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Stock Purchase And Shareholders Agreement

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EXHIBIT 10.2


COMPOSITE COPY


FREEDOM OF INFORMATION, INC.


-----------------------------------------------------------


STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT


-----------------------------------------------------------


As of August 28, 1998


FREEDOM OF INFORMATION, INC.
Stock Purchase
and Shareholders Agreement
As of August 28, 1998


Page
------ SECTION 1. TERMS OF PURCHASE 2
1.1 Description of Securities ................................... 2
1.2 Sale and Purchase ........................................... 2
1.3 Delivery of Warrants ........................................ 2
1.4 Redemption Transaction; Use of Proceeds ..................... 3
1.5 Closing ..................................................... 3


SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND REDEEMING STOCKHOLDERS 3
2.1 Organization and Corporate Power ............................ 3
2.2 Authorization and Non-Contravention ......................... 4
2.3 Capitalization .............................................. 4
2.4 Subsidiaries; Investments ................................... 6
2.5 Financial Statements and Matters ............................ 6
2.6 Absence of Undisclosed Liabilities .......................... 6
2.7 Absence of Certain Developments ............................. 6
2.8 Ordinary Course ............................................. 7
2.9 Title to Properties ......................................... 7
2.10 Tax Matters ................................................. 8
2.11 Certain Contracts and Arrangements .......................... 8
2.12 Intellectual Property Rights; Employee Restrictions ......... 10
2.13 Litigation ................................................. 11
2.14 Employee Benefit Plans ...................................... 11
2.15 Labor Laws .................................................. 12
2.16 List of Certain Employees and Suppliers ..................... 12
2.17 Hazardous Waste, Etc. ....................................... 12
2.18 Business; Compliance with Laws .............................. 12
2.19 Investment Banking; Brokerage ............................... 12
2.20 Insurance ................................................... 13
2.21 Transactions with Affiliates ................................ 13
2.22 Disclosure .................................................. 13
2.23 Sole Representations and Warranties ......................... 13


SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ................... 13


SECTION 3. CONDITIONS OF PURCHASE ............................................ 14
3.1 Satisfaction of Conditions .................................. 15


(i)


3.2 Director Election ........................................... 15
3.3 Opinion of Counsel .......................................... 15
3.4 Authorization ............................................... 15
3.5 All Proceedings Satisfactory ................................ 15
3.6 Investors' Fees ............................................. 15
3.7 No Violation or Injunction .................................. 16
3.8 Consents and Waivers ........................................ 16
3.9 Non-Disclosure and Non-Competition Agreements ............... 16
3.10 Founder Employment Agreements ............................... 16
3.11 Pro Forma Combined Balance Sheet ............................ 16


SECTION 3A CONDITIONS OF SALE ............................................... 16
(a) Satisfaction of Conditions .................................. 17
(b) Payment of Purchase Price ................................... 17
(c) Director of Election ........................................ 17
(d) All Proceedings Satisfactory ................................ 17
(e) No Violation or Injunction .................................. 17


SECTION 4. COVENANTS ........................................................ 17
4.1 Financial Statement and Budgetary Information; Inspection ... 17
4.2 Indemnification ............................................. 18
4.3 Board of Directors .......................................... 18
4.4 Key Person Insurance ........................................ 18
4.5 Stock Awards ................................................ 18
4.6 Non-Disclosure and Non-Competition Agreements ............... 18


SECTION 5. RIGHTS TO PURCHASE ............................................... 19
5.1 Right to Participate in Certain Sales of Additional
Securities .................................................. 19
5.2 Right of First Refusal ...................................... 20
5.3 Co-Sale Rights .............................................. 23
5.4 Company Repurchase Option ................................... 24
5.5 Legends ..................................................... 24


SECTION 6. REGISTRATION RIGHTS .............................................. 24
6.1 Optional Registrations ...................................... 24
6.2 Required Registrations ...................................... 25
6.3 Registrable Securities ...................................... 28
6.4 Further Obligations of the Company .......................... 28
6.5 Indemnification; Contribution ............................... 30
6.6 Rule 144 and Rule 144A Requirements ......................... 33
6.7 Transfer of Registration Rights ............................. 33


SECTION 7. ELECTION OF DIRECTORS ............................................ 34
7.1 Board Composition ........................................... 34


(ii)


SECTION 8. GENERAL 34
8.1 Release from Guarantees ..................................... 34
8.2 Compliance with Registration Requirements
of the Securities Act ....................................... 35
8.3 Amendments, Waivers and Consents ............................ 35
8.4 Survival of Representations; Warranties and Covenants;
Assignability of Rights ..................................... 35
8.5 Legend on Securities ........................................ 36
8.6 Governing Law ............................................... 37
8.7 Section Headings and Gender ................................. 37
8.8 Counterparts ................................................ 37
8.9 Notices and Demands ......................................... 37
8.10 Remedies; Severability ...................................... 38
8.11 Integration ................................................. 39


EXHIBITS


A. Redeeming Stockholders
B. Investors
C. Preferred Stock Terms
D. Form of Warrant Agreement
E. Form of Contribution Agreement
F. Form of Redemption Note
G. Form of Director Indemnification Agreement
H. Opinion of Counsel
I.1. Form of Employee Confidential Information, Inventions and Writings
Agreement
I.2. Form of Employer Confidential Information, Inventions and Writings and
Non-Competition Agreement
J. Form of Employment Agreement


(iii)


STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT


STOCK PURCHASE AND SHAREHOLDERS AGREEMENT (this "Agreement") made as of this 28th day of August, 1998, by and among Freedom of Information, Inc., a corporation duly organized and existing under the laws of the State of Delaware ("FOI" or the "Company"), Samuel P. Gerace, Jr. and Thomas A. Gerace collectively the "Founders" and each individually a "Founder"), those individuals (including the Founders) and the partnership identified as Redeeming Stockholders in Exhibit A hereto (each individually a "Redeeming Stockholder"
---------------- and collectively the "Redeeming Stockholders"), Gordon B. Hoffstein and the investment partnerships named in Exhibit B hereto (collectively and with any
--------- successor or successors in interest the "Investors," and each individually an "Investor" and collectively with the Redeeming Stockholders, the "Participants").


WHEREAS, on August 28, 1998, the shareholders of Be Free, Inc., a Delaware corporation ("Be Free") and PCX Information Systems, Inc., a Pennsylvania corporation ("PCXIS"), contributed all of the common shares of the respective entities held by such shareholders to FOI (the "Contribution Transaction") in consideration of the issuance of shares of common stock, $.01 par value per share of FOI (the "Common Stock") in the amounts set out in Exhibit A hereto,
--------- and promissory notes (the "Redemption Notes") of FOI in the amounts set out in Exhibit A; ---------


WHEREAS, as a result of the Contribution Transaction, each of Be Free, Inc. and PCXIS is now a wholly-owned subsidiary of FOI (Be Free and PCXIS are collectively referred to as the "Subsidiaries" and each individually a "Subsidiary.");


WHEREAS, the Company has authorized the issuance and sale to the Investors of an aggregate of 10,500,000 shares of Series A Convertible Participating Preferred Stock, par value $.01 per share ("Convertible Preferred Stock"), having the rights and preferences set forth in Exhibit C;
---------


WHEREAS, the Company intends to use a portion of the proceeds from the sale of the Convertible Preferred Stock to pay the amounts outstanding under the Redemption Notes;


WHEREAS, each of the Founders has agreed to grant to the Company a right to repurchase the Common Stock held by such Founder under certain circumstances;


WHEREAS, each of the Redeeming Stockholders has agreed to make the representations and warranties and furnish the indemnification provided for herein;


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WHEREAS, the Investors have agreed to purchase an aggregate of 10,500,000 shares of Convertible Preferred Stock at the Closing;


WHEREAS, the Company has agreed to deliver to the Investors warrants to purchase an aggregate of 3,465,000 shares of Common Stock with an exercise price of $1.50 per share (the "Warrants") in connection with the purchase of the Convertible Preferred Stock hereunder; and


WHEREAS, the parties hereto desire to set forth the terms of their ongoing relationship in connection with the Company.


NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:


SECTION 1. TERMS OF PURCHASE
-----------------


1.1 Description of Securities. The Convertible Preferred Stock shall have
------------------------- the rights, preferences and other terms set forth in Exhibit C. For purposes of
--------- this Agreement, the shares of Convertible Preferred Stock to be acquired by the Investors from the Company hereunder are referred to as the "Convertible Preferred Shares," and the shares of Common Stock issuable on conversion thereof are referred to as the "Conversion Shares" (and such term, when used in reference to a number or percentage of shares of Convertible Preferred Shares shall mean such shares held on the date hereof).


1.2 Sale and Purchase. Upon the terms and subject to the conditions
----------------- herein, and in reliance on the representations and warranties set forth in Section 2, each Investor hereby purchases from the Company, and the Company hereby issues and sells to each of the Investors, at the Closing (as defined in Section 1.3), (i) the number of shares of Convertible Preferred Stock set forth opposite the name of such Investor in Exhibit C for the purchase price of $1.00
--------- per share, or an aggregate of 10,500,000 shares of Convertible Preferred Stock for an aggregate purchase price of $10,500,000, and the Company hereby grants the Investors the rights set forth herein. Payments hereunder shall be made by wire transfer.


1.3 Delivery of Warrants. On the terms and subject to the conditions
-------------------- herein set forth, the Company hereby agrees to deliver to each Investor, at the Closing, simultaneously with the delivery of the Convertible Preferred Stock, warrant agreements (the "Warrant Agreements") to purchase the number of shares of Common Stock set forth opposite the name of such Investor on Exhibit B in the
--------- form and subject to the terms and conditions contained in Exhibit D hereto.
---------


2


1.4 Redemption Transactions: Use of Proceeds. Prior to the date hereof,
---------------------------------------- the Company has issued the Redemption Notes in exchange for certain shares of common stock in the Subsidiaries held by the Redeeming Stockholders pursuant to the contribution agreement substantially in the form of Exhibit E hereto (the
--------- "Contribution Agreement" and each individually a "Contribution Agreement") in exchange for the Redemption Notes in the aggregate amount of $6,176,881 substantially in the form of Exhibit F hereto. The Company will use a portion of
--------- the proceeds from the sale of the Convertible Preferred Stock at the Closing (as defined below) to prepay the principal amount of, and all accrued interest on the Redemption Notes. The Company will use $1,250,905 million of the proceeds to pay the outstanding principal amount of, and any accrued and unpaid interest of the promissory notes listed on Schedule 1.4. The remainder of the proceeds from the Closing will be used to fund the Company's working capital needs.


1.5 Closing. The closing of the purchases and sales of Convertible
------- Preferred Shares contemplated by Section 1.2 (the "Closing") shall take place on the date hereof (the "Closing Date"). At the Closing, the Company shall deliver or cause to be delivered stock certificates representing the Convertible Preferred Shares to the respective Investors, free and clear of all liens created by the Company other than as set forth herein, and bearing the legends set forth herein, against payment of the purchase price therefor and the Warrant Agreements representing the Warrants.


SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND REDEEMING
-----------------------------------------------------------
STOCKHOLDERS
------------


In order to induce the Investors to enter into this Agreement, (a) the Company and each of the Founders severally to the extent set forth in Section 8.4 represent and warrant to each of the Investors the following Sections 2.1 through 2.22 (other than Sections 2.3, 2.4(a), 2.12(a) and 2.12(b)) and (b) the Company and the Redeeming Stockholders severally to the extent set forth in Section 8.4 represent and warrant to each of the Investors Sections 2.3, 2.4(a), 2.12(a) and 2.12(b), subject to the matters set forth in the schedule of exceptions attached hereto (the "Disclosure Schedule").


2.1 Organization and Corporate Power. The Company is a corporation duly
-------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business as a foreign corporation in each of the Commonwealth of Massachusetts and the State of Pennsylvania. The Company has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement and the agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby, including the issuance of the Convertible Preferred Shares. The copies of (i) the Certificate of Incorporation and By-laws of FOI, (ii) the Certificate of Incorporation and By-laws of Be Free, and (iii) the Articles of Incorporation and By-laws of PCXIS, as


3


amended to date, which have been furnished to the Investors by the Company, are correct and complete at the date hereof (collectively, the "Certificates of Incorporation" and the "By-laws," respectively). Neither the Company nor any of the Subsidiaries is in violation of any material term of its Certificate of Incorporation or By-laws.


2.2 Authorization and Non-Contravention. The execution, delivery and
----------------------------------- performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of (i) the Convertible Preferred Shares, (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares, and (iii) the Warrants have been duly authorized by all necessary corporate and other action of the Company. This Agreement and all documents executed by the Company pursuant hereto are valid and binding obligations of the Company, enforceable in accordance with their terms. Except as set forth on the Disclosure Schedule, the execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of (i) the Convertible Preferred Shares, (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares, and (iii) the Warrants do not and will not, in such a way as to result in a material adverse effect on the Company's assets, liabilities, condition (financial or otherwise), business or results of operations, on a consolidated basis (a "Material Adverse Effect"): (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which the Company is a party or by which it or its assets are bound or cause the creation of any encumbrance upon any of the assets of the Company; (B) violate or result in a violation of, or constitute a default under, any provision of any law regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to the Company; or (C) accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which the Company is a party or by which the Company is bound. The execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby and the issuance and delivery of (i) the Convertible Preferred Shares, (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares and (iii) the Warrants, do not and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) of any provision of the Certificates of Incorporation or By-laws of the Company or (B) except as set forth on the Disclosure Schedule, require from the Company any notice to, declaration or filing with, or consent or approval of any governmental authority or third party.


2.3 Capitalization. As of the Closing and after giving effect to the
-------------- transactions contemplated hereby, the authorized capital stock of the Company will consist of 45,000,000 shares of Common Stock, of which 13,323,119 shares will be issued and outstanding (after giving effect to the transaction contemplated by section 1.4), 15,000,000


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shares of Preferred Stock, of which 10,600,000 shares will be designated as Series A Convertible Participating Preferred Stock, of which 10,500,000 shares will be issued and outstanding, and 4,400,000 shares of Preferred Stock will be undesignated. In addition, the Company has authorized and reserved for issuance upon conversion of the Convertible Preferred Shares, 10,500,000 shares of Common Stock (subject to adjustment for stock splits, stock dividends and the like). Except for the Company's agreement to issue the Conversion Shares, upon exercise of the Warrants, 3,465,000 shares of Common Stock (subject to adjustment for stock splits, stock dividends and the like), up to 733,000 shares of Common Stock issuable pursuant to warrants proposed to be granted to lenders of the Company and 7,739,251 shares of Common Stock reserved for issuance under the Company's 1998 Incentive Stock Plan (subject to adjustment for stock splits, stock dividends and the like, less any shares already issued under such plan) (referred to herein as the "Stock Option Pool") and except as disclosed in the Disclosure Schedule, the Company has not issued or agreed to issue and is not obligated to issue any outstanding warrants, options or other rights to purchase or acquire any shares of its capital stock, nor any outstanding securities convertible into such shares or any warrants, options or other rights to acquire any such convertible securities. As of the Closing, and after giving effect to the transactions contemplated hereby and assuming the accuracy of the Investors' representations and warranties set forth in Section 2A hereof, all of the outstanding shares of capital stock of the Company (including without limitation the Convertible Preferred Shares) will have been duly and validly authorized and issued and will be fully paid and nonassessable and will have been offered, issued, sold and delivered in compliance with applicable federal and state securities laws and not subject to any preemptive rights. Assuming the accuracy of the Investors' representations and warranties set forth in Section 2A hereof, the Conversion Shares issuable upon conversion of the Convertible Preferred Shares and the shares of Common Stock issuable upon exercise of the Warrants, assuming payment of the exercise price therefor in accordance with the terms of the Warrant Agreement, will upon issuance be duly and validly authorized and issued, fully paid and nonassessable and not subject to any preemptive rights and will be issued in compliance with federal and state securities laws. The relative rights, preferences and other provisions relating to the Convertible Preferred Shares are as set forth in Exhibit C hereto. There are no preemptive
--------- rights, rights of first refusal, put or call rights or obligations or anti- dilution rights with respect to the issuance, sale or redemption of the Company's capital stock, other than as described in the Disclosure Schedule and rights to which the Investors are entitled as set forth in this Agreement and the Company's Certificate of Incorporation. Except as set forth herein or in the Disclosure Schedule, there are no rights to have the Company's capital stock registered for sale to the public under the laws of any jurisdiction, no agreements relating to the voting of the Company's voting securities, and no restrictions on the transfer of the Company's capital stock. After giving effect to the transactions contemplated hereby, the outstanding shares of the Company's capital stock are held beneficially and of record by the persons identified in Schedule 2.3 in the amounts indicated thereon. ------------


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2.4 Subsidiaries; Investments.
-------------------------


(a) Subsidiaries. A complete and current list of all of the
------------ Subsidiaries of FOI, the outstanding equity interests of each Subsidiary and the stockholders, members or partners of each Subsidiary are set forth in Section 2.4 of the Disclosure Schedule. All of the outstanding equity interests of each Subsidiary are duly authorized, validly issued, fully paid and nonassessable.


(b) Investments. Except as set forth in Section 2.4 of the Disclosure
----------- Schedule, none of FOI or any of the Subsidiaries owns nor has any direct or indirect interest in or control over any corporation, partnership, joint venture or other entity of any kind, except for passive investments of less than 2% in publicly-traded companies. The term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.


2.5 Financial Statements and Matters. FOI has previously furnished to the
-------------------------------- Holders copies of unaudited financial statements of each of its Subsidiaries for the fiscal year ended December 31, 1997 together with copies of its unaudited financial statements for June 30, 1998. Such financial statements referred to in this Section 2.5 were prepared in conformity with generally accepted accounting principles applied on a consistent basis, in all material respects are complete, correct and consistent with the books and records of such Subsidiaries and fairly present, in all material respects, the financial position of each such Subsidiary as of the dates thereof and the results of operations and cash flows of each such Subsidiary for the periods shown therein (subject to the absence of footnotes and normal year-end adjustments).


2.6 Absence of Undisclosed Liabilities. Except as and to the extent
---------------------------------- reflected or reserved against in the unaudited pro forma combined balance sheet of the Company at July 31, 1998 furnished at or prior to the Closing pursuant to Section 3.12 (the "Base Balance Sheet"), disclosed in the Disclosure Schedule or as incurred in the ordinary course of business since the date of the Base Balance Sheet, the Company does not have and is not subject to any material liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, other than liabiliti
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