MERGER AND BUSINESS DEVELOPMENT AGREEMENT
This Merger and Business Development Agreement dated as of June 23, 1999
(this "Agreement") by and among Spectrum Information Technologies, Inc., doing
business as Siti-Sites. com, a Delaware corporation ("SITI"), SITI-II, Inc., a
Delaware corporation and a wholly-owned subsidiary of SITI ("SITI-II"), Tropia,
Inc., a Delaware corporation ("Tropia"), Red Hat Productions, Inc., a New York
corporation ("Red Hat"), and Ari Blank ("A. Blank") and Arjun Nayyar ("Nayyar"
and, together with Red Hat and A. Blank, the "Sellers").
WHEREAS, each of Jonathan Blank ("J. Blank"), Lawrence Powers ("L. Powers")
and Barclay Powers ("B. Powers") is a shareholder of SITI, and also owns 33-1/3%
of the issued and outstanding stock of Red Hat;
WHEREAS, Red Hat owns 55%, A. Blank owns 22-1/2% and Nayyar owns 22- 1/2%
of the issued and outstanding stock of Tropia;
WHEREAS, Tropia is engaged in, and is continuing to develop, the Business
(as defined below), and in connection therewith has established and is
continuing to develop a web site (the "Web Site") relating to the music
industry; and
WHEREAS, SITI and the Sellers desire that Tropia become a wholly-owned
subsidiary of SITI by merging SITI-II with and into Tropia, and that the
Business continue to be developed by J. Blank, A. Blank and Nayyar
(collectively, the "Individuals"), all upon the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereby agree as follows:
1. BUSINESS; BUDGET. The parties intend to use compressed digital music
formats such as MP3 to develop a virtual record company which will promote
independent music artists by enabling them to distribute their music to a global
audience through the Web Site. They further intend for consumers to be able to
listen to streaming music on, and to download MP3 versions of songs from, the
Web Site. The parties expect Tropia to derive revenues from, among other
sources, Web Site viewers who purchase compact discs and other merchandise and
products relating to the featured artists, as well as from advertising and from
services provided to featured artists. For purposes of this Agreement,
"Business" shall refer specifically to and be limited to such Internet based
music Web Site targeted at the general public featuring downloadable music,
streaming music and the sale of music related merchandise. While the Business
may grow to encompass other aspects, the definition of "Business" shall not
include such other aspects.
The parties have prepared a budget, a copy of which is attached hereto as
Exhibit A (the "Budget"), forecasting the revenues and expenses of the Business
for the first six months following the date hereof. The Individuals shall
prepare a similar budget for the six month period subsequent thereto (which is
expected to be larger and require more funding than the Budget for the first six
months following the date hereof) for approval by SITI, which approval shall not
be unreasonably withheld. The Individuals and SITI shall also prepare a similar
budget for each subsequent 12 month period thereafter.
2. THE MERGER. (a) On or as soon as practicable after the date hereof, the
parties shall cause SITI-II to be merged (the "Merger") with and into Tropia by
duly executing and filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware. The Merger shall be
effected upon the terms set forth in this Agreement and shall be effective upon
the filing of the Certificate of Merger. Tropia shall be the surviving
corporation in the merger and shall continue its corporate existence under the
laws of the State of Delaware and the separate corporate existence of SITI-II
shall cease.
(b) Following the filing of the Certificate of Merger as set forth above,
the Merger shall have the effects set forth herein and in the General
Corporation Law of the State of Delaware. Without limiting the generality of the
foregoing, and subject thereto, after such filing all the property, rights,
privileges, powers and franchises of Tropia and Siti-II shall vest in the
surviving corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of Tropia and Siti-II shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the surviving
corporation.
(c) Following the filing of the Certificate of Merger as set forth above,
(i) the Certificate of Incorporation of Tropia shall become the Certificate of
Incorporation of the surviving corporation until amended in accordance with the
provisions thereof and applicable law, provided that following the filing of the
Certificate of Merger such Certificate of Incorporation shall be amended so that
the name of the surviving corporation shall be "Tropia, Inc.", (ii) the By-Laws
of SITI-II shall become the By-Laws of the surviving corporation until amended
in accordance with the provisions thereof and applicable law, and (iii) L.
Powers, Jon Gerber and J. Blank shall be the initial directors of the surviving
corporation, and the officers of Tropia immediately prior to the effective date
of the Merger shall be the initial officers of the surviving corporation, each
to hold office in accordance with the Certificate of Incorporation and the
By-Laws of the surviving corporation.
(d) Following the filing of the Certificate of Merger as set forth above,
by virtue of the Merger and without any action on the part of SITI- II, Tropia
or their respective shareholders, (i) each issued and outstanding share of
common stock of Tropia shall be canceled, shall be deemed to be no longer
outstanding, shall not be transferable on the books of the surviving corporation
and shall be converted automatically into and represent the right to receive the
kind and amount of consideration set forth in this Agreement, and (ii) the
shares of common stock, par value $0.001 per share, of SITI-II issued and
outstanding shall be converted into and exchangeable for, in the aggregate,
1,000 validly issued, fully paid and non-assessable shares of common stock, par
value $0.001, of the surviving corporation, which shall constitute all of the
issued and outstanding shares of the surviving corporation.
3. WAIVER OF CONSIDERATION; MERGER CONSIDERATION; ESCROW. (a) L. Powers and B.
Powers hereby agree to waive their right to receive any merger consideration to
which they would otherwise have been entitled as shareholders of Red Hat in
connection with the Merger, and further waive their right to reimbursement of
prior cash advances to Red Hat which were used for Tropia's benefit. L. Powers,
B. Powers, J. Blank and Red Hat acknowledge and agree that as a result of the
foregoing waiver, the amount of merger consideration to be received by Red Hat
shall be reduced by 66- 2/3% and that all merger consideration to be received by
Red Hat shall be distributed by Red Hat solely to J. Blank on account of his
interest in Red Hat.
(b) In connection with the Merger and subject to the terms hereof, the
Sellers shall be entitled to receive up to an aggregate of 316,667 shares of
SITI's common stock, par value $0.001 ("SITI Shares") in accordance with Section
3(b). The parties acknowledge that the number of SITI Shares to be received by
the Sellers has been calculated based upon a total valuation and consideration
of 500,000 SITI Shares, and such amount was reduced as a result of the waiver
contained in Section 3(a). SITI agrees that it shall reserve 183,333 SITI Shares
(which equals the number of additional SITI Shares that would otherwise have
been issued to Red Hat but for the waiver contained in Section 3(a)), and that
it shall issue such shares in the future (and/or options to acquire such shares
at the then current share price) to such management personnel working for Tropia
after the date hereof, as SITI and the Chief Executive Officer of Tropia may
agree upon.
(c) (i) On the effective date of the Merger, SITI shall issue and deliver
a total of 158,333 Siti Shares as follows: (A) 56,250 SITI Shares to A. Blank,
(B) 56,250 SITI Shares to Nayyar, and (C) 45,833 SITI Shares to Red Hat (for
distribution solely to J. Blank on account of his interest in Red Hat), in
consideration of the Merger. Red Hat agrees that it shall distribute such Siti
Shares to J. Blank as of the effective date of the Merger, and the shareholders
of Red Hat hereby unanimously consent to such distribution.
(ii) On the effective date of the Merger, SITI shall also issue and
deliver to Sills Cummis Radin Tischman Epstein & Gross, P.A., as escrow Agent
(the "Escrow Agent"), pursuant to an Escrow Agreement dated the date hereof (the
"Escrow Agreement"), an additional 158,333 SITI Shares as follows: (A) 56,250
additional SITI Shares in the name of A. Blank, (B) 56,250 additional SITI
Shares in the name of Nayyar, and (C) 45,833 additional SITI Shares in the name
of Red Hat (for distribution solely to J. Blank on account of his interest in
Red Hat), in consideration of the Merger.
(iii)SITI agrees to fund the Business for the 12-month period
commencing on the effective date of the Merger (the "First Phase") in accordance
with the budgets delivered pursuant to Section 1. If, on the last day of the
First Phase, SITI determines, in its good faith discretion, that (A) the actual
financial results of the Business are within the amounts in the budgets for the
First Phase, and (B) the Web Site has generated sufficient viewer/advertising
interest to justify its continued development and support by SITI, SITI shall
instruct the Escrow Agent to deliver from escrow all additional SITI Shares to
A. Blank, Nayyar and Red Hat (for distribution solely to J. Blank on account of
his interest in Red Hat), as the case may be. SITI may, in its sole discretion,
deliver additional SITI Shares (or options to acquire additional SITI Shares),
to any such person (including J. Blank) in recognition of particular performance
achievements during the First Phase, whether as a result of administration,
acquisitions or web site development. If, however, the conditions in clauses (A)
and (B) above have not been met on the last day of the First Phase, and SITI
decides to discontinue the operations of the Business, SITI may instruct the
Escrow Agent to deliver from escrow back to SITI all additional SITI Shares in
the name of A. Blank, Nayyar, and Red Hat, and shall be deemed to have performed
all of its obligations hereunder without further liability or duty to continue
the Business. In the event that SITI instructs the Escrow Agent to deliver from
escrow back to SITI all additional SITI Shares in the name of A. Blank, Nayyar,
and Red Hat, each party shall be deemed to be released from any further
obligations hereunder (except for the provisions which shall survive the
termination hereof in accordance with Section 13) and SITI shall transfer to the
Individuals all of the stock of Tropia (51% to J. Blank, 24.5% to A. Blank and
24.5% to Nayyar) for no additional consideration, provided that prior to such
transfer, Tropia shall return to SITI the unused portion of all cash advances or
contributions made by SITI to Tropia.
4. CAPITAL CONTRIBUTIONS. (a) On the effective date of the Merger, SITI shall
make an initial capital contribution to Tropia in the amount of $100,000, to be
used by Tropia for the continued development of the Business, including the Web
Site.
(b) During the First Phase, SITI shall make additional contributions to
Tropia each month (other than the first month after the date hereof), as
necessary in accordance with the budgets delivered pursuant to Section 1 (as
such budgets may be modified in accordance with Section 1), or in such other
amounts as SITI and the Chief Executive Officer of Tropia may agree upon in
their discretion.
5. THE INDIVIDUALS. (a) During the First Phase and for a period of one year
thereafter, the Individuals shall devote all reasonable time and effort to the
Business to enable the results of operations of the Business to meet or exceed
the levels set forth in the Budget or in any subsequent budget. Notwithstanding
the foregoing, SITI and Tropia recognize that the Individuals cannot guarantee
the performance of Tropia and that the results of operations of Tropia may fail
to reach or exceed such levels despite the Individuals' efforts and time
commitments. J. Blank shall be the Chief Executive Officer of Tropia. A. Blank
and Nayyar shall be employed by Tropia as Creative Director and Technology
Director, respectively, during the First Phase, each to receive a starting
salary of $40,000 per year. Thereafter, each Individual shall be paid the salary
set forth in each subsequent budget. SITI shall negotiate in good faith with
each Individual concerning such Individual's salary (and related terms), and
shall take into account such Individual's post-merger contributions to Tropia
and SITI, such Individual's future time commitments to Tropia and the reasonable
value of such Individual's services in the job market in general. The failure of
SITI and any Individual to agree upon such Individual's salary (or related
terms) for the period immediately following the First Phase shall not affect
such Individual's right to receive additional SITI Shares to which he is
entitled under Section 3(b)(iii) if the Business is continued by SITI after the
end of the First Phase; provided that such Individual has otherwise performed
his obligations under this Agreement in good faith.
(b) The Business is a start-up requiring specialized skills and
substantial efforts from each Individual. Therefore, any Individual who quits or
resigns his job at Tropia during the First Phase or who fails to perform in
good-faith his job at Tropia shall be liable to Tropia; provided that his
liability therefore shall be limited solely to the SITI Shares which otherwise
would have been delivered to him at the end of the First Phase.
(c) SITI recognizes that each Individual is independent, engages in, and
will continue to engage in, other business activities (including, in the case of
J. Blank, a motion picture production business), which may include other
non-music related Internet businesses (collectively, the "Other Businesses").
Each Individual shall have the right to engage in Other Businesses; provided,
that each Individual agrees that while he is an officer or employee of Tropia,
he will not engage in Other Businesses whose products or activities directly
compete in any material respect with those of the Business (as defined in
Section 1). Each Individual further agrees that while he is an officer or
employee of Tropia, he shall keep confidential and not use for his own account
the trade secrets and other confidential proprietary information and materials
of the Business; provided that this restriction shall no longer apply if the
stock of Tropia is returned to the Individuals pursuant to Section 3(c)(iii).
The Individuals acknowledge and agree that the covenants set forth above are
necessary for the protection of SITI and Tropia and that the nature and scope of
each such covenant is reasonable.
6. REPRESENTATIONS AND WARRANTIES. The Sellers and the Individuals make such
representations and warranties to SITI as are set forth in Exhibit B hereto.
SITI makes such representations and warranties to the Sellers and J. Blank as
are set forth in Exhibit C hereto. L. Powers and B. Powers make such
representations and warranties to SITI, the Sellers and J. Blank as are set
forth in Exhibit D hereto.
7. SUCCESSFUL DEVELOPMENT. (a) SITI shall establish an incentive bonus plan
for the Individuals (provided they remain executive officers and/or employees of
Tropia) and other executives of Tropia added to their team after the date
hereof. Such bonus system shall use the standard measure then being used in all
divisions of SITI, based on revenues and/or earnings performance of the
Business. In addition, after the second anniversary of the date hereof, SITI
shall include employees of Tropia in any employee stock option plan it provides
to its own employees.
(b) While employed by Tropia, the Individuals shall seek out and evaluate,
and assist SITI in seeking out and evaluating, new projects and business
opportunities, new Inventions (as defined in and subject to Section 11) by any
of them, or other new ways to expand any web site used in the Business
(collectively, "Business Opportunities"), and consult with SITI regarding, and
possibly participate in, other SITI projects. The parties acknowledge and agree
that Business Opportunities shall not include new projects and business
opportunities, new Inventions or other activities (E.G., J. Blank's film
production activities) which do not directly relate in any material respect to
the Business (as defined in Section 1). The parties will maintain the
confidentiality of any proposed Business Opportunity, provided, however, that
the Individuals may disclose such proposed Business Opportunity to other persons
at the end of the Review Period (as defined below) with respect thereto if SITI
has not exercised its right of first negotiation with respect thereto or such
right has terminated as provided below. The Individuals shall present to SITI's
Chief Executive Officer all new Business Opportunities they locate or originate,
provided that SITI is still operating and has or can obtain funding for Business
Opportunities. SITI shall have 20 days, or, in the case of emergent Business
Opportunities, such shorter period of time as SITI and the Individual presenting
such Business Opportunity shall reasonably agree (the "Review Period"), in which
to evaluate any Business Opportunity and shall have a right of first negotiation
with respect thereto, such negotiations to be conducted, if they occur, by
SITI's Chief Executive Officer. SITI's right of first negotiation with respect
to such Business Opportunity shall terminate at the end of such Review Period
and the Individual who presented such Business Opportunity shall thereafter be
free to present such Business Opportunity to third parties. SITI and the
Individuals shall negotiate in good faith on an ongoing basis regarding salaries
and stock option incentives for their efforts described above. Notwithstanding
the foregoing, if SITI and the Individuals cannot conclude their negotiations
regarding initial salaries and stock option incentives for the efforts of the
Individuals in connection with any Business Opportunity during the Review Period
for such Business Opportunity, SITI's right of first negotiation with respect to
such Business Opportunity shall be deemed to terminate at the end of such Review
Period.
8. BOARD OF DIRECTORS. (a) The Board of Directors of Tropia shall consist of
three directors including the Chief Executive Officer of Tropia and two SITI
Nominees, at least one of whom shall be the Chief Executive Officer or the Chief
Financial Officer of SITI. J. Blank shall initially be elected as a director and
the Chief Executive Officer of Tropia for a term of two years, which term may be
renewed thereafter as determined by the stockholders and the Board,
respectively, of Tropia.
(b) Board meetings shall occur as needed, but at least quarterly. A
preliminary agenda shall be disseminated with the notice of each meeting.
Telephonic Board meetings may be used when necessary. A quorum at Board meetings
shall require the presence of at least a majority of the directors. All
reasonable efforts (considering the nature of the matters to be discussed at
each meeting) shall be made to accommodate the schedule of the Chief Executive
Officer of Tropia so that he may attend each meeting in person or by telephone.
Actions of the Board of Tropia shall require approval of a majority of the
directors; provided that actions with respect to the following matters must be
approved by at least one SITI Nominee who is the Chief Executive Officer or
Chief Financial Officer of SITI (as part of such majority) and shall be preceded
by review and consultation with the Chief Executive Officer of Tropia:
(i) Tropia's budgets, distributions to SITI, employment or
consulting contracts or arrangements or any business dealings with SITI, any
Individual or any of their affiliates;
(ii) borrowings, leases and guarantees of debt in any amounts
over $25,000 in annual expense or exposure;
(iii)capital expenditures in excess of budgeted amounts, or
other material variations from budgeted amounts or amounts set forth in any
business plan;
(iv) changes in the nature of the Business; and
(v) plans to go public, spin-off, sell, merge or otherwise
transfer, all or substantially all the assets of Tropia, or liquidate or
dissolve Tropia.
9. PIGGY-BACK REGISTRATION RIGHTS. SITI shall grant to the Individuals
customary "piggy-back" registration rights on future registrations of SITI
Shares, subject to customary terms and conditions (including, without
limitation, cross-indemnifications, "stand-still" requirements, and the right of
SITI and its underwriters, in view of market and other conditions, to reduce or
eliminate the number of shares proposed to be registered).
10. GOOD FAITH. The parties acknowledge that the Business is a start-up with
high risk and growth potential, and anticipate possible changes of strategy or
focus, and substantial capital needs. SITI and the Individuals foresee a
continuing requirement of good-faith, fairness and full disclosure in their
dealings with each other. They agree that such standards shall apply to all of
their dealings with each other (whether through Tropia, other subsidiaries of
SITI, or otherwise) and in issues of business policy. Good faith, fairness and
full disclosure obligations, and all other obligations of the parties hereunder,
shall apply hereunder subject to applicable law, including any fiduciary duties
of the parties which may apply.
11. INVENTIONS. (a) The Individuals agree that any invention, trade secret,
improvement, patent, patent application or writing, and any program, system or
novel technique, whether or not capable of being trademarked, copyrighted or
patented (any of the foregoing being an "Invention"), conceived, devised,
developed or otherwise obtained by them while engaged in their active duties for
Tropia hereunder directly relating to the Business (as defined in Section 1),
shall be and become the property of Tropia; and each Individual agrees to give
Tropia prompt written notice of his conception, invention, authorship,
development or acquisition of any such Invention and to execute such instruments
of transfer, assignment, conveyance or confirmation and such other documents and
to do all appropriate lawful acts (all at Tropia's expense) as may be reasonably
required by Tropia to transfer, assign, confirm and perfect in Tropia all
legally protectible rights in any such Invention.
(b) However, as an incentive to the Individuals, Tropia agrees that they
shall as a group have the right to receive 25% of the net proceeds (whether cash
or property) from the exploitation of rights in such Invention by Tropia outside
the normal course of Tropia's business operations, including any sale of, or
licensing fee or royalty relating to, such Invention. Tropia shall keep the
Individuals informed as to any such exploitation, provide to each Individual on
a regular basis an accounting of the proceeds received by Tropia from any such
exploitation and promptly remit such 25% of the net proceeds from such
exploitation to the Individuals (such amount to divided among the Individuals as
they shall agree). The Individuals presently contemplate developing a number of
software programs through Tropia as "freeware" which are intended to enhance
relations with users of the Web Site. These software programs will constitute
Inventions and may have broader applications which can be commercially exploited
at other web sites and by other businesses. Nothing contained herein shall be
deemed to require Tropia to obtain the consent of any Individual (except if
required in such Individual's capacity as an officer or director of Tropia) to
exploit any rights in any Invention, whether within or outside the normal course
of Tropia's business operations. Not more than once in each calendar year, the
Individuals may appoint, at their own expense and upon at least 30 days' notice
to SITI, a qualified accountant to inspect, at the premises of SITI during
normal business hours, those books and records of SITI which relate to the
calculation of payments due hereunder. Complete records shall be maintained by
SITI, and reasonable inquiries by the Individuals shall be answered promptly
with supporting information as required. Should such an audit reveal accrued,
unpaid royalties which SITI owes to the Individuals under the terms of this
Agreement, then SITI shall immediately pay all sums due to the Individuals, with
interest thereon at the rate of 10% per annum. Should such an audit reveal that
SITI underpaid the Individuals by 10% or more, SITI shall also pay for the cost
of such audit.
12. LEGEND. All SITI Shares issued hereunder shall bear the legend set forth on
Exhibit E hereto.
13. SURVIVAL; INDEMNITY. (a) All of the representations and warranties of the
parties contained in this Agreement or in any related document shall survive the
execution, delivery and performance of this Agreement and the termination of
this Agreement (notwithstanding any investigation made by or on behalf of any
party) for a period of one year after the date hereof, except that the
representations and warranties contained in Section 2 and Section 3of Exhibit B
hereto shall survive indefinitely . The covenants and other agreements contained
in Sections 5(b) and (c), the last sentence of Section 7(b), and Sections 9, 10,
11, 13 and 14 shall survive the termination of this Agreement.
(b) Each Seller and J. Blank hereby agrees to indemnify, defend and hold
harmless SITI, and its officers, directors, employees and agents from and
against any loss, liability, action, proceeding, claim, damage, demand, cost,
expense (including reasonable legal fees and expenses) or settlement
(collectively, "Losses") incurred or suffered by it relating to or arising out
of the material breach of any representation, warranty, covenant or agreement of
such Seller or J. Blank, as the case may be, contained in this Agreement or in
any related document, provided, that notwithstanding the foregoing, no
Individual shall be liable for Losses to the extent resulting from the breach of
any representation or warranty set forth in Section 2 of Exhibit B hereto by the
other Individual and each Seller's and J. Blank's liability hereunder shall be
subject to the limitation on liability set forth in Section 5(b).
(c) SITI hereby agrees to indemnify, defend and hold harmless each Seller
and J. Blank from and against any Losses incurred or suffered by him or it
relating to or arising out of the material breach of any representation,
warranty, covenant or agreement of SITI contained in this Agreement or in any
related document.
(d) Each of L. Powers and B. Powers hereby agrees to indemnify, defend and
hold harmless each Seller, J. Blank and SITI from and against any Losses
incurred or suffered by him or it relating to or arising out of the material
breach of any representation, warranty, covenant or agreement of L. Powers and
B. Powers contained in this Agreement or in any related document.
14. MISCELLANEOUS. This Agreement (including the Schedules and Exhibits hereto)
contains the entire understanding of the parties with respect to the subject
matter hereof. All rights and remedies of the parties under any provision of
this Agreement shall be in addition to any other rights and remedies provided
hereunder or under applicable law. No amendment or modification of this
Agreement shall be valid or binding unless made in writing and executed by the
parties. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder. All consents and waivers shall
be in writing. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York, exclusive of conflicts of
laws provisions. This Agreement shall inure to the benefit of, be binding upon
and be enforceable by and against the parties and their respective
administrators, heirs, legatees, devisees, distributees, personal and legal
representatives, executors, successors and permitted assigns. Neither the
Sellers nor J. Blank shall assign any of their rights or obligations hereunder
without the written consent of SITI. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one Agreement.
15. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules,
which arbitration shall be held in New York, New York. The arbitrator(s) shall
apply the substantive law of the State of New York, any applicable substantive
federal law, and the terms and conditions of this Agreement, in making rulings
and in rendering the final arbitration award (which shall be in writing and
specify the factual and legal bases therefor).
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement, or caused this Agreement to be duly executed and delivered, as of the
day and year first written above.
ATTEST: SPECTRUM INFORMATION
TECHNOLOGIES, INC., doing
business as Siti-Sites.com
By:_________________________ By:__________________________
Name:Lawrence Powers
Title:Chief Executive Officer
ATTEST: SITI-II, INC.
By:________________________ By:__________________________
Name:Lawrence Powers
Title:Chief Executive Officer
ATTEST: TROPIA, INC.
By:________________________ By:__________________________
Name:Jonathan Blank
Title:Chief Executive Officer
WITNESS:
___________________________ __________________________
JONATHAN BLANK
WITNESS:
___________________________ __________________________
ARI BLANK
WITNESS:
___________________________ __________________________
ARJUN NAYYAR
As to Sections 3(a) and 6:
WITNESS:
___________________________ __________________________
LAWRENCE M. POWERS
WITNESS:
___________________________ __________________________
BARCLAY V. POWERS
EXHIBIT A
[Budget]
EXHIBIT B
1. The Sellers make the following representations and warranties to SITI:
(a) Tropia is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The execution and delivery of
this Agreement, and any related document to be delivered by Tropia pursuant to
this Agreement, have been authorized by all necessary corporate action of
Tropia, do not violate or result in a breach of any of Tropia's organizing or
governing documents or any agreement to which Tropia is a party or is subject,
or any law, judgment, order, writ, injunction, decree, rule or regulation of any
court or administrative agency by which Tropia or any of its assets is bound.
This Agreement, and any related document to be delivered by Tropia pursuant to
this Agreement, when executed and delivered by Tropia, will constitute a valid
and legally binding obligation of Tropia, enforceable in accordance with its
terms.
(b) The execution and delivery of this Agreement, and any related document
to be delivered by any Seller pursuant to this Agreement, do not violate or
result in a breach of any agreement to which any Seller is a party or is
subject, or any law, judgment, order, writ, injunction, decree, rule or
regulation of any court or administrative agency by which Tropia or any Seller
or any of its or his assets is bound. The execution and delivery of this
Agreement, and any related document to be delivered by Red Hat pursuant to this
Agreement, have been authorized by all necessary corporate action of Red Hat and
do not violate or result in a breach of any of Red Hat's organizing or governing
documents. This Agreement, and any related document to be delivered by any
Seller pursuant to this Agreement, when executed and delivered by such Seller
will constitute a valid and legally binding obligation of such Seller,
enforceable in accordance with its terms. The Sellers own all of the issued and
outstanding stock of Tropia in the percentages set forth in the recitals to this
Agreement, free and clear of all liens and encumbrances.
(c) Schedule 1 to this Exhibit B contains a list of all assets of Tropia
on the date hereof, including, without limitation, all Intellectual Property (as
defined in paragraph (f) below), confidential plans, studies and budgets. Tropia
has good and marketable title (free and clear of all liens and encumbrances) to
all of its assets. Such assets constitute all assets which are necessary to the
Business as presently conducted.
(d) As of the date hereof, there are no oral or written agreements to
which Tropia is a party or by which it or its assets are bound or pursuant to
which it has rights except as set forth on Schedule 2 to this Exhibit B. There
are no defaults by Tropia, or, to the best knowledge of the Sellers, any other
party thereto, under any such agreement. The Business has complied with and is
in compliance with all laws, rules and regulations applicable to it, except
where such failure to comply would not have a material adverse effect on the
business, operations, assets or condition (financial or otherwise) of Tropia. No
representation or warranty by Tropia or any Seller in this Agreement or in any
other document delivered or to be delivered to SITI by or on behalf of Tropia or
any Seller (on or prior to the date hereof) contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein, in light of the
circumstances in which they were made, not misleading.
(e) The Sellers have delivered to SITI a balance sheet of Tropia as of
___________ (the "Balance Sheet"). The Balance Sheet has been prepared in
accordance with generally accepted accounting principles and fairly presents the
financial condition of Tropia as of the date thereof. Since the date thereof,
there has not been any change in the assets, liabilities, financial condition or
operations of Tropia from that reflected in the Balance Sheet, except changes in
the ordinary course of business that have not been, individually or in the
aggregate, materially adverse. The Budget was prepared based upon reasonable
assumptions given the operations of the Business to date, the current state of
the economy and other relevant factors.
(f) Tropia owns or has the right to use all patents, patent applications,
trademarks, service marks, trade names, copyrights, or other trade secrets and
processes (collectively, the "Intellectual Property") used or proposed to be
used by Tropia in the conduct of the Business. The Sellers do not have any
knowledge that Tropia's ownership, possession or other use or exploitation of
any of its Intellectual Property violates the rights of any person or entity. To
the best knowledge of the Sellers, no Individual or any other person or entity
owns or has any other right in or to, or has claimed any ownership or other
right in or to, any Intellectual Property.
(g) There are no actions, claims, suits, proceedings or, to the best
knowledge of the Sellers, investigations, pending or, to the best knowledge of
the Sellers, threatened, against Tropia or its properties, or against any Seller
before any court, governmental agency, arbitration board or other tribunal.
(h) The Web Site is Year 2000 Compliant (as defined below) and will not be
adversely affected with respect to functionality, interoperability, performance
or volume capacity by virtue of the arrival of the year 2000. For purposes of
this Agreement, "Year 2000 Compliant" means that the Web Site (i) will
accurately receive, record, store, provide, recognize and process all date and
time data from, during, into and between the twentieth and twenty-first
centuries, the years 1999 and 2000 and all leap years; (ii) will accurately
perform all date-dependent calculations and operations (including, without
limitation, mathematical operations, sorting, comparing and reporting) from,
during, into and between the twentieth and twenty- first centuries, the years
1999 and 2000 and all leap years; and (iii) will not malfunction, cease to
function or provide invalid or incorrect results as a result of (x) the change
of years from 1999 to 2000 or from 2000 to 2001, (y) date data, including date
data which represents or references different centuries, different dates during
1999 and 2000, or more than one century or (z) the occurrence of any particular
date; in each case without human intervention, other than original data entry;
provided in each case, that all applications, hardware and other systems used in
conjunction with such system or item which are not owned or licensed by Tropia
correctly exchange date data with or provide data to the Web Site.
2. Each Seller and J. Blank makes the following additional representations and
warranties to SITI:
Such Seller or J. Blank, as the case may be, is capable of evaluating the
merits and risks of an investment in SITI; such Seller or J. Blank, as the case
may be, is acquiring his or its SITI Shares for investment for his or its own
account, not as a nominee or agent, and not with the view to, or for resale in
connection with, any distribution thereof, except that Red Hat shall distribute
all SITI Shares acquired by it hereunder to J. Blank; such Seller or J. Blank,
as the case may be, understands that his or its SITI Shares have not been, and
will not be, registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state securities laws and that the SITI
Shares may not be sold without such registration or an exemption therefrom; such
Seller or J. Blank, as the case may be, is not relying on SITI, its
representatives or agents, or on any representation or warranty contained herein
or in any other document delivered by SITI in connection herewith, with respect
to the tax consequences of this Agreement; and such Seller or J. Blank, as the
case may be, has had, prior to the date hereof, the opportunity to ask questions
of, and receive answers and additional information from, SITI concerning SITI's
business, management and financial affairs.
3. Each Individual makes the following additional representations and
warranties to SITI:
No Individual is a party to any other agreement which contains provisions
relating to non-competition, non-solicitation of customers, non- disclosure of
confidential information or proprietary information, non- inducement or
non-hiring of employees or agents of another party, work-for- hire or any other
agreement or provision which, directly or indirectly, (i) limits the freedom of
such Individual to compete in any line of business in any geographical area,
(ii) limits the freedom of such Individual to use any patent, trademark, trade
name, service mark, copyright, or other item of intellectual property, or (iii)
claims ownership for any other party of intellectual property created by such
Individual (collectively, "Restrictive Covenant Agreements").
EXHIBIT C
SITI makes the following representations and warranties to the Individuals:
(a) Each of SITI and SITI-II is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
execution and delivery of this Agreement, and any related document to be
delivered by SITI or SITI-II pursuant to this Agreement, have been authorized by
all necessary corporate action of SITI or SITI-II, as the case may be, do not
violate or result in a breach of any of SITI's or SITI- II's organizing or
governing documents or any agreement to which SITI or SITI-II is a party or is
subject, or any law, judgment, order, writ, injunction, decree, rule or
regulation of any court or administrative agency by which SITI or SITI-II or any
of its assets is bound. This Agreement, and any related document to be delivered
by SITI or SITI-II pursuant to this Agreement, when executed and delivered by
SITI or SITI-II, will constitute a valid and legally binding obligation of SITI
or SITI-II, as the case may be, enforceable in accordance with its terms.
(b) The audited consolidated financial statements of SITI contained in
SITI's Annual Report on Form 10-K for the year ended March 31, 1998 and the
unaudited consolidated interim financial statements of SITI for the fiscal
quarter ended December 31, 1998 contained in SITI's Quarterly Report on Form
10-Q for the quarter then ended, including the notes relating thereto, have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto, or in the
case of the unaudited interim financial statements, as may be permitted by the
Securities and Exchange Commission on Form 10-Q under the Securities Exchange
Act of 1934, as amended). Said financial statements and related notes fairly
present (subject, in the case of interim financial statements, to year-end audit
and adjustments) the consolidated financial position and the results of
operations and cash flow of SITI as of the respective dates thereof and for the
periods indicated. Since December 31, 1998, there has not been any change in the
business condition of SITI, except (i) changes in the ordinary course of
business which have not been, in the aggregate, materially adverse and (ii) that
SITI's Investment and Business Development Agreement involving Minutemeals.com,
Inc. has ended.
(c) The SITI Shares to be issued to the Individuals hereunder, including
those to be delivered upon release from escrow, if applicable, will be duly
authorized and validly issued, full paid and non-assessable and will be free of
all liens and encumbrances.
(d) Assuming the truth and accuracy of the Seller's and J. Blank's
representations in Exhibit B hereto, the sale of the SITI Shares to be issued
hereunder constitutes a transaction exempt from the registration requirements of
Section 5 of the Securities Act.
EXHIBIT D
L. Powers and B. Powers make the following representations and warranties to
SITI, the Sellers and J. Blank:
The execution and delivery of this Agreement, and any related document to
be delivered by L. Powers or B. Powers pursuant to this Agreement do not violate
or result in a breach of any agreement to which L. Powers or B. Powers, as the
case may be, is a party or is subject, or any law, judgment, order, writ,
injunction, decree, rule or regulation of any court or administrative agency by
which L. Powers or B. Powers, as the case may be, or any of his assets is bound.
This Agreement, and any related document to be delivered by L. Powers or B.
Powers pursuant to this Agreement, when executed and delivered by L. Powers or
B. Powers, as the case may be, will constitute a valid and legally binding
obligation of L. Powers or B. Powers, as the case may be, enforceable in
accordance with its terms.
EXHIBIT E
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE OWNER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.