in, or entered into any transaction with, any
Affiliate, including without limitation, the purchase, sale or exchange of
property or the rendering of any service.
4.21 Disclosure; Survival. This Agreement, the Financial Statements,
--------------------
schedules provided in connection with this Agreement and the Offering
Memorandum, taken as a whole, do not contain any untrue statement of material
fact, fairly represent the business, properties, assets, and condition,
financial or otherwise, of the Company in all material respects, and do not fail
to state a material fact necessary in order to make the statements contained
therein and herein, when taken as a whole, not misleading. There is no fact
which has not been disclosed to the Purchasers of which the Company is aware and
which materially adversely affects or could reasonably be anticipated to
materially adversely affect the business, financial condition, operating
results, earnings, assets, customer, supplier, Employee or sales representative
relations or business prospects of the Company. All representations, warranties,
covenants and agreements set forth in this Agreement or in any writing or
certificate delivered in connection with this Agreement shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and shall not be affected by any examination
made for or on behalf of any Purchaser, the knowledge of any Purchaser, or the
acceptance by any Purchaser of any certificate or opinion.
4.22 Financial Advisors. Except as disclosed on Schedule 4.22, no agent,
------------------
broker, investment banker, finder, financial advisor or other person acting on
behalf of the Company or under its authority is or will be entitled to any
broker's or finder's fee or any other commission or similar fee, directly or
indirectly, in connection with the transactions contemplated by this Agreement
or any Transaction Document and no Person is entitled to any fee or commission
or like payment in respect thereof based in any way on agreements, arrangements
or understandings made by or on behalf of the Company.
4.23 Insurance. Schedule 4.23 lists all insurance policies carried by the
---------
Company covering its properties and business. Such insurance insures against
such losses and risks as are adequate in accordance with customary industry
practice to protect the Company and its business. The Company is not in material
default with respect to its obligations under any insurance policy maintained by
it.
-14-
4.24 Improper Actions. The Company, or to the best knowledge of the
----------------
Company, any of its officers, directors, partners, employees, agents or
affiliates or any other person acting on behalf of the Company has not, directly
or indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, official or
employee of any Governmental Body, Governmental Body or any political party or
candidate for office (domestic or foreign) or other person who was, is or may be
in a position to help or hinder the business of the Company (or assist the
Company in connection with any actual or proposed transaction) which (i) might
subject the Company, or any other individual or entity to any damage or penalty
in any Legal Proceeding, (ii) if not given in the past, might have caused a
Material Adverse Change or (iii) if not continued in the future, might cause a
Material Adverse Change.
5. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants to the Company, severally, for itself only, that:
5.1 Organization and Good Standing. Each Purchaser which is an entity is
------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation or incorporation, as applicable.
5.2 Authorization of Agreement.
--------------------------
(a) Each Purchaser which is an entity has full corporate or partnership
power and authority to execute and deliver this Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement or
to be executed by each such Purchaser in connection with the consummation of the
transactions contemplated hereby and thereby (the "Purchaser Documents"), and to
perform fully its obligations hereunder and thereunder. The execution, delivery
and performance by such Purchaser of this Agreement and each Purchaser Document
has been duly authorized by all necessary corporate or partnership action on
behalf of such Purchaser.
(b) This Agreement and each Purchaser Document has been duly executed and
delivered by each Purchaser and (assuming the due authorization, execution and
delivery by the other parties hereto and thereto) this Agreement and each
Purchaser Document constitute the legal, valid and binding obligations of each
Purchaser, enforceable against such Purchaser in accordance with their
respective terms.
5.3 Purchaser Representation. Each Purchaser has such knowledge and
------------------------
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Shares. Each Purchaser has been
given the opportunity to examine all documents provided by, conduct due
diligence and ask questions of, and to receive answers from, the Company and its
respective representatives concerning the terms and conditions of an investment
in the Shares.
5.4 Investment Intention. Each Purchaser is acquiring the Shares for its
--------------------
own account, for investment purposes only and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act)
thereof in violation of the Securities Act, and that it
-15-
is an "accredited investor" within the meaning of Rule 501 of Regulation D of
the Securities and Exchange Commission. Each Purchaser understands that the
Shares have not been registered under the Securities Act and cannot be sold
unless subsequently registered under the Securities Act or an exemption from
such registration is available. The principal place of business or domicile of
each Purchaser is located in the jurisdiction where notices are to be sent to
such Purchaser as set forth on Schedule 1.
5.5 Financial Advisors. No agent, broker, investment banker, finder,
------------------
financial advisor or other person acting on behalf of each Purchaser or under
its authority is or will be entitled to any broker's or finder's fee or any
other commission or similar fee, directly or indirectly, in connection with the
transactions contemplated by this Agreement or any Transaction Document and no
Person is entitled to any fee or commission or like payment in respect thereof
based in any way on agreements, arrangements or understandings made by or on
behalf of each Purchaser.
5.6 Reliance. In making its decision to acquire the Shares, no Purchaser
--------
has relied on any information provided by the Company or its representatives
other than the Information Memorandum and the representations and warranties
contained herein and in the other documents executed in connection herewith.
6. Further Agreements of the Parties.
----------------------------------
6.1 Covenants. For so long as the Shares are convertible, the Company
---------
shall reserve that number of shares of Common Stock issuable upon conversion of
the Shares, which shares shall not be subject to any preemptive or other similar
rights (collectively, the "Reserved Shares").
6.2 Use of Proceeds. The Company shall use all of the proceeds from the
---------------
sale of the Shares under this Agreement as set forth on Schedule 6.3. The
Company's debt to the "Lexington Investor Group" shall be repaid simultaneously
with the Closing such that the equity ownership of the Lexington Investor Group
(exclusive of any Preferred Stock acquired) shall not exceed 7.8% of the
outstanding Common Stock of the Company (on a fully diluted basis).
6.3 Access to Information. Until the consummation of a Public Offering,
---------------------
the Purchasers shall be entitled, at their expense, upon reasonable notice, to
make such reasonable investigation of the properties, businesses and operations
of the Company and such examination of the books, records and financial
condition of the Company as they reasonably request and to make extracts and
copies of such books and records. Any such investigation and examination shall
be conducted during regular business hours and under reasonable circumstances
without material interference with the Company's normal business operations, and
the Company and its respective employees shall cooperate fully therein. No
investigation by the Purchasers prior to or after the date of this Agreement
shall diminish or obviate any of the representations, warranties, covenants or
agreements of the Company contained in this Agreement or the Transaction
Documents. In order that the Purchasers may have full opportunity to make such
physical, business, accounting and legal review, examination of the affairs of
the Company as may be reasonably requested, the Company shall cause its
Representative to cooperate fully with the Representatives of the Purchasers in
connection with such review and examination; provided
-16-
that the Company shall not be required to incur any material expense related
thereto. Each Purchaser shall use its reasonable best efforts to maintain the
confidentiality of information obtained as a result of the exercise of its
rights granted under this Section 6.3.
6.4 Confidentiality. Except as may be required by applicable law, neither
---------------
the Company nor the Purchasers or any of their respective Affiliates shall at
any time divulge, disclose, disseminate, announce or release any information to
any person concerning this Agreement, the Transaction Documents or the
transactions contemplated hereby or thereby without first obtaining the prior
written consent of the other party hereto; provided, however, each Purchaser
shall be entitled to disclose information with respect to its investment in the
Company on any reports such Purchaser furnishes to its investors or as otherwise
required by Law and the Company may disclose the terms of this Agreement in
connection with an issuance of debt or equity securities.
6.5 Other Actions. The Company and the Purchasers agree to execute and
-------------
deliver such other documents and take such other actions, as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Transaction Documents.
6.6 Indemnity.
---------
(a) The Company and Charles E. Johnson, Jr., jointly and severally, agree
to indemnify, defend and hold harmless each Purchaser (and its partners (and
each officer and director thereof), directors, officers, members, shareholders,
Employees, affiliates, agents and permitted assigns) from and against any and
all losses, liabilities, damages, deficiencies, costs or expenses (including
interest, penalties, and reasonable attorneys' fees, disbursements and related
charges) (collectively, "Losses") based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representations, warranties,
covenants or agreements of the Company contained in this Agreement or the
Transaction Documents.
(b) Each Purchaser agrees, severally, for itself only, to indemnify,
defend and hold harmless the Company (and its directors, officers, shareholders,
Employees, affiliates, agents and permitted assigns) from and against any and
all Losses based upon, arising out of or otherwise in respect of any inaccuracy
in or breach of any representations, warranties, covenants or agreements of such
Purchaser contained in this Agreement or the Transaction Documents.
6.7 U.S. Real Property Holding Corporation. The Company covenants that it
--------------------------------------
will operate in a manner such that it will not become a "United States real
property holding corporation" as such term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended ("USRPHC"), and the regulations
thereunder. The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg.
1.897-2(h), or any supplementary or successor provision thereto. Within 30 days
of a request from a Purchaser, the Company will inform the requesting party, in
the manner set forth in Reg. 1.897-2(h) or any supplementary or successor
provision thereto, whether that party's
-17-
interest in the Company constitutes a United States real property interest
(within the meaning of Internal Revenue Code Section 897(c)(1) and the
regulations thereunder) and whether the Company has provided to the Internal
Revenue Service all required notices as to its USRPHC status.
6.8 Financial Statements, Reports, Etc. The Company shall furnish to each
----------------------------------
Purchaser which, together with its Affiliates, purchases and continues to own at
least 100,000 Shares:
(a) as soon as available, and in any event within 90 days after the end of
each fiscal year of the Company, (i) an audited financial statement of the
Company as of the end of such fiscal year; (ii) the related statements of
income, stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with GAAP and certified by a firm of independent public
accountants of recognized national standing selected by the board of directors
of the Company and acceptable to a majority of the Purchasers (the "Annual
Financial Statements"); and (iii) any related management letters from such
accounting firm. The Annual Financial Statements shall be accompanied by a
management report describing the state of the Company's business at year end.
(b) as soon as available, and in any event within 30 days after the end of
each month in each fiscal year a balance sheet of the Company, and the related
statement of income (with statements of stockholders' equity and cash flows to
be provided quarterly), unaudited but prepared in accordance with GAAP (except
that such unaudited financial statements need not contain all of the required
footnotes and are subject to normal, recurring non-material year-end
adjustments) and certified by the chief financial officer of the Company (the
"Monthly Balance Sheet"). The Monthly Balance Sheet should be prepared as of the
end of such month with statements of income, stockholders' equity and cash flows
for such month and for the period from the beginning of the fiscal year to the
end of such month, in each case with comparative statements for the prior fiscal
year and the most recent 12-month budget delivered by the Company pursuant to
Section 6.8(c) hereof;
(c) as soon as available and in any event no later than 30 days prior to
the start of each fiscal year an annual business plan and capital and operating
expense budget, cash flow projections and income and loss projections for the
Company, in respect of such fiscal year, as approved by the board of directors
of the Company and all itemized in reasonable detail and prepared on a quarterly
basis, and, promptly after preparation, any revisions to any of the foregoing;
(d) any document relating to the affairs of the Company delivered to any
shareholders of the Company; or
(e) prompt notice, and in any event within five days after notice has been
received by the Company, of any material litigation or any adverse claims,
dispute or any other developments which could reasonably be expected to be
material to the operations, assets, or properties of the Company; provided,
however, that the rights provided in this Section 6.8 to a Purchaser shall
terminate with respect to such Purchaser upon the earlier
-18-
of (a) a Public Offering or (b) when such Purchaser (or its Affiliates) owns
less than fifty percent of the Shares, (including the Common Stock issuable upon
conversion thereof) purchased by such Purchaser at the Closing; and provided
further that the rights provided in this Section 6.8 shall only be transferable
to a transferee that acquires and continues to own at least 50% of the Shares
acquired by the Purchaser hereunder.
6.9 Issuance of Stock. In the event the Company shall issue additional
-----------------
shares of Common Stock (or any securities exercisable or convertible into Common
Stock) on or before June 1, 1999 other than pursuant to a Qualified Public
Offering, then Charles E. Johnson, Jr. shall contribute to the Company the
number of shares being sold by the Company such that any dilution in ownership
shall be borne solely by Charles E. Johnson, Jr.
6.10 Life Insurance. The Company agrees to maintain at all times life
--------------
insurance on Charles E. Johnson, Jr. of at least $2,500,000 and life insurance
on Christopher Carton of at least $1,000,000, with the Company named as
beneficiary of such policies.
7. Documents to be Delivered at the Closing.
-----------------------------------------
7.1 Documents to be Delivered by the Company. At the Closing, the Company
----------------------------------------
shall deliver, or cause to be delivered, to each Purchaser the following:
(a) Certificates representing the Shares issued hereunder;
(b) an opinion of Stoll, Keenon & Park, LLP, counsel to the Company, in
form and substance satisfactory to the Purchasers;
(c) the Stockholders Agreement;
(d) (i) certificate of good standing with respect to the Company issued by
the Secretary of State of Nevada; (ii) copy, certified by the secretary or
assistant secretary of the Company, as being a true and complete copy as of the
Closing Date, of the by-laws of the Company; and (iii) copy, certified by the
Secretary of State of Nevada, of the certificate of incorporation of the
Company;
(e) (i) copy of resolutions of the board of directors of the Company,
authorizing the execution, delivery and performance of this Agreement and the
Transaction Documents, the issuance of the Series A Preferred Stock and the
reservation of the Reserved Shares; and (ii) a certificate of the secretary or
assistant secretary of the Company, dated the Closing Date certifying that such
resolutions were duly adopted and are in full force and effect and attesting to
the true signatures and to the incumbency of the officers of the Company,
executing this Agreement and the Transaction Documents;
(f) a certificate, certified by the President or any Vice-President of the
Company, stating that the respective representations and warranties of the
Company contained in this Agreement are true and correct in all material
respects on and as of the Closing Date;
-19-
(g) Evidence that Charles E. Johnson, Jr. shall have forgiven any and all
indebtedness from the Company to him such that any such amount will be
capitalized as equity of the Company and as to the terms of the outstanding loan
from Bank One to Charles E. Johnson, Jr. and evidence that Charles E. Johnson,
Jr. has foregone any right to special compensation (whether or not previously
earned and accrued) pursuant to the terms of Item 1f of that certain Loan and
Stock Purchase Agreement dated as of January 15, 1998;
(h) Evidence that the following persons shall have been elected as members
of the board of directors of the Company: Johnson, Brad Redmon, John Chiles,
Maurice J. Gallagher, Jr. and Timothy P. Flynn;
(i) Evidence that the Company has repaid in full the loan made to the
Company pursuant to that certain Loan and Stock Purchase Agreement dated as of
January 15, 1998; and
(j) such other documents as the Purchasers shall reasonably request.
7.2 Delivery of Purchase Price. At the Closing, each Purchaser shall
--------------------------
deliver its Purchase Price by wire transfer to an account of which the Company
shall notify the Purchasers prior to the Closing Date.
8. Miscellaneous.
--------------
8.1 Certain Definitions.
-------------------
"Affiliate" of any Person means any Person that directly or indirectly
controls, or is under common control with, or is controlled by, such Person. As
used in this definition, "control" (including with its correlative meanings,
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Benefit Plan" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including, without limitation, each "Employee benefit plan," within the meaning
of Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Section 3(37) or 4001(a)(3) of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Company Benefit Plan" means each Benefit Plan (other than an Employee
Agreement) which is now or previously has been sponsored, maintained,
contributed to, or required to be
-20-
contributed to, or with respect to which any withdrawal liability (within the
meaning of Section 4201 of ERISA) has been incurred, by the Company for the
benefit of any Employee, and pursuant to which the Company has or may have any
liability, contingent or otherwise.
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy, commitment or other arrangement or agreement, whether written
or oral.
"Employee" means each current, former, or retired employee, office
consultant, independent contractor, agent or director of the Company.
"Employee Agreement" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between the Company and any Employee pursuant to which the Company has or may
have any liability, contingent or otherwise.
"Environmental Claim" means any accusation, allegation, notice of
violation, action, claim, Lien, demand, abatement or other Order or direction
(conditional or otherwise) by any Governmental Body or any Person for personal
injury (including sickness, disease or death), tangible or intangible property
damage, damage to the environment, nuisance, pollution, contamination or other
adverse effects on the environment, or for fines, penalties or restrictions
resulting from or based upon (i) the existence, or the continuation of the
existence, of a Release (including, without limitation, sudden or non-sudden
accidental or non-accidental Releases) of, or exposure to, any Hazardous
Material or other substance, chemical, material, pollutant, contaminant, odor,
audible noise, or other Release in, into or onto the environment (including,
without limitation, the air, soil, surface water or groundwater) at, in, by,
from or related to the Facilities or any activities conducted thereon; (ii) the
environmental aspects of the transportation, storage, treatment or disposal of
Hazardous Materials in connection with the operation of the Facilities; or (iii)
the violation, or alleged violation, of any Environmental Laws, Orders or
Permits of or from any Governmental Body relating to environmental matters
connected with the Facilities.
"Environmental Law" means any Law concerning Releases into any part of the
natural environment, or activities that might result in damage to the natural
environment, or any Law that is concerned in whole or in part with the natural
environment and with protecting or improving the quality of the natural
environment and protecting public and Employee health and safety and includes,
but is not limited to, the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") (42 U.S.C. (S) 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Clean Water Act
(33 U.S.C. (S) 1251 et seq.), the Clean Air Act (33 U.S.C. (S) 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et seq.) and the
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.) ("OSHA"), as such
laws have been amended or supplemented, and the regulations promulgated pursuant
thereto, and any and all analogous state or local statutes, and the regulations
promulgated pursuant thereto, and any and all treaties, conventions and
environmental public and employee health and safety statutes and
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regulations or analogous requirements of non-United States jurisdictions in
which the Company conducts any business.
"Environmental Matters" means any matter arising out of or relating to the
production, storage, transportation, disposal or Release of any Hazardous
Material or otherwise arising out of or relating to safety, health or the
environment which could give rise to liability or require the expenditure of
money to address, and shall include, without limitation, the costs of
investigating and remedying any of the foregoing matters, any fines and
penalties arising in connection therewith, and any claim in respect thereof for
damages or injunctive relief for alleged personal injury, property damage or
damage to natural resources under common law or other Environmental Law.
"Environmental Permit" means any Permit, variance, registration, or
permission required under any applicable Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any regulations promulgated or proposed thereunder.
"Facility" means real property owned, leased or operated by the Company.
"GAAP" means generally accepted accounting principles, as in effect in the
United States.
"Governmental Body" means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Hazardous Materials" means any substance, material or waste which is
regulated by any local, state or federal Governmental Body in the jurisdiction
in which the Company conducts business, or the United States, including, without
limitation, any material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "subject waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law, including but not
limited to, petroleum products, asbestos, radon and polychlorinated biphenyls.
"Law" means any federal, state, local or foreign law (including common
law), statute, code, ordinance, rule, regulation or other requirement or
guideline.
"Legal Proceeding" means any judicial, administrative or arbitral actions,
suits, proceedings (public or private), claims or governmental proceedings.
"Lien" means any lien, pledge, hypothecation, levy, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Material Adverse Change" means any material adverse change in the
business, properties, results of operations, prospects or condition (financial
or otherwise) of the Company.
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"material default" means a default which could reasonably be expected to
result in a Material Adverse Change.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Permits" means any approvals, authorizations, consents, licenses, permits
or certificates by any Governmental Body.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Public Offering" means a firm commitment underwritten public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as then in effect or any comparable statement under any
similar federal statute then in force or effect.
"Qualified Public Offering" shall have the meaning set forth in the
Stockholders Agreement.
"Release" means any release, spill, effluent, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, or migration into
the indoor or outdoor environment, or into or out of any property owned,
operated or leased by the Company, including the movement of any Hazardous
Material or other substance through or in the air, soil, surface water,
groundwater, or property.
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat, or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care; or
(iv) bring any Facility into compliance with all Environmental Laws and
Environmental Permits.
"Representatives" of a Person means its officers, Employees, agents, legal
advisors and accountants.
"Stockholders Agreement" means the Stockholders' Agreement dated as of the
date hereof, by and among the Company and the shareholders listed on the
signature pages thereto.
"Taxes" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
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"Tax Return" means any return declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
8.2 Tax Treatment of Preferred Stock. The Company agrees that the Series A
--------------------------------
Preferred Stock is stock which participates in corporate growth to a significant
extent within the meaning of Treasury Regulation (S) 1.305-5(a), and hence will
not be treated as preferred stock for purposes of Internal Revenue Code (S) 305
and the regulations thereunder. Accordingly, the Company has determined that
there will not be constructive distributions under Treasury Regulation (S)
1.305-5(b) with respect to the Series A Preferred Stock.
8.3 Expenses. The Company shall pay all fees and expenses incurred by
--------
the Purchasers associated with this transaction, including legal expenses and
out-of pocket expenses. The Company shall pay all stamp and other taxes which
may be payable in respect of the execution and delivery of this Agreement, the
Transaction Documents, or the issuance, delivery or acquisition of the Shares
and all blue sky expenses.
8.4 Specific Performance. The Company acknowledges and agrees that the
--------------------
breach of this Agreement would cause irreparable damage to the Purchasers and
that the Purchasers will not have an adequate remedy at law. Therefore, the
obligations of the Company under this Agreement, including, without limitation,
the Company's obligation to sell the Shares to the Purchasers, shall be
enforceable by a decree of specific performance issued by any court of competent
jurisdiction, and appropriate injunctive relief may be applied for and granted
in connection therewith. Such remedies shall, however, be cumulative and not
exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
8.5 Further Assurances. The Company and the Purchasers each agree to
------------------
execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby.
8.6 Submission to Jurisdiction; Consent to Service of Process.
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(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the County of Clark,
State of Nevada over any dispute arising out of or relating to this Agreement or
any of the transactions contemplated hereby and each party hereby irrevocably
agrees that all claims in respect of such dispute or any suit, action or
proceeding related thereto may be heard and determined in such courts. The
parties hereby irrevocably waive, to the fullest extent permitted by applicable
law, any objection which they may now or hereafter have to the laying of venue
of any such dispute brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.
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(b) Each of the parties hereto hereby consents to process being served by
any party to this Agreement in any suit, action or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 8.10.
8.7 Entire Agreement; Amendments and Waivers. This Agreement (including
----------------------------------------
the schedules and exhibits hereto) represents the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and can be amended, supplemented or changed, and any provision hereof can be
waived, only by written instrument making specific reference to this Agreement
signed by the parties hereto. No action taken pursuant to this Agreement,
including without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representation, warranty, covenant or agreement contained
herein. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach. No failure on the
part of any party to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.
8.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Nevada without giving effect to the
principles of conflict of laws thereunder which would specify the application of
the law of another jurisdiction.
8.9 Table of Contents; Headings; Interpretive Matters. The table of
-------------------------------------------------
contents and section headings of this Agreement are for reference purposes only
and are to be given no effect in the construction or interpretation of this
Agreement. No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
8.10 Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be deemed given when delivered personally,
telecopied or mailed by certified mail, return receipt requested, to the parties
at the following addresses (or to such other address as a party may have
specified by notice given to the other party pursuant to this provision):
If to the Company or Charles E. Johnson, Jr., to:
Purchase Pro International, Inc
6285 South Industrial Road
Las Vegas, Nevada 89128
Attn:
Fax: (702)270-2030
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With a copy (which shall by itself not constitute notice) to:
Dan M. Rose, Esq.
Stoll, Keenon & Park, LLP
201 E. Main Street
Suite 1000
Lexington, KY 40507
If to the Purchasers, to the address listed in Schedule 1.
All notices are effective upon receipt or upon refusal if properly
delivered.
8.11 Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of this Agreement shall remain in effect.
8.12 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the parties and their respective successors and
permitted assigns (as permitted in accordance with the terms of this Agreement).
Nothing in this Agreement shall create or be deemed to create any third-party
beneficiary rights in any person or entity not a party to this Agreement except
as provided below. No assignment of this Agreement or of any rights or
obligations hereunder may be made by the Company or the Purchasers (by operation
of law or otherwise) without the prior written consent of the other parties
hereto and any attempted assignment without the required consents shall be void;
provided, however, that the Purchasers may assign this Agreement and any or all
rights and obligations hereunder, in whole or in part, to any Affiliate of the
Purchasers, but any such assignment shall not relieve the Purchasers of their
respective obligations hereunder. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of any Purchaser as a purchaser or holder of Shares (or any securities
pursuant to which such Shares may be converted or exercised into) are also for
the benefit of and enforceable by, any subsequent holder of such securities.
Upon any permitted assignment, the references in this Agreement to the
Purchasers shall also apply to any such assignee unless the context otherwise
requires.
8.13 Counterparts. This Agreement may be executed simultaneously 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.
SECURITIES PURCHASE AGREEMENT SIGNATURE PAGES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
PURCHASE PRO INTERNATIONAL,
INC.
By:/s/ Charles E. Johnson, Jr.
-----------------------------------------
Name: Charles E. Johnson, Jr.
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Title: Chairman and Chief Executive Officer
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Securities Purchase Agreement - Purchase Pro International Inc.
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