Exhibit #3 - Stock Purchase Agreement between International Microcomputer
Software, Inc. and JupiterMedia Corporation
ArtToday, Inc.
STOCK PURCHASE AGREEMENT
BETWEEN
International Microcomputer Software, Inc.,
AND
Jupitermedia Corporation
Dated as of June 24, 2003
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of June 24, 2003, between International Microcomputer Software, Inc., a
California corporation (the "Seller") and Jupitermedia Corporation, a Delaware
corporation (the "Purchaser").
PRELIMINARY STATEMENT
WHEREAS, but for certain options outstanding as of the date hereof, the Seller
owns 100% of the outstanding shares of capital stock of XxxXxxxx.xxx, Inc., an
Arizona company (the "Company"); WHEREAS, prior to the Closing Date (as
hereinafter defined), the Seller intends to merge the Company with and into
ArtToday, Inc. (which shall be an Arizona corporation formed on or after the
date hereof and a wholly owned subsidiary of the Seller ("NewCo"), upon the
effectiveness of which the Company shall cease to exist as a separate
corporation apart from NewCo, NewCo shall be the sole surviving corporation and
the Seller shall own 100% of the outstanding shares (the "Stock") of capital
stock of NewCo (such merger hereinafter referred to as the "Pre-Closing
Merger"); WHEREAS, the Purchaser desires to purchase the Stock from the Seller
after the Pre-Closing Merger, and the Seller desires to sell the Stock to the
Purchaser at such time, in each case upon the terms and subject to the
conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the
premises, the mutual covenants and agreements contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
DEFINITIONS
Definitions. In addition to the terms defined elsewhere
herein, the terms defined in the introductory paragraph and the Recitals to this
Agreement shall have the respective meanings specified therein, and the
following terms shall have the meanings specified below when used herein with
initial capital letters:
"Accounts Receivable" has the meaning set forth in Section
3.9.
"Adjusted Net Assets" as of any date means, with respect to
the Company and its Subsidiaries, current assets minus (i) current
liabilities (excluding deferred revenue and intercompany accounts
payable) and (ii) long term liabilities (excluding the effect of the
potential acquisition by the Seller or the Company of Xxxxxxxxxx.xxx
prior to the Closing Date), in each case as would be reflected in a
balance sheet prepared in accordance with GAAP Consistency, provided,
however, that current assets, current liabilities and long term
liabilities shall exclude any amounts related to income or similar
Taxes.
"Adjustment Report" has the meaning set forth in Section
2.3(a).
"Affiliate" means "affiliate" as defined in Rule 405
promulgated under the Securities Act of 1933, as amended.
"Affiliated Group" means any affiliated group within the
meaning of Code ss.1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Agreement" has the meaning set forth in the preamble, and
shall include all Schedules and Exhibits hereto.
"Arbiter" has the meaning set forth in Section 2.3(d).
"ArtToday Revenue" has the meaning set forth in Section
2.4(b).
"Balance Sheet" has the meaning set forth in Section 3.6(a).
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction that could
reasonably be expected to result in any specified consequence.
"Business" means the business and operations of the Company
and its Subsidiaries as conducted on the Closing Date, including but
not limited to the operation of the ArtToday network of Web sites
(including but not limited to xxxxxxx.xxx, xxxxxx.xxx, xxxxxxxxxxx.xxx,
xxxxxxxxxxxxxxx.xxx, xxxxxxxx.xxx, xxxxxxxxxxxxxx.xxx,
xxxxxxxxxxxx.xxx, xxxxxxxxx.xxx, xxxx-xxx.xxx, xxxxxxxxxxxxxxxxx.xxx,
xxxxxxx.xxx, xxxxxxxx.xxx, xxxxxxxx.xxx and xxxxxxxxxxxxx.xxx).
"Business Combination" has the meaning set forth in Section
11.2(b).
"Business Day" means a day, other than a Saturday or a Sunday,
on which commercial banks are not required or authorized to close in
the City of New York.
"Cash Consideration" has the meaning set forth in Section
2.2(a).
"Cash Escrow Amount" has the meaning set forth in Section
2.2(b).
"Closing" has the meaning set forth in Section 9.1.
"Closing Date" has the meaning set forth in Section 9.1.
"Closing Date Balance Sheet" has the meaning set forth in
Section 2.3(a) as finally adjusted pursuant to Section 2.3(d).
"Closing Date Cash Payment" has the meaning set forth in
Section 2.2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preamble hereto
and, except where the context otherwise requires, (i) includes the
Company and the Company's Subsidiaries and (ii) means NewCo as the
surviving entity in the Pre-Closing Merger if such reference relates to
any time after the effectiveness of the Pre-Closing Merger.
"Competitive Business Activities" means providing,
distributing, publishing, selling or licensing any of the following:
clipart, webart, photos, animations, sounds or fonts (collectively the
"Content"), directly or indirectly , via (i) online, (ii) the Internet,
(iii) the Web, (iv) computer disc or hard drive, (v) compact disc (CD),
(vi) digital video disk (dvd), (vii) telephone, cellular, wireless or
mobile transmission, (viii) e-mail or (ix) personal digital assistant
(pda); other than Content that is provided, distributed, published,
sold or licensed by the Seller solely in the following manner:
(A) in the packaged software programs branded "ClipArt and
More, Animations and More, PhotoArt & More, MasterClips" and the
translated titles of such software for international distribution, by
means of packaged CD, dvd or direct download purchase of such packaged
software but not, directly or indirectly, by means of bundling or
otherwise, by way of Web site subscription, online database, the
Internet, the Web, telephone, cellular, wireless or mobile
transmission, e-mail, pda or
(B) for use in conjunction with, and directly related to,
Seller's (1) visual/precision design ( focused on computer-aided design
for architectural, design and engineering applications) and business
applications ( focused on business solutions for flowcharts,
organization charts, typing and foreign language but specifically
excluding print and Web site design products) software programs, and
any directly related Web sites that are in direct promotional support
of such software programs, (namely XXXXXxxx.xxx, TurboCAD, TurboCADCAM,
XxxxxXXX.xxx, XxxXxxxxx.xxx, TurboProject, FloorPlan, XxxxxXxxx.xxx,
Xxxxxxxx.xxx, FlowCharts and More, Easy Language branded programs, IMSI
Resume Builder, TurboTyping, Net Accelerator, OrgPlus branded programs,
IMSI Legacy Family Tree, and Quickverse) or (2) future software
programs that are in the area of visual/precision design ( focused on
computer-aided design for architectural, design and engineering
applications or business applications ( focused on business solutions
for flowcharts, organization charts, typing and foreign language but
specifically excluding print and Web site design products), but not
graphic design (focused on providing collections of some or all of the
following: clipart, webart, animations, photos, fonts, sounds and other
digital content), provided that Seller's current and future products
are consistent with products it has historically sold in its
visual/precision design and business application software divisions (as
further described in the Seller's Form 10-Ks for the years ended June
30, 2002 and June 30, 2001 filed with the Securities and Exchange
Commission (SEC) prior to the date hereof)
Notwithstanding anything to the contrary above, and for the
avoidance of doubt, Seller's publishing, offering, providing, selling,
licensing or otherwise making photos available via (i) online; (ii) the
Web; (iii) the Internet; (iv) e-mail; (v) telephone, cellular, wireless
or mobile transmission, or (vi) pda, except on compact disc (CD) and or
digital video disk (dvd), provided such is not on a download basis,
directly or indirectly, shall be deemed a Competitive Business Activity
except for photos contained in Seller's visual/precision design and
business application software products, provided such photos are not
the primary feature of such product, and are used consistent with the
end-user license agreement for the programs which shall be consistent
with the restrictions herein.
"Contracts" as of any date means, collectively, all contracts,
agreements, commitments, instruments and guaranties to which the
Company is a party as of such date, including those listed or required
to be listed on Schedule 3.15, all unfilled orders outstanding as of
such date for the purchase of raw materials, goods or services by the
Company, and all unfilled orders outstanding as of such date for the
sale of goods or services by the Company.
"Costs of Remediation" means all losses, amounts paid in
settlement, investigation, removal, remediation, monitoring and
reporting costs and expenses, Taxes, claims, Damages, Liabilities,
obligations, judgments, settlements and out-of-pocket costs (including,
without limitation, costs of investigation or enforcement), expenses
and attorneys' fees including, without limitation, fees for services of
attorneys, consultants, contractors, experts, engineers and
laboratories, and all other out-of-pocket costs, incurred in connection
with investigation, characterization, remediation, monitoring,
reporting or mitigation, arising out of or related to the presence or
Release of any Hazardous Materials existing as of or prior to the
Closing Date at, on, or emanating from any of the Leased Property or
any real property at or to which the Company, any Subsidiary or
predecessor of any of the foregoing disposed, Released, transported,
stored, emitted, treated, or arranged to dispose of Hazardous Materials
prior to the Closing Date including, without limitation, off-site
liability under any Environmental Law arising from or in connection
with transportation, treatment, storage, disposal, Release, or
arranging for disposal of Hazardous Materials.
"Damages" means any losses, amounts paid in settlement,
claims, damages, Liabilities, obligations, judgments, settlements and
reasonable out-of-pocket costs (including, without limitation, costs of
investigation or enforcement), expenses and attorneys' fees, including,
without limitation, (i) any consequential damages or (ii) any special
or punitive damages which are assessed against an Indemnified Party as
a result of a third party action.
"Earn-Out Payment" has the meaning set forth in Section
2.4(a).
"Earn-Out Period" means any one of the First Earn-Out Period,
the Second Earn-Out Period or the Third Earn-Out Period.
"Employee Benefit Plan" means an Employee Pension Benefit Plan
or an Employee Welfare Benefit Plan, where no distinction is required
by the context in which the term is used.
"Employee Pension Benefit Plan" has the meaning set forth in
Section 3(2) of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in
Section 3(1) of ERISA.
"Employees" means each individual who, on the applicable date,
performs services as an employee primarily for the Company or any of
its Subsidiaries (including such persons who are on an approved leave
of absence, vacation, short-term disability or otherwise treated as an
active employee of the Company or its Subsidiaries).
"Environmental Laws" means any Legal Requirement with respect
to the protection of the public health, safety or the environment,
including, without limitation, with respect to any Hazardous Materials,
drinking water, groundwater, wetlands, landfills, open dumps, storage
tanks, solid waste, or waste water, water, soil, air, pollution, the
protection, preservation or restoration of natural resources, plant and
animal life or human health or the environment, or waste management,
regulation or control. Without limiting the generality of the
foregoing, the term shall encompass each of the following statutes, and
the regulations promulgated thereunder, in each case as in effect as of
Closing: (a) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (codified in scattered sections of 26 U.S.C., 33
U.S.C., 42 U.S.C. and 42 U.S.C.ss.9601 et seq.); (b) the Resource
Conservation and Recovery Act of 1976 (42 U.S.C.ss.6901 et seq.); (c)
the Hazardous Materials Transportation Act (49 U.S.C.ss.1801 et seq.);
(d) the Toxic Substances Control Act (15 X.X.X.xx. 2061 et seq.); (e)
the Federal Water Pollution Control Act (33 U.S.C.ss.1251 et seq.); (f)
the Clean Air Act and Amendments (42 U.S.C.ss.7401 et seq.); (g) the
Safe Drinking Water Act (21 U.S.C.ss.349; 42 U.S.C.ss.201 andss. 300 et
seq.); (h) the Superfund Amendment and Reauthorization Act of 1986
(codified in scattered sections of 10 U.S.C., 29 U.S.C., 33 U.S.C. and
42 U.S.C.); and (i) the Occupational, Health and Safety Act (29
X.X.X.xx. 651 et seq.).
"Environmental Reference Date" has the meaning set forth in
Section 3.22.
"Equity Distributions" as of any date means the following: (i)
all dividends, distributions, forgiveness of debt, transfer of value or
similar transactions with respect to the Stock, and (ii) with respect
to each transaction between the Company on the one hand and the Seller,
its Affiliates, or advisors on the other hand, the amount (measured on
a transaction by transaction basis, which amount shall never be deemed
to be less than zero) by which the cash value of the goods or services
received by the Company was less than the greater of (x) the amount
which the Company would have had to pay in a comparable transaction
with an unaffiliated third party entered into on an arm's length basis,
or (y) the cash value of the goods and services paid by the Company in
the transactions.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which has been under common control or treated as a
single employer with the Company under Section 414(b), (c) or (m) of
the Code.
"Escrow Agreement" has the meaning set forth in Section
2.2(b).
"Excluded Costs" has the meaning set forth in Section 3.6(a).
"FIRPTA Affidavit" has the meaning set forth in Section 8.5.
"First Earn-Out Period" has the meaning set forth in Section
2.4(a).
"First Minimum Revenue Target" has the meaning set forth in
Section 2.4(a).
"Final Net Asset Adjustment" means: (i) if the Seller does not
timely deliver an Objection Notice, the Net Asset Adjustment as set
forth in the Adjustment Report, or (ii) if the Seller timely delivers
an Objection Notice, the Net Asset Adjustment as determined pursuant to
Section 2.3(d).
"Financial Statements" has the meaning set forth in Section
3.6.
"Former Employee" means each individual other than an Employee
on the Closing Date who at any time prior to the Closing Date performed
services as an employee primarily for the Company or any Subsidiary of
the Company.
"GAAP Consistency" means in accordance with GAAP applied on a
basis consistent with that used in the preparation of the Financial
Statements.
"Governmental Agency" means (a) any international, foreign,
federal, state, county, local or municipal government or administrative
agency or political subdivision thereof, (b) any governmental agency,
authority, board, bureau, commission, department or instrumentality,
(c) any court or administrative tribunal, (d) any non-governmental
agency, tribunal or entity that is vested by a governmental agency with
applicable jurisdiction, or (e) any arbitration tribunal or other
non-governmental authority with applicable jurisdiction.
"Hazardous Materials" means each and every element, compound,
chemical mixture, pollutant, contaminant, material, waste or other
substance which is defined, designated, regulated, determined,
classified or identified as of the Closing Date as hazardous,
radioactive, harmful or toxic under any Environmental Law, or the
Release of which is prohibited or regulated under any Environmental
Law, or which to the Knowledge of the Seller could reasonably be
expected to cause, whether now or with the passage of time, damage to
Persons, property, flora, fauna or the environment. Without limiting
the generality of the foregoing, the term shall include any "toxic
substance," "hazardous substance," "hazardous waste," or "hazardous
material" as defined in any Environmental Law as amended to date, and
any explosive or radioactive material, asbestos, asbestos-containing
material, waste water, sludge, untreated dye, other effluent, coal ash,
polychlorinated biphenyls, special waste, petroleum or any derivative
or byproduct thereof, and toxic waste.
"Indebtedness" means (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of
such Person, (i) the principal of and premium, if any, in respect of
any indebtedness of such Person for money borrowed, (ii) the principal,
premium, if any, and interest of such Person with respect to
obligations evidenced by bonds, debentures, notes or, except for
accrued liabilities arising in the ordinary course of business, other
similar instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses (other than trade
payables which are not overdue or in default), (iii) all obligations of
such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto)
but only to the extent of drawings thereunder, (iv) every obligation of
such Person issued or assumed as the deferred purchase price of
property or services
(excluding trade accounts payable or accrued liabilities arising in the
Ordinary Course of Business which are not overdue or in default), (v)
every capital lease obligation (determined in accordance with GAAP
Consistency) of such Person, (vi) all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided, however, that the
amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of
such Indebtedness of such other Persons, (vii) the present value
(discounted using an interest rate of 5% per annum) as of the date of
determination of every obligation to pay rent or other payment amounts
of such Person with respect to any sale-leaseback transaction to which
such Person is a party, payable through the stated maturity of such
sale-leaseback transaction, and (viii) every obligation of the type
referred to in clauses (i) through (vii) of another Person the payment
of which, in any case, such Person has guaranteed or is responsible or
liable, directly or indirectly, as obligor, guarantor or otherwise.
"Indemnified Party" has the meaning set forth in Section
10.3(a) and in the case of Purchaser shall also include the Company and
its Subsidiaries.
"Indemnifying Party" has the meaning set forth in Section
10.3(a).
"Insurance Policies" has the meaning set forth in Section
3.20.
"Intellectual Property" shall mean all of the following,
owned, used or licensed by the Company as licensee or licensor: (i) the
names "ArtToday", xxxxxxx.xxx, xxxxxx.xxx, xxxxxxxxxxx.xxx,
xxxxxxxxxxxxxxx.xxx, xxxxxxxx.xxx, xxxxxxxxxxxxxx.xxx,
xxxxxxxxxxxx.xxx, xxxxxxxxx.xxx, xxxx-xxx.xxx, xxxxxxxxxxxxxxxxx.xxx,
xxxxxxx.xxx, xxxxxxxx.xxx, xxxxxxxx.xxx, xxxxxxxxxxxxx.xxx, all
fictional business names, trademarks and service marks (registered or
unregistered), trade dress, trade names and other names and slogans
embodying business or product goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the
foregoing and all goodwill associated therewith (collectively "Marks");
(ii) patents, patentable inventions, discoveries, improvements, ideas,
know-how, formula methodology, processes, technology and computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications
and data) and all applications or registrations in any jurisdiction
pertaining to the foregoing, including all reissues, continuations,
divisions, continuations-in-part, renewals or extensions thereof
(collectively "Patents"); (iii) trade secrets, know-how, including
confidential and other non-public information, and the right in any
jurisdiction to limit the use or disclosure thereof (collectively,
"Trade Secrets"), (iv) copyrights in writings, artwork, clipart,
webart, sounds, graphics, photographs, animations, images, designs,
mask works or other works, and registrations or applications for
registration of copyrights in any jurisdiction; (v) licenses,
immunities, covenants not to xxx and the like relating to any of the
foregoing; (vi) Internet Web sites, domain names and registrations or
applications for registration thereof; (vii) books and records
describing or used in connection with any of the foregoing; and (viii)
claims or causes of action arising out of or related to infringement or
misappropriation of any of the foregoing.
"Interim Balance Sheet" has the meaning set forth in Section
3.6(b).
"Interim Balance Sheet Date" means March 31, 2003.
"Interim Financial Statements" has the meaning set forth in
Section 3.6(b).
"IRS" means the Internal Revenue Service of the U.S.
Department of the Treasury.
"Knowledge" as applied to the Seller, means the actual
knowledge, after reasonable inquiry, of any person listed on Schedule
1.1 hereto.
"Leased Property" has the meaning set forth in Section
3.11(b).
"Leases" has the meaning set forth in Section 3.11(b).
"Legal Requirement" means any federal, state, local,
municipal, foreign, international, multinational, or other
administrative Order, constitution, law, rule, ordinance, permit,
principle of common law, regulation, statute, or treaty.
"Liability" means any liability or obligation (whether known
or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or
unliquidated and whether due or to become due), including, without
limitation, any liability for Taxes.
"Lien" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of
any other attribute of ownership.
"Major Suppliers" has the meaning set forth in Section 3.28.
"Xxxx" has the meaning set forth in this Section 1.1 in the
definition of "Intellectual Property."
"Material Adverse Effect" means a material adverse change in
or effect with respect to the business, results of operations,
properties, financial condition or prospects of the Company and its
subsidiaries.
"Multiemployer Plan" has the meaning set forth in Section
3(37) of ERISA.
"Net Asset Adjustment" means the amount of Adjusted Net Assets
as of the Closing Date, it being understood that the Net Asset
Adjustment may be less than zero.
"Objection Notice" has the meaning set forth in Section
2.3(b).
"Order" means any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered
by any court, administrative agency, or other Governmental Agency or by
any arbitrator.
"Ordinary Course of Business" means an action which is both:
(a) consistent with the past practices of the Company and is taken in
the ordinary course of the normal day-to-day operations of the Company;
and (b) similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors, in the ordinary
course of the normal day-to-day operations of other Persons that are in
a similar line of business as the Company.
"NewCo" has the meaning set forth in the preamble hereto.
"Patent" has the meaning set forth in this Section 1.1 in the
definition of "Intellectual Property."
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permit" means any permit, approval, consent, authorization,
license, variance, or permission required by a Governmental Agency
under any Legal Requirement.
"Permitted Liens" means, with respect to any asset, (i)
covenants, conditions, restrictions, encroachments, encumbrances,
easements, rights of way, licenses, grants, building or use
restrictions, exceptions, reservations, limitations or other
imperfections of title (other than a Lien securing any Indebtedness)
with respect to such asset which, individually or in the aggregate,
does not materially detract from the value of, or materially interfere
with the present occupancy or use of, such asset and the continuation
of the present occupancy or use of such asset; (ii) the matters set
forth on Schedule 1.2 hereto; (iii) unfiled mechanic's, materialmen's
and similar liens with respect to amounts not yet due and payable or
which are being contested in good faith through appropriate proceedings
and, for those existing on the Interim Balance Sheet Date or the
Closing Date, for which adequate reserves in accordance with GAAP
Consistency are reflected on the Interim Balance Sheet or the Closing
Date Balance Sheet, as the case may be; (iv) liens for Taxes not yet
delinquent or which are being contested in good faith through
appropriate proceedings and, for those existing on the Interim Balance
Sheet Date or the Closing Date, for which adequate reserves in
accordance with GAAP Consistency are reflected on the Interim Balance
Sheet or the Closing Date Balance Sheet, as the case may be; and (v)
liens securing rental payments under capital lease arrangements, which
capital lease arrangements existing as of the Closing Date are in
accordance with GAAP Consistency reflected as Indebtedness on the
Closing Date Balance Sheet.
"Person" means any individual, partnership, corporation,
trust, association, limited liability company, Governmental Agency or
any other entity.
"Plan" has the meaning set forth in Section 3.19(a).
"Pre-Closing Merger" has the meaning set forth in the Preamble
hereto.
"Pre-Closing Tax Period" has the meaning set forth in Section
6.2(a).
"Pre-Closing Taxes" has the meaning set forth in Section
10.2(b)(v).
"Product" has the meaning set forth in Section 3.26.
"Product Claim" has the meaning set forth in Section 3.26.
"Property Taxes" has the meaning set forth in Section 6.2(b).
"Purchase Price" has the meaning set forth in Section 2.2.
"Purchaser" has the meaning set forth in the preamble hereto.
"Purchaser SEC Documents" has the meaning set forth in Section
4.6.
"Recalls" has the meaning set forth in Section 3.26.
"Registration Rights Agreement" has the meaning set forth in
Section 7.5.
"Release" means any spilling, leaking, pumping, releasing,
depositing, pouring, emitting, emptying, migrating, discharging,
injecting, storing, escaping, leaching, dumping, burying, abandoning,
disposing or moving into the environment.
"Salaried Employee" has the meaning set forth in Section 3.24.
"Schedules" means, collectively, the various Schedules
referred to in this Agreement delivered separately to Purchaser on or
before the date of this Agreement.
"Second Earn-Out Period" has the meaning set forth in Section
2.4(a).
"Second Minimum Revenue Target" has the meaning set forth in
Section 2.4(a).
"Section 338(h)(10) Election" has the meaning set forth in
Section 6.6(f).
"Section 338 Forms" has the meaning set forth in Section
6.6(d).
"Seller Entity" means the Seller and its respective Affiliates
(other than the Company and its Subsidiaries).
"Seller" has the meaning set forth in the preamble hereto.
"Seller's Opinion of Counsel" has the meaning set forth in
Section 8.9.
"Single-Employer Plan" means an Employee Pension Benefit Plan
which is described in Section 4001(a)(15) of ERISA and which is subject
to Title IV of ERISA.
"Software" has the meaning set forth in Section 3.17.
"Stock" has the meaning set forth in the preamble hereto.
"Stock Consideration" has the meaning set forth in Section
2.2(a).
"Straddle Period" has the meaning set forth in Section 6.2(a).
"Straddle Tax Return" has the meaning set forth in Section
6.2(a).
"Subsidiary" means "subsidiary" as defined in Rule 405
promulgated under the Securities Act of 1933, as amended.
"Substantial Content" has the meaning set forth in Section
2.4(b).
"Tax Claim" has the meaning set forth in Section 10.5.
"Tax Return" means any report, return, information return,
forms, declarations, claims for refund, statements or other information
(including any amendments thereto and including any schedule or
statement thereto) required to be supplied to a Governmental Agency in
connection with Taxes.
"Taxes" means all federal, state, local, foreign and other
taxes, assessments and water and sewer charges and rents, including
without limitation, income, gross receipts, excise, employment, sales,
use, transfer, license, payroll, franchise, severance, stamp,
withholding, Social Security, unemployment, real property, personal
property, property gains, registration, capital stock, value added,
single business, occupation, workers' compensation, alternative or
add-on minimum, estimated, or other tax, including without limitation
any interest, penalties or additions thereto.
"Third Earn-Out Period" has the meaning set forth in Section
2.4(a).
"Third Minimum Revenue Target" has the meaning set forth in
Section 2.4(a).
"Third Party" has the meaning set forth in Section 11.2(b).
"Trademark Assignment" has the meaning set forth in Section
7.5.
"Trade Secret" has the meaning set forth in this Section 1.1
in the definition of "Intellectual Property."
"Transaction Documents" means this Agreement, the Registration
Rights Agreement, the Escrow Agreement and the Trademark Assignment.
"Valuation" has the meaning set forth in Section 6.6(c).
Accounting Terms and Determinations. All references in this
Agreement to "generally accepted accounting principles" or "GAAP" shall
mean generally accepted accounting principles in effect in the United
States of America at the time of application thereof, applied on a
consistent basis. Unless otherwise specified herein, all accounting
terms used herein shall be interpreted, all determinations with respect
to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance
with generally accepted accounting principles, applied on a consistent
basis.
SALE AND PURCHASE
Agreement to Sell and to Purchase. On the terms and subject to
the conditions set forth in this Agreement, at the Closing, the Purchaser shall
purchase from the Seller, and the Seller shall sell, transfer, assign, convey
and deliver to the Purchaser, the Stock. At the Closing, the Seller shall
deliver to the Purchaser or its designees a certificate or certificates
representing the Stock, duly endorsed in blank for transfer or accompanied by
appropriate powers duly executed in blank.
Purchase Price.
The purchase price (the "Purchase Price") for the Stock shall
consist of the following:
$13,000,000, as may be reduced or increased, as the
case may be, by the Net Asset Adjustment pursuant to Section
2.3 (the "Cash Consideration");
250,000 shares of restricted common stock, par value
$0.01 per share, of the Purchaser (the "Stock Consideration");
and
Earn-Out Payments, if any.
The Purchaser shall deliver to the Seller at the Closing, by
wire transfer of immediately available funds an amount (the "Closing
Date Cash Payment") equal to $13,000,000 less (A) any amounts paid by
the Purchaser at the written direction of the Seller to third parties
in satisfaction of one or more of the conditions set forth in ARTICLE
VIII and (B) $1,300,000, which $1,300,000 (the "Cash Escrow Amount")
shall be held in escrow in accordance with the terms of an Escrow
Agreement to be entered into between the Seller and the Purchaser on
the Closing Date in substantially the form attached hereto as Exhibit
A (the "Escrow Agreement").
At the Closing, the Purchaser shall deliver to the Escrow
Agent (as defined in the Escrow Agreement) the Cash Escrow Amount by
wire transfer of immediately available funds. At or as promptly as
practical following the Closing, the Purchaser shall deliver to the
Escrow Agent a stock certificate in the name of the Seller
representing the Stock Consideration, which stock certificate shall be
held in escrow in accordance with the terms of the Escrow Agreement.
Purchase Price Adjustment.
As soon as reasonably practical after the Closing, but in no
event more than thirty (30) days after the Closing Date, the Purchaser
shall prepare a consolidated balance sheet of the Company as of the
close of business on the Closing Date (the "Closing Date Balance
Sheet"), together with (ii) a draft schedule (the "Draft Adjustment
Report") showing the Purchaser's computation of the Net Asset
Adjustment as of the Closing Date and the Purchaser's proposed
purchase price adjustment to be made in accordance with this Section
2.3. The Closing Date Balance Sheet shall be prepared in accordance
with GAAP Consistency. The Purchaser shall deliver the Closing Date
Balance Sheet and the Draft Adjustment Report to the Seller within
such 30 day period after the Closing Date.
During the thirty (30) day-period after the Seller's receipt
of the Closing Date Balance Sheet and the Draft Adjustment Report, the
Seller and the Purchaser shall cooperate with each other to resolve
any disagreements between them with respect to the Draft Adjustment
Report. In the event the Seller and the Purchaser agree on the Draft
Adjustment Report and the proposed Net Asset Adjustment set forth
therein (such agreement to be indicated in writing by the Seller and
the Purchaser by signing such Draft Adjustment Report), then the Draft
Adjustment Report shall be deemed to be the final Adjustment Report
(the "Adjustment Report"), and the Net Asset Adjustment set forth
therein shall be conclusive and binding upon the Purchaser and the
Seller and shall have the effect of adjusting the Cash Consideration
as set forth therein.
In the event the Seller and the Purchaser shall not reach
agreement on all aspects of the Draft Adjustment Report, including
with respect to the Net Asset Adjustment set forth therein, within
such thirty (30) day period after the Seller's receipt of the Closing
Date Balance Sheet and the Draft Adjustment Report, the Seller shall
promptly (but in no event later than five (5) days following the
expiration of such thirty (30) day period) prepare a written notice of
its objections (the "Objection Notice"): (i) objecting in good faith
to the Closing Date Balance Sheet or the Net Asset Adjustment set
forth in the Draft Adjustment Report, (ii) setting forth the items
being disputed and the reasons therefor, and (iii) specifying the
Seller's calculation of the Net Asset Adjustment as of the Closing
Date and the adjustment to be made in accordance with this Section
2.3. In connection with the preparation of the Objection Notice, the
Purchaser shall grant the Seller's accountants and other
representatives reasonable access to all of the books and records of
the Company. If the Seller fails to deliver timely notice of its
objection to the Closing Date Balance Sheet or the Net Asset
Adjustment as set forth in the Draft Adjustment Report, then the Draft
Adjustment Report shall be deemed to be the Adjustment Report, and the
Net Asset Adjustment set forth therein shall be conclusive and binding
upon the Purchaser and the Seller and shall have the effect of
adjusting the Cash Consideration as set forth therein.
The matters in dispute shall be determined by a nationally
recognized independent public accounting firm mutually satisfactory to
the Purchaser and the Seller (the "Arbiter"), and the Purchaser and
the Seller shall promptly deliver to the Arbiter the Closing Date
Balance Sheet, the Draft Adjustment Report and Seller's Objection
Notice. Promptly, but not later than thirty (30) days after the
acceptance of its appointment, the Arbiter shall determine (based
solely on presentations by the Seller and the Purchaser to the Arbiter
and not by independent review) only those items in dispute and shall
render a report as to its resolution of such items and the resulting
calculation of the Net Asset Adjustment. For purposes of the Arbiter's
determination, the amounts to be included shall be the appropriate
amounts from the Closing Date Balance Sheet or the Draft Adjustment
Report, as the case may be, as to items
that are not in dispute, and the amounts determined by the Arbiter, as
to items that are submitted for resolution by the Arbiter. In resolving
any disputed item, the Arbiter may not assign a value to such item
greater than the greatest value for such item claimed by either party
in the Closing Date Balance Sheet, Draft Adjustment Report or Objection
Notice or less than the lowest value for such item claimed by either
party in the Closing Date Balance Sheet, Draft Adjustment Report or
Objection Notice. The Purchaser and the Seller shall cooperate with the
Arbiter in making its determination and such determination shall be
conclusive and binding upon the Purchaser and the Seller.
The Purchaser and the Seller shall each bear one-half of the
fees and expenses of the Arbiter.
Within five Business Days after the final determination of the
Net Asset Adjustment in accordance with this Section 2.3: either (x)
the Purchaser shall pay the Seller by wire transfer of immediately
available funds the amount, if any, by which the Final Net Asset
Adjustment is greater than zero; or (y) the Seller shall pay the
Purchaser by wire transfer of immediately available funds the amount,
if any, by which the Final Net Asset Adjustment is less than zero.
Nothing in this Section 2.3 or in the statements, reports or
documents contemplated hereby shall affect the parties' rights and
obligations in respect of a breach or alleged breach of any
representation or warranty herein.
Earn-Out Payments
Within forty-five (45) days after the last day of each
Earn-Out Period, the Purchaser shall pay to the Seller the following
amounts (each, an "Earn-Out Payment" and collectively, the "Earn-Out
Payments") if, and only if, the minimum revenue target specified below
for the given Earn-Out Period is satisfied:
In respect of the six calendar month period following
the Closing Date (the "First Earn-Out Period"), one dollar
($1.00) for each seventy cents ($0.70) of ArtToday Revenue in
excess of two million six hundred thousand dollars
($2,600,000) (the "First Minimum Revenue Target"), up to a
maximum payment in respect of such period of one million
dollars ($1,000,000). No payment shall be made if ArtToday
Revenue for the First Earn-Out Period is below the First
Minimum Revenue Target, and in such case the right to any
Earn-Out Payment for such period shall terminate.
In respect of the six calendar month period following
the First Earn-Out Period (the "Second Earn-Out Period"), one
dollar ($1.00) for each one dollar and forty cents ($1.40) of
ArtToday Revenue in excess of two million six hundred thousand
dollars ($2,600,000) (the "Second Minimum Revenue Target"), up
to a maximum payment in respect of such period of one million
dollars ($1,000,000). No payment shall be made if ArtToday
Revenue for the Second Earn-Out Period is below the Second
Minimum Revenue Target, and in such case the right to any
Earn-Out Payment for such period shall terminate.
In respect of the twelve calendar month period
following the Second Earn-Out Period (the "Third Earn-Out
Period"), one dollar ($1.00) for each one dollar and five
cents ($1.05) of ArtToday Revenue in excess of seven million
three hundred thousand dollars ($7,300,000) (the "Third
Minimum Revenue Target"), up to a maximum payment in respect
of such period of two million dollars ($2,000,000). No payment
shall be made if ArtToday Revenue for the Third Earn-Out
Period is below the Third Minimum Revenue Target, and in such
case the right to any Earn-Out Payment for such period shall
terminate.
For the purposes of this Section 2.4, "ArtToday Revenue" shall
mean, for any Earn-Out Period, the revenue (excluding deferred
revenue) of the Business as calculated by the Purchaser in accordance
with GAAP Consistency and adjusted as necessary for sales returns,
allowances and bad debts, but excluding any revenue derived from
acquisitions of businesses or of Substantial Content (as defined
below) except for the acquisition of xxxxxxxxxx.xxx or the regular
addition of content to the Business in the Ordinary Course of Business
by way of license or otherwise. "Substantial Content" means content
acquired for $150,000 or more, whether in a single transaction or a
series of related transactions together constituting one transaction.
If the Purchaser in good faith is unable to separately track the
revenue derived from Substantial Content acquired during any Earn-Out
Period, then ArtToday Revenue shall be reduced for each Earn-Out
Period ending after the date of such acquisition by an amount equal to
the product of (A) 50% of the purchase price of such Substantial
Content multiplied by (B) a fraction, the numerator of which is the
number of days during the relevant Earn-Out Period that such
Substantial Content was owned and the denominator of which is the
number of days in the relevant Earn-Out Period. If the Purchaser in
good faith is unable to separately track the revenue derived from any
business acquired during any Earn-Out Period, then ArtToday Revenue
shall be reduced for each Earn-Out Period ending after the date of
such acquisition by an amount equal to the product of (A) the
historical twelve month run rate of such business from the date such
business was acquired (or, in the case of the First Earn-Out Period
and the Second Earn-Out Period, an amount equal to 50% of such
historical 12-month run rate) multiplied by (B) a fraction, the
numerator of which is the number of days during the relevant Earn-Out
Period that such business was owned and the denominator of which is
the number of days in the relevant Earn-Out Period. The Seller shall
not take any action, whether independently or jointly, directly or
indirectly, to artificially inflate, overstate, or in any manner
misrepresent the amount of the ArtToday Revenue at any time.
The parties hereto acknowledge that the Earn-Out Payments
payable to the Sellers pursuant to this Section 2.4 have been
negotiated by the parties based on their inability to agree as to the
valuation of the Company as of the Closing Date, and such Earn-Out
Payments are intended by the parties to be treated as part of the
consideration for the Stock. The Purchaser and the Seller agree not to
take any position, including, without limitation, for federal, state,
foreign or local tax purposes, that is inconsistent with the intent
expressed in this clause (c).
The Purchaser agrees to keep true and accurate books and
records containing sufficiently detailed information to enable the
Seller to accurately determine the amount of the Earn-Out Payment due
to the Seller for each Earn-Out Period. The Purchaser further agrees
to permit the Seller and/or its designated agent access to such books
and records at a reasonable time at the Purchaser's principal offices
(or at such other location at which such books and records may be
located) upon reasonable request by the Seller commencing as of the
Closing Date and ending on the third anniversary of the Closing Date
in order to inspect and audit such books and records.
Within thirty (30) days after the end of each calendar quarter
during any Earn-out Period, the Purchaser shall provide the Seller
with a report of the ArtToday Revenue for such quarter, together with
a report of the bookings during such quarter of all sales that will at
any time be included as ArtToday Revenue.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as set forth in
this Article III: Authority of the Seller. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Seller has full corporate power and authority to execute and
deliver the Transaction Documents, and the execution and delivery by the Seller
of the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Seller, and do not require the
consent or approval of the common stockholders or any holder of any other class
of equity securities of the Seller. This Agreement constitutes, and the other
Transaction Documents when executed and delivered by the parties thereto will
constitute, the legal, valid and binding obligations of the Seller enforceable
against the Seller in accordance with their terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, moratorium, or similar laws
from time to time in effect which affect creditors' rights generally and by
legal and equitable limitations on the enforceability of specific remedies.
Organization of XxxXxxxx.xxx, Inc. As of the date hereof and
immediately prior to the effectiveness of the Pre-Closing Merger: (i)
XxxXxxxx.xxx, Inc. is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Arizona (ii) XxxXxxxx.xxx, Inc. is
duly qualified to do business and is in good standing in the states listed in
Schedule 3.2, such states being each jurisdiction in which the ownership of its
properties or the conduct of its business requires such qualification, except
where the failure to so qualify, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect and (iii)
XxxXxxxx.xxx, Inc. has the requisite corporate power and authority to own its
properties and to conduct its business as presently conducted. Schedule 3.2(a)
includes true and correct copies of the Articles of Incorporation and By-Laws of
XxxXxxxx.xxx, Inc. as in effect on the date hereof and as will be in effect
immediately prior to the effectiveness of the Pre-Closing Merger.
Capitalization of XxxXxxxx.xxx, Inc.. As of the date hereof
and immediately prior to the effectiveness of the Pre-Closing Merger, the
authorized capital stock of XxxXxxxx.xxx, Inc. consists of (i) one million
(1,000,000) shares of common stock, par value $0.01 per share, of which two
hundred twenty-six thousand eight hundred seventy eight (226,878) shares are
outstanding and owned by the Seller and (ii) no shares of preferred stock. There
are or will be at Closing no outstanding options, warrants, agreements,
conversion rights, preemptive rights or other rights to subscribe for, purchase
or otherwise acquire shares of capital stock of XxxXxxxx.xxx, Inc.
No Conflict or Violation; Consents. Except as set forth on
Schedule 3.4, neither the execution and delivery of this Agreement or any other
Transaction Document nor the consummation or performance of any of the
transactions contemplated hereby or thereby will, directly or indirectly (with
or without notice or lapse of time):
contravene, conflict with, or result in a violation of (i) any
provision of the Certificate of Incorporation or By-Laws of either the
Seller or the Company, or (ii) any resolution adopted by the board of
directors or the stockholders of either the Seller or the Company;
contravene, conflict with, or result in a violation of, or
give any Governmental Agency or other Person the right to challenge
any of the transactions contemplated hereby or by any other
Transaction Document or to exercise any remedy or obtain any relief
under, any Legal Requirement to which the Company or the Seller, or
any of the assets owned or used by the Company, may be subject;
contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Agency the
right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Permit that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company;
cause any of the assets owned by the Company to be reassessed
or revalued by any taxing authority or other Governmental Agency;
contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Contract,
Lease or Permit;
result in the imposition or creation of any Lien upon or with
respect to any of the assets owned or used by the Company; or
except for filings under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, require
the consent, approval, or authorization of, or registration or filing
with, any Governmental Agency or any other Person.
Subsidiaries and Investments. The Company does not own any
stock of, or any equity participation in, any Person and has no Subsidiaries.
Financial Statements.
The unaudited balance sheet of the Company at June 30, 2002
(the "Balance Sheet"), and related statements of income, retained
earnings and cash flow for the periods then ended and the notes
thereto (collectively, the "Financial Statements"), (i) are included
as Schedule 3.6(a): (ii) were prepared in accordance with GAAP
Consistency, (iii) present fairly the financial condition and the
results of operations of the Company as of the dates and for the
periods indicated thereon, (iv) are complete, correct and accordance
with the books of account and records of the Company, (v) can be
legitimately reconciled with the financial statements and the
financial records maintained and the accounting methods applied by the
Company for federal income tax purposes, and (vi) reflect accurately
all costs and expenses which the Company incurred, but not necessarily
all of the costs, or a pro-rata portion of the costs, incurred by the
Seller which may have been expenses of the Company if the Company were
independent and not affiliated with any other corporation or business
("Excluded Costs," all of which are set forth in Schedule 3.6(a)).
The unaudited balance sheet as of the Interim Balance Sheet
Date (the "Interim Balance Sheet"), and the related statements of
income, retained earnings and cash flow for the period then ended
(collectively, the "Interim Financial Statements"): (i) are included
as Schedule 3.6(b), (ii) were prepared in accordance with GAAP
Consistency, (iii) present fairly the financial condition and the
results of operations of the Company as of the dates and for the
periods indicated thereon, subject to normal year-end adjustments,
(iv) are complete, correct and accordance with the books of account
and records of the Company, (v) can be legitimately reconciled with
the financial statements and the financial records maintained and the
accounting methods applied by the Company for federal income tax
purposes, and (vi) reflect accurately all costs and expenses which the
Company incurred, but not necessarily all of the Excluded Costs (which
Excluded Costs are set forth in Schedule 3.6(b). The Interim Financial
Statements included all adjustments, consisting solely of normal
recurring accruals, necessary for a fair presentation of the Company's
consolidated financial position and results of operations.
Undisclosed Liabilities. As of the Interim Balance Sheet Date
and the Closing Date, the Company has and will have no material Liabilities,
except for Liabilities: (a) reflected or reserved for on the Interim Balance
Sheet or the Closing Date Balance Sheet, as the case may be, (b) relating to
performance obligations, under Leases, Contracts and Permitted Liens in
accordance with the terms and conditions thereof which are not required by GAAP
Consistency to be reflected on the Interim Balance Sheet or the Closing Date
Balance Sheet, as the case may be, or (c) as set forth on Schedule 3.7.
Material Adverse Effect. Other than changes resulting from
general economic conditions, since the Interim Balance Sheet Date, there has not
been any Material Adverse Effect or Basis therefor, nor have any events occurred
nor do any circumstances exist which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
Accounts Receivable. All accounts receivable of the Company
that are reflected on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date
current and collectible net of the respective reserves shown on the Balance
Sheet or the Interim Balance Sheet or on the accounting records of the Company
as of the Closing Date (which reserves are adequate and calculated in accordance
with GAAP Consistency and, in the case of the reserve as of the Closing Date,
will not represent a lesser percentage of the Accounts Receivable as of the
Closing Date than the reserve reflected in the Interim Balance Sheet represented
of the Accounts Receivable reflected therein and will not represent a material
adverse change in the composition of such Accounts Receivable in terms of
aging). Subject to such reserves, each of the Accounts Receivable either has
been or will be collected in full, without any set-off, within ninety days after
the day on which it first becomes due and payable. There is no contest, claim,
or right of set-off, other than returns in the Ordinary Course of Business,
under any Contract with any obligor of an Accounts Receivable relating to the
amount or validity of such Accounts Receivable. Schedule 3.9 contains a complete
and accurate list of all Accounts Receivable as of the Interim Balance Sheet
Date, which list sets forth the aging of such Accounts Receivable.
Inventory. The materials, supplies and work-in-process
included in the inventory of the Company as set forth on the Interim Balance
Sheet were, and the inventory of the Company at the Closing and reflected on the
Closing Date Balance Sheet will be, as the case may be, (a) substantially
equivalent in quality and quantity, subject to seasonality, to the materials,
supplies and work-in-process, and additions thereto, generally included in such
inventory in the past; (b) suitable for the manufacture and distribution of the
Company's products in a manner substantially equivalent in quality to that
achieved generally by the Company in the past and (c) valued in accordance with
GAAP Consistency, in each case, subject to all reserves reflected in the Interim
Balance Sheet with respect to such inventory existing on the Interim Balance
Sheet Date or reflected in the Closing Date Balance Sheet with respect to
inventory existing on the Closing Date. Such reserves on the Interim Balance
Sheet are, and on the Closing Date Balance Sheet will be, adequate under GAAP
Consistency and are, in the case of the Interim Balance Sheet, or will have
been, in the case of the Closing Date Balance Sheet, established in accordance
with GAAP Consistency.
Real Property.
The Company does not own any real property.
Schedule 3.11(b) contains a list of all leases and subleases,
together with any amendments thereto and any subordination,
nondisturbance and attornment agreements (the "Leases"), with respect
to all real property leased by the Company (the "Leased Property").
Each Lease is in full force and effect, the Company has performed all
material obligations required to be performed by it to date under each
of the Leases and neither the Company nor, to the Seller's Knowledge,
any other party thereto is in material default under any of the Leases
(and no event has occurred which, with due notice or lapse of time or
both, would constitute such a lapse or default). No amount due under
the Leases remains unpaid, no material controversy, claim, dispute or
disagreement exists between the parties to any of the Leases. The
Seller has delivered to the Purchaser a copy of each Lease, and all
amendments thereto, listed in Schedule 3.11(b), except to the extent
otherwise noted therein.
The covenants, conditions, restrictions, encroachments,
encumbrances, easements, rights of way, licenses, grants, building or
use restrictions, exceptions, reservations, limitations or other
impediments affecting the Leased Property do not and will not, with
respect to each Leased Property, materially impair the
Company's ability to use any such Leased Property in the operation of
the Company's business as presently conducted. To Seller's Knowledge
there are no pending or threatened condemnation or similar proceedings
affecting the Leased Property. The Company has access to public roads,
streets or the like or valid easements over private streets, roads or
other private property for such ingress to and egress from the Leased
Property, except as would not materially impair the Company's ability
to use any such Leased Property in the operation of the Company's
business as presently conducted.
All brokerage commissions and other compensation and fees
payable by reason of the Leases have been paid in full or are
reflected in the Interim Balance Sheet except for such commissions and
other compensation related to options or extensions in the Leases
which are not yet exercised.
To the Seller's Knowledge, all improvements on the Leased
Property and the operations therein conducted conform in all material
respects to all applicable Legal Requirements, including without
limitation, health, fire, environmental, safety, zoning and building
laws, ordinances and administrative regulations, except for possible
nonconforming uses or violations which do not and will not expose any
person or property to injury or damage, materially and adversely
affect any insurance coverage, give rise to strict liability,
penalties or fines, jeopardize any Permit or materially interfere with
the present use, operation or maintenance thereof by the Company as
now used, operated or maintained, and which do not and will not
materially and adversely affect the value thereof. To the Seller's
Knowledge, all buildings, structures, improvements and fixtures owned,
leased or used by the Company in the conduct of its business at the
Leased Property conform in all material respects to all applicable
codes and rules adopted by national and local associations and boards
of insurance underwriters; and all such buildings, structures,
improvements and fixtures are in good operating condition and repair.
There are no outstanding requirements or recommendations by
any insurance company which has issued to the Company a policy
covering the Leased Property, or by any board of fire underwriters or
other body exercising similar functions, requiring or recommending any
repairs or work to be done on such property.
All public utilities required for the operation of the Leased
Property and necessary for the conduct of the business of the Company
are installed and operating, and all installation and connection
charges, to the Seller's Knowledge, are paid in full.
Except as set forth in Schedule 3.11(b), the Leased Property
is not subject to any lease, sublease, license or other agreement
granting to any Person any right to the use, occupancy or enjoyment of
such property or any portion thereof.
The plumbing, electrical, heating, air conditioning, elevator,
ventilating and all other mechanical or structural systems for which
the Company is responsible
under the Leases in the buildings or improvements are in good working
order and condition, and the roof, basement and foundation walls of
such buildings and improvements for which the Company is responsible
under said Leases are in good condition and free of leaks and other
material defects. All such mechanical and structural systems and such
roofs, basement and foundation walls for which others are responsible
under said Leases are, to the Seller's Knowledge, in good working order
and condition and free of leaks and other material defects.
Condition and Compliance of Property.
Schedule 3.12(a) contains a list of owned computers,
information technology, hardware, software, facsimile machines and
copier machines. As of such date, the Company owned outright and had
good and marketable title to all such personal property subject to no
Lien except Permitted Liens and except as set forth on Schedule
3.12(a).
Schedule 3.12(b) sets forth the name, parties and date of all
personal property leases to which the Company is a party or in respect
of the Business. Except as set forth in Schedule 3.12(b), the Company
holds good leaseholds in all of the personal property shown or
required to be shown on Schedule 3.12(b) as leased by the Company, in
each case under valid and enforceable leases. The Company is not, and
to Seller's Knowledge no other party to any such personal property
lease is, in material breach of or default under any lease of any item
of personal property listed on Schedule 3.12(b) (and no event has
occurred which, with due notice or lapse of time or both, would
constitute such a lapse or default).
The assets of the Company: (i) in the aggregate are adequate
to conduct the operations of the Company in substantially the manner
currently conducted, (ii) are suitable for the purposes for which they
are currently used, (iii) have been maintained in accordance with the
Company's historical practices since June 30, 1999, and (iv) are in
good condition, ordinary wear and tear excepted. Each plant, building,
office, shop and other structures and each item of personal property
is in good operating condition and is suitable and sufficient for the
operation of the business of the Company, as currently conducted and
currently proposed to be conducted.
Compliance with Legal Requirements.
Except as set forth on Schedule 3.13(a), the Company has
complied with, has not received any notice of violation of, and has no
Knowledge of any Basis which with or without notice could reasonably
be expected to constitute a violation of, any material Legal
Requirements. Since June 30, 1999, except as set forth on Schedule
3.13(a), neither the Seller nor the Company have received any notice
or other communication (whether oral or written) from any Governmental
Agency or any other Person regarding (i) any actual, alleged,
possible, or potential violation of, or failure to comply with, any
Legal Requirement, or (ii) any actual, alleged, possible, or potential
obligation on the part of the Seller or the Company to undertake, or
to bear all or any portion of the cost of, any remedial action of any
nature, nor is there any Basis for any such notice or other
communication.
Schedule 3.13(b) sets forth a list of each Permit that is
necessary or appropriate for the operations of the Company as
currently conducted or currently proposed to be conducted, including
the issuing Governmental Agency, the expiration date, and the permit
number. All Permits included on Schedule 3.13(b), except as noted
therein, are in full force and effect and no proceeding is pending or,
to the Knowledge of the Seller, threatened, to revoke or limit any
such Permit, nor is there a Basis for any such revocation. Except as
set forth in Schedule 3.13(b):
the Company is, and at all times since June 30, 1999
has been, in full compliance with all of the terms and
requirements of each Permit listed in Schedule 3.13(b);
since June 30, 1999, neither the Seller nor the
Company has received any notice or other communication
(whether oral or written) from any Governmental Agency or any
other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or
requirement of any Permit, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any Permit,
nor is there any Basis for such notice or other communication;
and
all applications required to have been filed for the
renewal of the Permits have been duly filed on a timely basis
with the appropriate Governmental Agencies, and all other
filings required to have been made with respect to such
Permits have been duly made on a timely basis with the
appropriate Governmental Agencies.
Affiliate Agreements and Liabilities. Except as set forth on
Schedule 3.14:
there are no written or oral Contracts between the Company and
any Seller Entity including, without limitation, any such Contracts
relating to the provision of any services by the Company to any such
Seller Entity, or by any such Seller Entity to the Company; and
(i) since the Interim Balance Sheet Date, there have been,
(ii) from the date hereof to the Closing Date there will be, and (iii)
after the Closing Date there will be, no transactions, agreements,
arrangements or indebtedness between the Company and (x) any Seller
Entity, (y) any director or officer of the Company or (z) any member
of the immediate family of any individual described in clause (x) or
(y) of this sentence.
Contracts.
Schedule 3.15 hereto lists all of the Contracts, commitments,
arrangements and understandings which are material to the properties,
conduct, operations or financial condition of the Company or are
otherwise material.
Except as set forth on Schedule 3.15 (and for Leases and
Permitted Liens), the Company is not a party to or bound by any:
mortgage, indenture, note, or installment obligation,
or other instrument for or relating to Indebtedness;
guaranty of any obligation for borrowings or
performance, or guaranty or warranty of products or services,
excluding endorsements or guaranties of instruments made in
the ordinary course of business in connection with the deposit
of items for collection, and statutory warranties;
agreement or arrangement for the sale or lease of any
of its assets other than in the usual, regular and ordinary
course of business;
agreement or other arrangement for the purchase of
any real estate, machinery, equipment, or other capital
assets;
Contract for the future purchase of materials,
supplies, services, merchandise, or equipment parts;
Contract pursuant to which it is or may be obligated
to make payments, contingent or otherwise, on account of or
arising out of prior acquisitions or sales of businesses,
assets, or stock of other companies;
distribution, dealership, representative, broker,
sales agency, advertising or consulting Contract excepting any
such contract that is terminable at will, or by giving notice
of 30 days or less, without Liability;
lease or other agreement for the use of real or
personal property;
agreement imposing non-competition or exclusive
dealing obligations on it;
agreement providing for payments to or by any Person
based on sales, purchases, or profits, other than direct
payments for goods;
license or royalty agreement with obligations payable
by or to the Company;
Contract or agreement for the employment of any
stockholder, director, officer, consultant or key employee not
terminable without penalty or Liability arising from such
termination or any severance or change-in-control contract or
arrangement;
Contract relating to cleanup, abatement or other
actions in connection with environmental liabilities; or
Contract which (A) involves future payment by or to
the Company or (B) is otherwise material to the extent
relating to the conduct of the business of the Company.
Each Contract, including the Contracts listed or required to
be listed on Schedule 3.15, is valid, binding and enforceable against
the Company, and to the Seller's Knowledge the other parties thereto
in accordance with its terms, and is in full force and effect. The
Company has performed all material obligations required to be
performed by it to date under each of the Contracts. Except as set
forth in Schedule 3.15, neither the Company nor, to the Seller's
Knowledge, any other party thereto is in material breach of or default
under any Contract to which the Company is a party or by which it is
bound or to which its assets are subject (and no event has occurred
which, with due notice or lapse of time or both, would constitute such
a lapse or default). The Seller has delivered to the Purchaser a copy
of each Contract or other written evidence of the obligations, and all
amendments thereto, listed or required to be listed in Schedule 3.15,
except to the extent otherwise noted thereon.
Intellectual Property.
Schedule 3.16 contains a list of all material Intellectual
Property (other than know-how, non-customized computer software, and
customer lists) which the Company owns or has used in connection with,
or which relates to, its business, the jurisdictions in which the
Intellectual Property has been registered or in which a Patent has
been issued or in which an application for such registration or Patent
has been filed and any licenses, sublicenses and other agreements in
which the Company grants a license to any Person to use the
Intellectual Property. Except as set forth on Schedule 3.16 the
Company is the owner of all right, title, and interest in the
Intellectual Property, free and clear of all Liens and other adverse
claims, and has the right to use without payment to a third party all
of the Intellectual Property.
Schedule 3.16 contains a complete and accurate list and
summary description, including any royalties paid or received by the
Company, of all Contracts relating to the Intellectual Property to
which the Company is a party or by which the Company is bound, except
for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value
of less than $500 under which the Company is the licensee. There are
no outstanding and, to the Seller's Knowledge, no threatened disputes
or disagreements with respect to any such agreement. Except as listed
on Schedule 3.16, Seller has not entered into any joint ventures,
licenses, sublicenses or other arrangements whereby a third party has
the right to, or use of, any Intellectual Property.
The Intellectual Property is valid, subsisting, unexpired, in
proper form and enforceable and all renewal fees and other maintenance
fees which have fallen due on or prior to the effective date of this
Agreement have been paid. The grants, registrations and applications
for the Intellectual Property have not lapsed, expired or been
abandoned and no application or registration thereof is the subject of
any legal or governmental proceeding before any governmental,
registration or other authority in any jurisdiction. All products
made, used, or sold under the Patents have been marked with the proper
notice. All products and materials containing a Xxxx xxxx the proper
notice where permitted by law.
Trade Secrets
With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it
and to allow its full and proper use without reliance on the
knowledge or memory of any individual.
The Seller and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value
of the Trade Secrets.
The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or
literature, and, to the Seller's Knowledge, have not been
used, divulged, or appropriated either for the benefit of any
Person (other than the Company) or to the detriment of the
Company. No Trade Secret is subject to any adverse claim or
has been challenged or threatened in any way.
To the Knowledge of the Seller, there are no conflicts with or
infringements of any Intellectual Property by any third party. No
Patent has been or is now involved in any interference, reissue,
reexamination or opposition proceeding. No Xxxx has been or is now
involved in any opposition, invalidation or cancellation and, to the
Seller's Knowledge, no such action is threatened with respect to any
of the Marks. The conduct of the Company's business as currently
conducted does not conflict with or infringe in any way with any
proprietary right of any third party, which conflict or infringement
could have a material adverse effect on the Company, the Intellectual
Property or the business of the Company. There is no claim, suit,
action or proceeding pending or threatened against the Company (i)
alleging any such conflict or infringement with any third party's
proprietary rights or (ii) challenging the ownership, use, validity or
enforceability of the Intellectual Property.
Except as set forth on Schedule 3.16, all consents, filings
and authorizations by or with Governmental Agencies or third parties
necessary with respect to the consummation of the transactions
contemplated hereby as they may affect the Intellectual Property have
been obtained.
Neither the Seller nor the Company have entered into any
material consent, indemnification, forbearance to xxx, settlement
agreement or cross-licensing arrangement with any person relating to
the Intellectual Property or the intellectual property of any third
party other than as may be contained in the license agreements listed
in Schedule 3.16. Except as set forth in Schedule 3.16, the Company is
not under any obligation to pay royalties or similar payments in
connection with any license to any of its Affiliates.
Except as set forth on Schedule 3.16, the Company is not, nor
will it be as a result of the execution and delivery of this Agreement
or any other Transaction Document or the performance of its
obligations hereunder or thereunder, in breach of any license,
sublicense or other agreement relating to the Intellectual Property.
The validity and enforceability of the Intellectual Property and the
registration thereof have not been impugned or otherwise affected
adversely as a result of the consummation of the transactions
contemplated by the Transaction Documents.
No former or present employees, officers or directors of the
Company hold any right, title or interest directly or indirectly, in
whole or in part, in or to any Intellectual Property.
The Intellectual Property is sufficient, adequate and all that
is necessary for the Company to carry on its business as presently
conducted.
Software.
The current software applications used by the Company in the
operation of its business are set forth and described on Schedule 3.17
hereto (the "Software"). To the extent the Software has been designed
or developed by the Company's management information or development
staff or by consultants on the Company's behalf, are original and are
protected by the copyright laws of the United States, and the Company
has complete rights to and ownership of such Software. No part of any
such Software or the use thereof infringes upon the rights of any
other person or entity, or violates or infringes upon any common law
or statutory rights of any other person or entity, including, without
limitation, rights relating to defamation, contractual rights,
copyrights, patents, trade secrets and rights of privacy or publicity.
The Company has not sold, assigned, licensed, distributed or in any
other way disposed of or encumbered the Software.
The Software, to the extent it is licensed from any third
party licensor or constitutes "off-the-shelf" software, is held by the
Company legitimately and is fully and freely transferable without any
third party consent. All of the Company's computer hardware has
legitimately-licensed software installed therein.
The Software is free from any significant software defect or
programming or documentation error, operates and runs in a reasonable
and efficient business manner, conforms to the specifications thereof,
and, with respect to owned Software, the applications can be recreated
from their associated source code.
The Company has not knowingly altered the data, or any
Software or supporting software which may in turn damage the integrity
of the data, stored in electronic, optical or magnetic form. Except as
set forth on Schedule 3.17 hereto, the Seller has no Knowledge of the
existence of any bugs or viruses with respect to the Software.
Labor Relations. Except as set forth on Schedule 3.18, the
Company is not a party to any collective bargaining agreement covering
Employees, there are no controversies or unfair labor practice proceedings
pending or, to the Seller's Knowledge, threatened between the Company and any of
its current or former Employees or any labor or other collective bargaining unit
representing any current or former Employee of the Company that could reasonably
be expected to result in a labor strike, dispute, slow-down or work stoppage or
otherwise have a Material Adverse Effect. To the Seller's Knowledge, except as
set forth on Schedule 3.18, no organizational effort is presently being made or
to the Knowledge of the Seller, threatened by or on behalf of any labor union.
Employee Benefits.
Schedule 3.19(a) sets forth all Employee Benefit Plans and all
other employee benefit arrangements or payroll practices, including,
without limitation, any such arrangements or payroll practices
providing severance pay, sick leave, vacation pay, salary continuation
for disability, retirement benefits, deferred compensation, bonus pay,
incentive pay, stock options, hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements,
maintained by the Company or to which the Company is obligated to
contribute for Employees or Former Employees. Each of the employee
benefit plans, practices and arrangements set forth on Schedule
3.19(a) shall hereafter be referred to as a "Plan" (or "Plans" as the
context may require).
Except with respect to any Multiemployer Plan, copies of the
following documents, with respect to each of the Plans as applicable,
have been delivered to Purchaser by the Seller: (i) all plan and
related trust documents, and amendments thereto; (ii) the most recent
IRS Form 5500; (iii) the last IRS determination letter; (iv) summary
plan descriptions; and (v) the most recent actuarial report.
Except as set forth on Schedule 3.19(c), none of the Plans is
a Multiemployer Plan. Neither the Company nor any ERISA Affiliate has
incurred any Liability resulting from a complete or partial withdrawal
from any Multiemployer Plan, and none of them has incurred, or is
reasonably likely to incur, any Liability due to the termination or
reorganization of a Multiemployer Plan which has not been satisfied in
full, and to the Knowledge of the Seller, no event has occurred that
would subject the Company or any ERISA Affiliate to any such
liability.
Neither the Company nor any ERISA Affiliate has incurred, or
is reasonably likely to incur, any Liability under Section 4062, 4063
or 4064 of ERISA to the PBGC or to a trustee appointed under Section
4042 of ERISA with respect to any
Single-Employer Plan, and to the Knowledge of the Seller, no event has
occurred that would subject the Company or any ERISA Affiliate to any
such Liability. All premiums due the PBGC with respect to all
Single-Employer Plans maintained by the Company and its ERISA
Affiliates have been timely paid. Neither the Company nor any ERISA
Affiliate has engaged in any transaction described in Section 4069 of
ERISA. Except as set forth on Schedule 3.19(d), there has been no
"reportable event", within the meaning of Section 4043 of ERISA, with
respect to any Single-Employer Plan maintained by the Company or its
ERISA Affiliates which would require the giving of notice to the PBGC.
No Single-Employer Plan maintained by the Company or its ERISA
Affiliates has incurred an accumulated funding deficiency within the
meaning of Section 412 of the Code.
Except with respect to any Multiemployer Plan, each Plan
complies with, and has been established, operated and administered in
accordance with its terms and the requirements of, ERISA, the Code and
other applicable laws.
Except with respect to any Multiemployer Plan, there are no
material pending or, to Seller's Knowledge, threatened claims by, on
behalf of or involving any Plan Administrator or any Plan Trustee
(other than routine claims for benefits).
Neither the Company nor any ERISA Affiliate has incurred any
liability for any tax or penalty imposed by Section 4975 of the Code
or Section 502(i) of ERISA with respect to any Plan.
With respect to each Plan that is a Single-Employer Plan, the
most recent actuarial report prepared by the Plan's actuary, using the
actuarial methods and assumptions contained in such report, fairly
presents the fair market value of the assets of each such Plan and the
present value of the Liabilities in respect of the benefits accrued
under each such Plan, and since the date of such actuarial report
there has been no material adverse change in the funded status of any
such Plan after taking into account the additional accrual of benefits
by participants since the date of such actuarial report through the
Closing Date.
Each Plan which is intended to qualify under Section 401(a) of
the Code has received an IRS determination letter concluding that such
Plan so qualifies in form, and no event has occurred and no condition
exists that, to the Seller's Knowledge, would cause such Plan to lose
its qualified status.
Except as set forth on Schedule 3.19(j) or as may be required
under Section 4980B of the Code, Section 601 of ERISA or other
applicable foreign, state or local law, the Company does not have any
Liability for post-retirement medical or life insurance benefits or
coverage for any Employee or Former Employee or any dependent of any
such employee. The reserve reflected in the Closing Date Balance Sheet
will be adequate in accordance with GAAP Consistency for the payment
or provision of all such benefits.
Except as set forth on Schedule 3.19(k), the consummation of
the transactions contemplated by the Transaction Documents will not
result in any increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any compensation or
benefits payable by the Company to or in respect of any Employee or
Former Employee or the beneficiary or dependent of any such employee
under any Plan.
All payments (including all employer contributions and
employee contributions with respect to the Employee Benefit Plans)
required to have been made under the Plans or by law (without regard
to any waivers granted under Section 412 of the Code) have been made
by the due date thereof (including any valid extension), and all
payments for any period ending on or before the Closing which are not
yet due will have been paid or accrued by the Closing Date.
Insurance. Schedule 3.20 sets forth a list of all insurance
policies and all material fidelity bonds or other insurance service contracts
(the "Insurance Policies") providing coverage for the properties or operations
of the Company, the type and amount of coverage, and the expiration dates of the
Insurance Policies. There is no claim by the Company pending under any of the
Insurance Policies as to which coverage has been questioned, denied or disputed
by the underwriters of such policies. All premiums payable under all Insurance
Policies have been paid, and the Company has otherwise complied in all material
respects with the terms and conditions of all the Insurance Policies. The
Insurance Policies are valid and enforceable in accordance with their terms, are
issued by an insurer that is financially sound and reputable, are in full force
and effect and insure against risk and liabilities customary in the industry and
as required by Legal Requirements and the Contracts. Neither the Seller nor the
Company has received notice from any insurance carrier: (i) threatening a
suspension, revocation, modification or cancellation of any Insurance Policy or
a material increase in any premium in connection therewith, or (ii) informing
Seller that any coverage listed on Schedule 3.20 will or may not be available in
the future on substantially the same terms as now in effect.
Litigation. Except as set forth in Schedule 3.21, there are no
claims, actions, suits, proceedings, labor disputes or investigations pending or
to the Seller's Knowledge threatened before any Governmental Agency brought by
or against the Seller, the Company or any of their respective officers,
directors, Employees, agents or Affiliates involving, affecting or relating to
any assets, properties or operations of the Company or the transactions
contemplated by the Transaction Documents, nor to the Seller's Knowledge is
there any Basis for any such action, suit, proceeding or investigation. Schedule
3.21 sets forth a list and a summary description of all such pending actions,
suits, proceedings, disputes or investigations. Neither the Company nor any of
its assets or properties is subject to any Order that affects or might affect
its assets, properties, operations, prospects, net income or financial condition
or which would or might interfere with the transactions contemplated by the
Transaction Documents.
Environmental Matters. Except as set forth on Schedule 3.22:
the Company is, and since June 30, 1999 (the "Environmental
Reference Date"), has been, and to the Seller's Knowledge, prior to
the Environmental Reference Date was, in compliance with all
Environmental Laws;
the Company has no Liability, whether contingent or otherwise,
under any Environmental Law;
no request for information, notice, Governmental Agency
inquiry, demand letter, notice of violation or alleged violation of,
non-compliance or alleged non-compliance with or any Liability under,
any Environmental Law by or relating to operations or properties of
the Company has been received by or threatened in writing against the
Company since the Environmental Reference Date, or, to Seller's
Knowledge, before the Environmental Reference Date;
the Company has not entered into or been subject to, and is
not currently a party or respondent to, any Orders nor are any
administrative, civil or criminal actions, suits, proceedings or
investigations pending or, to Seller's Knowledge, threatened, relating
to any Environmental Law affecting the Company;
the Company has neither expressly nor by operation of law,
assumed or undertaken any Liability, including without limitation any
obligation for Costs of Remediation, of any other Person;
the Company has not, and the Seller has no Knowledge of any
other Person who has, caused any Release or threatened Release of any
Hazardous Material on, in, under, or from the Leased Property nor does
the Seller have Knowledge of any such Release; and
the Company has not received any written or, to the Seller's
Knowledge, other communication indicating or claiming potential
Liability for Damages or Costs of Remediation with respect to a
Release or threatened Release of any Hazardous Material.
Tax Matters.
Except as otherwise disclosed in Schedule 3.23(a), (i) the
Company has filed (or joined in the filing of) when due all Tax
Returns required by applicable law to be filed with respect to the
Company and all Taxes shown to be due on such Tax Returns have been
paid; (ii) all such Tax Returns were true, correct and complete as of
the time of each such filing; (iii) all Taxes relating to periods
ending on or before the Closing Date owed by the Company (whether or
not shown on any Tax Return) or to which the Company may be liable
under Treasury Regulations ss. 1.1502-6 (or analogous state or foreign
provisions) by virtue of having been a member of any Affiliated Group
(or other group filing on a combined or unitary basis) at any time on
or prior to the Closing Date, if required to have been paid, have been
paid (except for Taxes which are being contested in good faith); (iv)
any liability of the Company for Taxes not yet due and payable, or
which are being contested in good faith, has been provided for on the
financial statements of the Company in accordance with generally
accepted accounting principles; (v) there is no action, suit,
proceeding, investigation, audit or claim now pending against, or with
respect to, the Company in respect of any Tax or assessment, nor is
any claim for additional Tax or assessment asserted by any
Governmental Agency; (vi) since January 1, 1999, no claim has been
made by any Governmental Agency in a jurisdiction where the Company
does not currently file a Tax Return that it is or
may be subject to Tax by such jurisdiction, nor to the Seller's
Knowledge is any such assertion threatened; (vii) there is no
outstanding request for any extension of time within which to pay any
Taxes or file any Tax Returns (viii) there has been no waiver or
extension of any applicable statute of limitations for the assessment
or collection of any Taxes of the Company; (ix) the Company is not a
party to any agreement, whether written or unwritten, providing for the
payment of Taxes, payment for Tax losses, entitlements to refunds or
similar Tax matters; (x) no ruling with respect to Taxes (other than a
request for determination of the status of a qualified pension plan)
has been requested by or on behalf of the Company; and (xi) the Company
has withheld and paid all material Taxes required to be withheld in
connection with any amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(i) no property of the Company is "tax-exempt use property"
within the meaning of Section 168(h) of the Code; (ii) the Company is
not a party to any lease made pursuant to former Section 168(f)(8) of
the Internal Revenue Code of 1954; (iii) the Company has not filed any
agreement or consent under Section 341(f) of the Code; (iv) the Seller
is not a "foreign person" within the meaning of Section 1445 of the
Code; (v) the Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; and (vi) the Company has withheld and
paid all material Taxes required to be withheld in connection with any
amounts paid or owing to any employee, creditor, independent
contractor or other third party.
Interim Operations. Since the Interim Balance Sheet Date, the
Company has operated only in the Ordinary Course of Business, and except as set
forth in Schedule 3.24 the Company has not:
suffered any material adverse change in the assets,
properties, business, operations, prospects, net income or financial
condition of the Company or any Basis therefor;
changed its authorized or issued capital stock; granted any
stock option or right to purchase shares of capital stock; issued any
security convertible into such capital stock; or made any Equity
Distributions;
incurred or become subject to, or agreed to incur or become
subject to, any material obligation or Liability, except in the
Ordinary Course of Business;
mortgaged or pledged any of its assets, tangible or
intangible, except for Permitted Liens;
sold or transferred or agreed to sell or transfer any of its
assets, or canceled or agreed to cancel any debts or claims except in
the Ordinary Course of Business;
suffered any extraordinary losses or, except in the Ordinary
Course of Business, waived any material rights;
terminated any contract, agreement, license, or other
instrument to which it is a party, except in the Ordinary Course of
Business;
increased the rate of compensation payable by it to any
employee, whose compensation is determined other than by multiplying
the number of hours worked by an hourly rate (a "Salaried Employee"),
over the rate being paid or accrued to them as of the Interim Balance
Sheet Date;
made or agreed to make any accrual or arrangement for or
payment of bonuses or special compensation of any kind to any of its
Salaried Employees; or general increase in the salary or bonus payable
or to become payable by the Company to any Employee other than
Salaried Employees (other than increases granted to individual
employees for merit, length of service, change in position or
responsibility or other reasons applicable to specific Employees and
not generally to a class or group thereof);
entered into any agreement, written or oral, providing for the
employment of any Employee or any severance or termination benefits
payable or to become payable by the Company to any Employee;
taken any action which would have constituted a breach of any
negative covenant of the Seller set forth in Article V or VI if such
negative covenant had applied since the Interim Balance Sheet Date; or
suffered any shortages of materials or supplies or any
casualty that individually or in the aggregate has had or could
reasonably be expected to have a Material Adverse Effect.
Brokers. All negotiations relative to the Transaction
Documents and the transactions contemplated hereby and thereby have been carried
on by the Seller without the intervention of any other Person acting on their
behalf in such manner as to give rise to any valid claim by any such Person
against the Company or Purchaser for a finder's fee, brokerage commission or
other similar payment based on an arrangement with the Seller.
Product Liability. Except as disclosed in Schedule 3.26:
to the Company's knowledge (without the requirement of due
inquiry) there has not been during the past six (6) years and there is
no notice, demand, claim, action, suit, inquiry, hearing, proceeding,
notice of violation or investigation of a civil, criminal or
administrative nature by or before any Governmental Agency against or
involving any product, substance or material (collectively, a
"Product"), or class of claims or lawsuits involving a Product
manufactured, produced, distributed or sold by or on behalf of the
Company which is pending or, to the Seller's knowledge (without the
requirement of due inquiry), threatened, on behalf of the ultimate
retail purchaser of any Product, resulting from an alleged defect in
design, manufacture, materials or workmanship of any Product
manufactured, produced, distributed or sold by or on behalf of the
Company, or any alleged failure
to warn, or from any breach of express or implied specifications or
warranties or representations (a "Product Claim");
there has not been, nor is there under consideration or
investigation by the Company, any Product recall, rework, retrofit or
post-sale warning (collectively, recalls, reworks, retrofits and
post-sale warnings are referred to in this Agreement as "Recalls")
conducted by or on behalf of the Company concerning any Products
manufactured, produced, distributed or sold by or on behalf of the
Company or, to the Knowledge of the Seller, any Recall conducted by or
on behalf of any entity as a result of any alleged defect in any
Product supplied by the Company; and
there is no Product Claim pending or, to the Seller's
Knowledge threatened, on behalf of a customer of the Company or any
Governmental Agency which individually or in the aggregate has had or
could reasonably be expected to have a Material Adverse Effect.
Books and Records of the Company. The books of account, minute
books, stock record books, and other records of the Company, all of which have
been made available to the Purchaser, are complete and correct, accurately
reflect in reasonable detail the transactions to which the Company is a party or
by which its properties are bound in accordance with GAAP Consistency and have
been maintained in accordance with sound business practices and the requirements
of Section 13(b)(2) of the Securities Exchange Act of 1934, as amended
(regardless of the fact that the Company is not subject to that Section),
including the maintenance of an adequate system of internal controls. The minute
books of the Company contain accurate and complete records of all meetings held
of, and corporate action taken by, the stockholders, the boards of directors,
and committees of the board of directors of the Company, and no meeting of any
such stockholders, board of directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be delivered to the Purchaser.
Suppliers. Schedule 3.28 lists the ten largest suppliers
(measured by dollar volume) of the Company during the last fiscal year ("Major
Suppliers") and the amount of business done with each Major Supplier in such
year. As of the date of this Agreement, except as set forth on Schedule 3.28,
(a) the Company is not engaged in a material dispute with any Major Supplier,
(b) there has been no material adverse change in the business relationship of
the Company with any Major Supplier since December 31, 2002, and (d) no Major
Supplier has threatened in writing any material modification or change in the
business relationship with the Company.
Projections. The business plans, forecasts and projections set
forth in Schedule 3.29 were prepared in good faith for the internal use of the
Company and on the basis of reasonable assumptions. After appropriate inquiry of
the officers of the Company, the Seller does not have reason to believe that
such projections, forecasts and plans are not reasonably achievable.
Certain Payments. Since June 30, 1999, neither the Seller nor
the Company nor any of their respective directors, officers, agents, or
Employees, or to the Seller's Knowledge any other Person associated with or
acting for or on behalf of the Seller or the Company, has directly or indirectly
(a) made any contribution, gift, bribe, rebate, payoff, influence payment,
kickback, or other payment to any Person, private or public, regardless of form,
whether in money, property, or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business secured,
(iii) to obtain special concessions or for special concessions already obtained,
for or in respect of the Company, or (iv)
in violation of any Legal Requirement, or (b) established or maintained any fund
or asset that has not been recorded in the books and records of the Company.
Accounts. Schedule 3.31 hereto correctly identifies each bank
account, brokerage account and safety deposit box maintained by or on behalf or
for the benefit of the Company and the name of each person with any power or
authority to act with respect thereto.
Disclosure.
No representation or warranty of the Seller in this Agreement
omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading.
There is no fact known to the Seller that has specific
application to either the Seller or the Company (other than general
economic or industry conditions) and that materially adversely affects
or, as far as the Seller can reasonably foresee, materially threatens,
the assets, business, prospects, financial condition, or results of
operations of the Company that has not been set forth in this
Agreement or the Schedules hereto.
Investment Intent; Status. The Stock Consideration will be
acquired hereunder solely for the account of the Seller for investment, and not
with a view to the resale or distribution thereof in violation of the Securities
Act of 1933, as amended, subject to the right of the Seller to sell, assign,
transfer or distribute any or all of the Stock Consideration to any Person which
is an Affiliate of the Seller. Seller is an "accredited investor" within the
meaning of Regulation 501 promulgated under the Securities Act of 1933, as
amended.
Representations as to NewCo.
Organization. Immediately prior to, and after, the Pre-Closing
Merger and as of the Closing Date: (i) NewCo will be a corporation
duly organized, validly existing, and in good standing under the laws
of the State of Arizona, (ii) NewCo will be duly qualified to do
business and is in good standing in the states listed in Schedule 3.2,
such states being each jurisdiction in which the ownership of its
properties or the conduct of its business requires such qualification,
except where the failure to so qualify, individually or in the
aggregate, could not reasonably be expected to result in a Material
Adverse Effect, (iii) NewCo will have the requisite corporate power
and authority to own its properties and to conduct its business as
then conducted and (iv) the Articles of Incorporation and By-Laws of
NewCo will be substantially similar in form and substance to the
Articles of Incorporation and Bylaws of the Company set forth in
Schedule 3.2(b).
Capitalization; Ownership of the Stock. Immediately after the
Pre-Closing Merger and as of the Closing Date, the authorized capital
stock of NewCo will consist of (i) one million (1,000,000) shares of
common stock, par value $0.01 per share, of which two hundred
twenty-six thousand eight hundred seventy eight (226,878) shares will
be outstanding and (ii) no shares of preferred stock; the shares of
capital stock described in (i) as outstanding being all the Stock.
Immediately and after the Pre-Closing Merger and as of the Closing
Date, (A) the Stock will have
been duly authorized and validly issued, and fully paid and
nonassessable and no personal liability will attach to the ownership
thereof, (B) the Stock will be the sole outstanding shares of capital
stock of NewCo, and except for this Agreement there will be no
outstanding options, warrants, agreements, conversion rights,
preemptive rights or other rights to subscribe for, purchase or
otherwise acquire any of the Stock or any unissued or treasury shares
of capital stock of NewCo and (C) the Seller will own 100% of the Stock
and will have at the Closing valid and marketable title to the Stock,
free and clear of any Liens, except those arising under this Agreement.
Other Representations. Immediately after the effectiveness of
the Pre-Closing Merger and as of the Closing Date, all of the
representations and warranties set forth in this Article III made by
the Seller in reference to the Company will be true and correct as if
made by the Seller in reference to NewCo.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Seller as follows:
Authority of Purchaser. The Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. The Purchaser has full corporate power and authority to execute and
deliver the Transaction Documents, the execution and delivery by Purchaser of
the Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of the Purchaser, and this Agreement constitutes,
and the other Transaction Documents when executed and delivered by the parties
thereto will constitute, the legal, valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with their terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws from time to time in effect which affect creditors'
rights generally, and by legal and equitable limitations on the enforceability
of specific remedies. The Purchaser has the requisite corporate power and
authority to own its properties and to carry on the business presently being
conducted by it.
No Conflict or Violation. Neither the execution and delivery
of the Transaction Documents by the Purchaser, nor the consummation or
performance of any of the transactions contemplated hereby or thereby will,
directly or indirectly (with or without notice or lapse of time):
contravene, conflict with, or result in a violation of (i) any
provision of the Certificate of Incorporation or By-Laws of the
Purchaser, or (ii) any resolution adopted by the board of directors or
the stockholders of the Purchaser;
contravene, conflict with, or result in a violation of, or
give any Governmental Agency or other Person the right to challenge
any of the transactions contemplated hereby or to exercise any remedy
or obtain any relief under, any Legal Requirement to which the
Purchaser may be subject;
contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any material
contract, lease, or permit of the Purchaser; or
except for filings under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, require
the consent, approval, or authorization of, or registration or filing
with, any Governmental Agency or any other Person on behalf of
Purchaser;
provided, however, that no representation or warranty is made hereby by the
Purchaser with respect to the effect of antitrust laws or regulations.
Litigation. There are no actions, causes of action, claims,
suits, proceedings or Orders pending or, to the actual knowledge, after
reasonable inquiry, of the executive officers of the Purchaser, threatened
against the Purchaser at law, in equity, in admiralty or otherwise, or before or
by any Governmental Agency, which seek to restrain or enjoin the consummation of
the transactions contemplated hereby.
Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Purchaser without
the intervention of any other Person acting on its behalf in such manner as to
give rise to any valid claim by any such Person against the Seller or its
Affiliates (other than, after the Closing, the Company) for a finder's fee,
brokerage commission or other similar payment based on an arrangement with the
Purchaser.
Stock Consideration. The issuance of the Stock Consideration
to the Seller has been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable.
SEC Reports and Financial Statements. The Purchaser has filed
with the Securities and Exchange Commission true and complete copies of the
Purchaser's Annual Report on Form 10-K for the year ended December 31, 2002 and
all forms, reports, schedules, statements and other documents required to be
filed by the Purchaser under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, from and after the filing thereof
(such annual report, forms, reports, schedules, statements and other documents,
including any financial statements or schedules included therein, the "Purchaser
SEC Documents"). The Purchaser SEC documents, at the time filed, (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended, as the case may be, and the applicable rules
and regulations promulgated thereunder. There have not been any amendments to
the Purchaser SEC Documents since the initial filing thereof. The financial
statements of the Purchaser contained in the Purchaser SEC Documents have been
prepared in accordance with GAAP applied on a consistent basis during the period
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Rule 10-01 of Regulation S-X promulgated
by the Securities and Exchange Commission) and fairly present (subject, in the
case of the unaudited statements, to normal, recurring audit adjustments) the
consolidated financial position of the Purchaser and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
Investment Intent; Status. The Stock will be acquired
hereunder solely for the account of the Purchaser for investment, and not with a
view to the resale or distribution thereof in violation of the Securities Act of
1933, as amended, subject to the right of the Purchaser and any such designees
to sell, assign, transfer or distribute any or all of the Stock to any Person
which is an Affiliate of the Purchaser. Purchaser is an "accredited investor"
within the meaning of Regulation 501 promulgated under the Securities Act of
1933, as amended.
CERTAIN COVENANTS OF THE SELLER
The Seller covenants with the Purchaser that from and after the date
hereof through the Closing Date (except as consented to or approved by the
Purchaser in writing):
Conduct of Business. The Seller shall cause the Company:
to operate only in the Ordinary Course of Business and to
continue to maintain, in all material respects, its properties in
accordance with present practices in a condition suitable for their
current use;
to use commercially reasonable efforts to keep available
generally the services of its present officers and Employees, and
preserve generally the present relationships with Persons having
business dealings with it;
not to make any sale, assignment, transfer, abandonment, or
other conveyance of any of its assets or any part thereof;
to keep in full force and effect insurance comparable in
amount and scope to coverage maintained by it (or on behalf of it) on
the date hereof;
not to settle, release or forgive any material claim or
litigation or waive any material right;
not to make, change or revoke, or permit to be made, changed
or revoked, without the consent of the Purchaser, any material
election or method of accounting with respect to Taxes;
not to enter into, or permit to be entered into, without the
consent of the Purchaser any closing or other agreement or settlement
with respect to Taxes affecting or relating to the Company;
not to enter into or amend any Plan and not to grant any
increase in the salary or other compensation of any Employee, except
as would not constitute a breach of Section 3.24;
not to enter into any employment Contract with any director,
executive officer or Employee of the Company or make any loan to, or
enter into any material transaction of any other nature with, any
director, executive officer or Employee of the Company;
not to acquire, lease or dispose or agree to acquire, lease or
dispose of any capital assets;
not to change its authorized or issued capital stock; grant
any stock option or right to purchase shares of capital stock; issue
any security convertible into such capital stock; or make any Equity
Distribution;
not to incur any Indebtedness other than working capital
borrowings in the Ordinary Course of Business;
not to incur, or suffer to exist, any Lien on the assets of
the Company other than Permitted Liens;
not to take any action that would cause any of the
representations and warranties made by the Seller in this Agreement
not to remain true and correct; and
to inform the Purchaser of the occurrence of any event which
could reasonably be expected to result in a breach of any
representation or warranty contained in Article III.
Information and Access. The Seller shall permit and cause the
Company to permit representatives of the Purchaser to have reasonable access
during normal business hours, and in a manner so as not to interfere with the
normal operations of the Company, to all premises, properties, personnel,
accountants, books, records, contracts and documents of the Company. The
Purchaser and each of its representatives shall treat and hold as confidential
such information in accordance with the terms and provisions of that certain
Non-disclosure and Confidentiality Agreement, dated as of May 14, 2003, between
the Purchaser and the Seller, which agreement shall remain in full force and
effect until the Closing Date, whereupon such agreement shall terminate without
further action.
Confidentiality Agreements. At the Closing, the Seller shall
assign to the Purchaser the benefits of all confidentiality agreements, if any,
relating to the possible sale of the Company or any material portion of the
assets thereof to the extent such assignment is not expressly prohibited by the
terms of such agreements.
Best Efforts. Upon the terms and subject to the conditions of
this Agreement, each of the parties hereto shall use reasonable best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable consistent with applicable law to
consummate and make effective in the most expeditious manner practicable the
transactions contemplated hereby; provided, however, that nothing in this
covenant or any other provision of this Agreement or any other Transaction
Document shall require the Purchaser to agree to any divestiture, hold-separate
or other similar agreement or requirement.
No Shop.
The Seller shall not and shall cause the Company not to,
directly or indirectly, through any representative or otherwise,
solicit or entertain offers from, negotiate with or in any manner
encourage, discuss, accept, or consider any proposal of any other
Person relating to the acquisition of the Stock or the Company, its
assets or business, in whole or in part, whether directly or
indirectly, through purchase, merger, consolidation, or otherwise
(other than sales of inventory in the ordinary course); and
The Seller shall immediately notify the Purchaser regarding
any contact between the Seller, the Company or their respective
representatives and any other Person regarding any such offer or
proposal or any related inquiry.
Notices of Certain Events. The Seller shall promptly notify
the Purchaser of:
any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement or any other
Transaction Document;
any notice or other communication from any Governmental Agency
in connection with the transactions contemplated by this Agreement or
any other Transaction Document; and
any actions, suits, claims, investigations or proceedings
commenced or, to its Knowledge, threatened against, relating to or
involving or otherwise affecting the Seller or the Company if pending
on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.21 or that relate to the consummation
of the transactions contemplated by the this Agreement or any other
Transaction Document.
No Duplicates. Neither the Seller nor any of its Affiliates
shall directly or indirectly retain, use or transfer any copies, duplicates or
derivative versions of any of the Company's databases or mailing lists (whether
in postal or e-mail form) from and after the Closing Date without the
Purchaser's prior express written consent; provided, however that the Seller may
continue to use the Seller's own databases and mailing lists which contain some
limited overlap of information with that contained in the Company's databases
and mailing lists, so long as the Seller does not take any action inconsistent
with the Purchaser's sole rights in the Company's databases and mailing lists.
CERTAIN COVENANTS AND AGREEMENTS
Transfer Taxes. All sales, recording, transfer, stamp,
registration, conveyance, value added, use, or other similar Taxes, duties,
excise, governmental charges or fees (including penalties and interest) imposed
as a result of the sale of the Stock to the Purchaser or the issuance of the
Stock Consideration to the Seller pursuant to this Agreement shall be borne by
the Seller. The Purchaser shall promptly remit any refunds of such items to the
Seller. The Seller and the Purchaser, to the extent required by Legal
Requirements, shall prepare and file all Tax Returns and other documentation on
a timely basis with respect to any such Taxes or fees.
Obligation to File Tax Returns.
The Seller shall cause to be prepared and filed all Tax
Returns with the appropriate federal, state, local and foreign
Governmental Agencies relating to the Company for periods ending on or
prior to the Closing Date and shall pay all Taxes due with respect to
such Tax Returns. The Purchaser shall prepare and file, or cause to be
prepared and filed, all Tax Returns required to be filed by the
Company covering a Tax year commencing prior to the Closing Date and
ending after the Closing Date (a "Straddle Tax Return") and shall
cause the Company to pay the Taxes shown to be due thereon, provided,
however, that the Seller shall promptly reimburse the Purchaser for
the portion of such Tax that relates to a Pre-Closing Tax Period (as
defined below), except to the extent such Tax was included in the
determination of Adjusted Net Assets. The Seller will furnish to the
Purchaser all
information and records reasonably requested by the Purchaser for use
in preparation of any Straddle Tax Returns. The Purchaser shall allow
the Seller to review, comment upon and reasonably approve without undue
delay any Straddle Tax Return at any time during the forty-five (45)
day period immediately preceding the filing of such Tax Return. The
Purchaser and the Seller agree to cause the Company to file all Tax
Returns for any Straddle Period (as defined below) on the basis that
the relevant taxable period ended as of the close of business on the
Closing Date, unless the relevant Governmental Agency will not accept a
Tax Return filed on that basis. For purposes of this Agreement
"Pre-Closing Tax Period" shall mean any taxable period ending on or
before the Closing Date and the portion ending on and including the
Closing Date of any taxable period that includes (but does not end on)
the Closing Date ("Straddle Period").
In the case of any Straddle Period, (i) real, personal and
intangible property Taxes ("Property Taxes") of the Company for the
Pre-Closing Tax Period shall be equal to the amount of such Property
Taxes for the entire Straddle Period multiplied by a fraction, the
numerator of which is the number of days during the Straddle Period
that are in the Pre-Closing Tax Period and the denominator of which is
the number of days in the Straddle Period; and (ii) the Taxes of the
Company (other than Property Taxes) for the portion of the Straddle
Period that constitutes a Pre-Closing Tax Period shall be computed as
if such taxable period ended as of the close of business on the
Closing Date
Certain Provisions Relating to Consents. The Seller shall use
commercially reasonable efforts prior to and after the Closing Date to obtain
all consents that are required in connection with the transactions contemplated
by this Agreement and the other Transaction Documents. The Seller shall not
obtain any consent that will affect the Purchaser or the Company to either of
their economic detriment, including any modification of any Contract, Lease or
Permit. The Purchaser shall cooperate as reasonably necessary or desirable to
secure the third party consents, including, without limitation, providing to
such third party information, including financial information; provided,
however, that neither the Purchaser nor the Company shall be required to incur
any liability or obligation in connection therewith, other than for the
underlying matter for which such consent was obtained as in effect immediately
prior to such consent.
Nondisclosure; Noncompetition; Nonsolicitation.
From and after the Closing Date, the Seller shall not use,
divulge, furnish or make accessible to anyone any proprietary,
material non-public, confidential or secret information to the extent
relating to the Company (including, without limitation, customer
lists, supplier lists and pricing and marketing arrangements with
customers or suppliers) or the Business, and the Seller shall
cooperate reasonably with the Purchaser in preserving such
proprietary, confidential or secret aspects of the Company and the
Business. Notwithstanding the foregoing, nothing in this Agreement
shall prohibit the disclosure of the tax treatment and tax structure,
each as defined in Treasury Regulations Section 1.6011-4, of the
transaction (but no other details about the matters covered by this
Agreement, including, without limitation, the identities of the
parties except as may be required by legal rule, regulation or legal
process).
For a period of three (3) years after the Closing Date, the
Seller shall not, and it shall cause each of its controlled
Affiliates, officers and directors (so long as such officers and
directors are serving as such) not to, directly or indirectly, (i)
engage in any Competitive Business Activities anywhere in the world;
(ii) own stock or otherwise have an equity interest in or be
affiliated with any person or entity engaged in Competitive Business
Activities (except as a stockholder holding less than 5% of the stock
of a publicly held corporation); or (iii) utilize its special
knowledge of the Business or its relationships with customers,
suppliers or others to compete with the Company or the Purchaser in
its conduct of the Business after the Closing Date. The Seller shall
not, directly or indirectly, for a period of three (3) years from the
Closing Date, (i) solicit for hire or enter into any contractual
arrangement with any Employee without the prior written consent of the
Purchaser unless such Employee has not been employed by the Company or
the Purchaser for a period of one year; or (ii) call on or solicit any
of the customers or suppliers of the Business or make known the names
and addresses of such customers or suppliers or any information
relating in any manner to the Business or the Company's relationships
with such customers or suppliers. The Seller agrees that a violation
of this Section will cause irreparable injury to the Purchaser, and
the Purchaser shall be entitled, in addition to any other rights and
remedies it may have at law or in equity, to an injunction enjoining
and restraining the Seller from doing or continuing to do any such
violation and any other violations or threatened violations of this
Section.
The Seller acknowledges and agrees that the covenants set
forth in this Section are reasonable and valid in scope and in all
other respects. If any of such covenants is found to be invalid or
unenforceable by a final determination of a court of competent
jurisdiction (i) the remaining terms and provisions hereof shall be
unimpaired and (ii) the invalid or unenforceable term or provision
shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision. In the event that,
notwithstanding the first sentence of this paragraph (c), any of the
provisions of this Section relating to scope of the covenants
contained therein or the nature of the business restricted thereby
shall be declared by a court of competent jurisdiction to exceed the
maximum restrictiveness such court deems enforceable, such provision
shall be deemed to be replaced herein by the maximum restriction
deemed enforceable by such court.
Ongoing Tax Cooperation. If the Closing occurs, the Seller and
the Purchaser shall cooperate fully with each other and make available or cause
to be made available to each other in a timely fashion such Tax data, prior Tax
Returns and filings and other information as may be reasonably required for the
preparation by the Purchaser or the Seller of any Tax Returns, elections,
consents or certificates required to be prepared and filed by the Purchaser or
the Seller and any audit or other examination by any Governmental Agency, or
judicial or administrative proceeding relating to liability for Taxes. Without
limiting the generality of the foregoing, each of the Purchaser and the Seller
shall retain copies of all Tax Returns, supporting work schedules and other
records relating to tax periods or portions thereof ending prior to or including
the Closing Date until the later of (i) the expiration of the statute of
limitations for the taxable periods to which such Tax Returns and other
documents relate, without regard to extensions except for extensions obtained by
that party or its Affiliates or extensions regarding which such party has
received written notice from another party, or (ii) six years following the due
date (without extensions) for such Tax Returns; provided, however, that no party
will dispose of its copies without first notifying the other parties and
providing such other parties with a reasonable period of time to assume
possession of such copies. In addition, without limiting the generality of the
foregoing, each party shall make its personnel and those of its Affiliates
reasonably available for deposition and testimony in any tax controversy or
proceeding. The Purchaser shall cooperate with the Seller to the extent
reasonably necessary for the Seller's preparation of its financial statements
and Tax Returns and in the sharing of financial and accounting information with
respect thereto or with respect to any audit, examination, or other proceeding
with respect thereto. No information or documentation provided pursuant to this
Section shall be disclosed by the recipient thereof to any Person except its
accountants and relevant tax authorities or as required by applicable law (in
which case the disclosing party shall consult in good faith with the other party
prior to making any such disclosure).
Section 338(h)(10) Election.
With respect to the sale of the Stock, if so requested by the
Purchaser upon notice to the Seller on or before the Closing Date, the
Seller and the Purchaser shall jointly make a Section 338(h)(10)
Election (as hereinafter defined) in accordance with applicable laws
and under any comparable provision of state, local or foreign law for
which a separate election is permissible and as set forth herein. The
Purchaser and the Seller shall take all necessary steps to properly
make a Section 338(h)(10) Election in accordance with applicable laws
and under any comparable provision of state, local or foreign law for
which a separate election is permissible. The Purchaser and the Seller
agree to cooperate in good faith with each other in the preparation
and timely filing of any Tax Returns required to be filed in
connection with the making of such an election, including the exchange
of information and the joint preparation and filing of Form 8023 and
related schedules. The Purchaser and the Seller agree to report the
transfers under this Agreement consistent with such elections and
shall take no position contrary thereto unless required to do so by
applicable tax law pursuant to a determination as defined in Section
1313(a) of the Code.
The Purchaser shall be responsible for the preparation and
filing of all Section 388 Forms (as hereinafter defined) in accordance
with applicable tax laws and the terms of this Agreement and shall
deliver such Section 338 Forms to the Seller at least 30 days prior to
the date such Section 338 Forms are required to be filed. Seller shall
execute and deliver to the Purchaser such documents or forms
(including executed Section 338 Forms) as are requested and are
required by any laws in order to properly complete the Section 338
Forms at least 20 days prior to the date such Section 338 Forms are
required to be filed. The Seller shall provide the Purchaser with such
information as the Purchaser reasonably requests in order to prepare
the Section 338 Forms by the later of 30 days after the Purchaser's
request for such information or 30 days prior to the date on which the
Purchaser is required to deliver such forms to the Seller.
The Purchase Price, liabilities of the Company and other
relevant items shall be allocated in accordance with Section 338(b)(5)
of the Code and the Treasury Regulations thereunder. Purchaser shall,
at its option, determine the fair market value of the assets of the
Company (the "Valuation"). The Valuation shall be binding
on the Purchaser and the Seller unless the Seller shall, within 10 days
of delivery to the Seller of the Valuation, conclude in good faith that
the Valuation is manifestly unreasonable. The Purchaser shall be under
no obligation to have such Valuation prepared by an independent
appraiser. All values contained in the Valuation shall be used by each
party in preparing the forms referred to in Section 6.6(b) above and
all other relevant Tax Returns.
"Section 338 Forms" means all returns, documents, statements,
and other forms that are required to be submitted to any federal,
state, county or other local Tax authority in connection with a
Section 338(h)(10) Election. Section 338 Forms shall include, without
limitation, any "statement of section 338 election" and IRS Form 8023
(together with any schedules or attachments thereto) that are required
pursuant to Treas. Regs. Section 1.338-1 or Treas. Regs. Section
1.338(h)(10)-1 or any successor provisions.
Notwithstanding any other provision of this Agreement to the
contrary, the Seller agrees that any income and gain recognized as a
result of, and in accordance with, the making of the Section
338(h)(10) Election will be included in the consolidated federal
income tax return of the Seller's consolidated group and any resulting
tax liability will be paid by the Seller, as the common parent of the
Seller's consolidated group. The Purchaser agrees that it will pay and
be responsible for, and will indemnify and save the Seller harmless
from, any reasonable costs incurred by the Seller (including but not
limited to costs incurred in connection with the preparation or
restatement of any Tax Return) or Taxes imposed on the Seller by any
federal, state or local Tax authority, in each case resulting from the
Purchaser's election to treat the purchase of the Stock as an asset
acquisition under the statutes of any such Tax authority.
"Section 338(h)(10) Election" means an election described in
Section 338(h)(10) of the Code with respect to Purchaser's acquisition
of Shares pursuant to this Agreement. Section 338(h)(10) Election
shall include any corresponding election under state or local law
pursuant to which a separate election is permissible with respect to
Purchaser's acquisition of Shares pursuant to this Agreement.
Tax Related Covenants. Without the prior written consent of
the Purchaser, neither the Company nor any of its Subsidiaries shall make or
change any election, change an annual accounting period, adopt or change any
accounting method, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment relating to the Company or any of
its Subsidiaries, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company or any of its Subsidiaries, or take any other
similar action relating to the filing of any Tax Return or the payment of any
Tax, if such election, adoption, change, amendment, agreement, settlement,
surrender, consent or other action would have the effect of increasing the Tax
liability of the Company or any of its Subsidiaries for any period ending after
the Closing Date or decreasing any Tax attribute of the Company or any of its
Subsidiaries existing on the Closing Date.
Further Assurances. Upon the request of the Purchaser at any
time after the Closing Date, the Seller shall forthwith execute and deliver such
further instruments of assignment, transfer, conveyance, endorsement, direction
or authorization and other documents as the Purchaser may reasonably request in
order to perfect title of the Purchaser and its successors and assigns to the
Stock or otherwise to effectuate the purposes of this Agreement, including
without limitation the filing of all certificates and documentation necessary to
effect the Pre-Closing Merger.
Purchaser Conduct of Business. In order to give effect to the
intent of Section 2.4, the Purchaser covenants to continue the Business until
the termination of the Third Earn-Out Period subject to the Purchaser being
unable, or it being impracticable, to so continue the Business due to adverse
general economic conditions in the Company's target business market, an Act of
God or other force majeure event; provided, however, that nothing herein shall
prohibit or restrict the Purchaser in any way from making changes to the
Business, or discontinuing the Business, if such changes or discontinuation is a
direct result of the Business having suffered a Material Adverse Effect in the
Purchaser's reasonable discretion. The Purchaser further covenants that, in the
event it transfers any content currently available for download from the Company
as part of the Business to the Purchaser, any Affiliate of the Purchaser or any
URL, domain or web site, for purposes of calculating the Earn-Out Payments under
Section 2.4, the Purchaser shall, until the termination of the Third Earn-Out
Period, account for all transactions attributable to the Business as though such
portion of the Business were owned by the Company.
CONDITIONS TO SELLER'S OBLIGATIONS
The obligation of the Seller to consummate the transactions contemplated by this
Agreement is subject to the satisfaction (unless waived in writing by the
Seller) of each of the following conditions on or prior to the Closing Date:
Representations and Warranties. The representations and
warranties of the Purchaser contained in this Agreement which are qualified as
to materiality shall be true and correct on and as of the Closing Date as though
such representations and warranties were made anew on and as of the Closing
Date, and all other representations and warranties of the Purchaser contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date as though such representations and warranties were made anew on
and as of the Closing Date. The Purchaser shall have delivered to the Seller a
certificate of its President or a Vice President, dated the Closing Date, to the
foregoing effect.
Compliance with Agreement. The Purchaser shall have performed
and complied with all covenants to be performed or complied with by it on or
prior to the Closing Date. The Purchaser shall have delivered to the Seller a
certificate of its President or a Vice President, dated the Closing Date, to the
foregoing effect.
No Violation of Orders. No preliminary or permanent injunction
or other order issued by any court or Governmental Agency, nor any statute,
rule, regulation, decree or executive order promulgated or enacted by any
Governmental Agency that declares this Agreement or any other Transaction
Document invalid or unenforceable in any respect or which prevents the
consummation of the transactions contemplated hereby or thereby shall be in
effect; and no action or proceeding before any court or Governmental Agency,
shall have been instituted or threatened by any Governmental Agency or by any
other person or entity, which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or any other Transaction Document or
which challenges the validity or enforceability hereof or thereof.
Corporate Documents. The Seller shall have received from the
Purchaser certified copies of the resolutions duly adopted by the board of
directors of the Purchaser approving the execution and delivery of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby, and such resolutions shall be in
full force and effect as of the Closing Date.
Transaction Documents. The Purchaser shall have executed and
delivered to the Seller the Escrow Agreement, a Registration Rights Agreement in
substantially the form attached hereto as Exhibit B (the "Registration Rights
Agreement") and a trademark assignment in substantially the form attached hereto
as Exhibit F (the "Trademark Assignment")..
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by the Purchaser) of each of the following conditions on or prior to the
Closing Date:
Representations and Warranties. The representations and
warranties of the Seller contained in this Agreement which are qualified as to
materiality or Material Adverse Effect shall be true and correct on and as of
the Closing Date as though such representations and warranties were made anew on
and as of the Closing Date (unless such representations are expressly made as of
some other date, in which case they shall be true and correct as of such date),
and all other representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as though such representations and warranties were made anew on and
as of the Closing Date (unless such representations are expressly made as of
some other date, in which case they shall be true and correct as of such date).
The Seller shall have delivered to the Purchaser a certificate of its President
or Vice President, dated the Closing Date, to the foregoing effect.
Compliance with Agreement. The Seller shall have performed and
complied with all covenants to be performed or complied with by it on or prior
to the Closing Date. The Seller shall have delivered to the Purchaser a
certificate of its President or Vice President, dated the Closing Date, to the
foregoing effect.
Consents. All consents, Permits, authorizations, approvals,
waivers and amendments which are listed on Schedule 8.3 hereto shall have been
obtained.
Corporate Documents. The Purchaser shall have received from
the Seller certified copies of the resolutions duly adopted by the board of
directors of the Seller approving the execution and delivery of this Agreement
and the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby, and such resolutions shall be in full force and
effect as of the Closing Date.
FIRPTA. The Seller shall have delivered an affidavit, dated
the Closing Date, pursuant to Section 1445 of the Code (Foreign Investment in
Real Property Tax Act of 1980) in substantially the form of Exhibit D (the
"FIRPTA Affidavit") stating that the Seller is not a "Foreign Person" as defined
in Section 1445 of the Code.
Employees. At least 80% of the Company's employees shall have
accepted offers of employment with the Purchaser by June 27, 2003 containing
base and incentive cash compensation terms and conditions substantially similar
to such employees' respective base and incentive cash compensation terms and
conditions with respect to the Company in effect as of the date of this
Agreement.
Material Adverse Effect. Since the date of this Agreement,
there shall not have occurred (i) a Material Adverse Effect or (ii) any event
which could reasonably be expected to result in a Material Adverse Effect.
No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any Stock of, or any other voting,
equity, or ownership interest in, the Company, or (b) is entitled to all or any
portion of the Purchase Price payable for the Stock.
Opinion of Counsel. Purchaser shall have received an opinion
of Xxxxxx & Diamond LLP, counsel to the Seller, in the form of Exhibit C, with
such customary changes and modifications as the Seller shall reasonably request
in light of the nature of the transactions contemplated hereby ("Seller's
Opinion of Counsel").
No Violation of Orders. No preliminary or permanent injunction
or other order issued by any court or Governmental Agency, nor any statute,
rule, regulation, decree or executive order promulgated or enacted by any
Governmental Agency that declares this Agreement or any other Transaction
Document invalid or unenforceable in any respect or which prevents the
consummation of the transactions contemplated hereby or thereby shall be in
effect; and no action or proceeding before any court or Governmental Agency,
shall have been instituted or threatened by any Governmental Agency or by any
other person or entity, which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or any other Transaction Document or
which challenges the validity or enforceability hereof or thereof.
Due Diligence. The Purchaser shall have received all business,
legal, accounting and other due diligence materials requested from the Company
and the Seller, shall have completed the review of said due diligence to its
satisfaction, and such due diligence shall be reasonably satisfactory to the
Purchaser in its sole discretion.
Transaction Documents. The Seller shall have executed and
delivered to the Purchaser the Registration Rights Agreement, the Escrow
Agreement and the Trademark Assignment.
Resignations. The Purchaser shall have received the
resignations, effective as of the Closing Date, of each of the officers and
directors of the Company.
Options and Warrants. The Seller shall have caused any and all
outstanding options and warrants to purchase capital stock of the Company or any
of its subsidiaries to have been (i) cancelled in accordance with their terms or
(ii) exercised in accordance with their terms, and in the case of (ii) the
Seller shall have repurchased all shares of its capital stock underlying such
exercised options.
DCDC Non-Competition Agreement. The Purchaser shall have
obtained a non-competition agreement with Digital Creative Development
Corporation, a Utah corporation, on terms substantially similar to the terms set
forth in Section 6.4(b).
No Liens. There shall be no outstanding Liens on or in respect
of any assets of the Company or the Business, and the Seller shall have provided
evidence of such absence of Liens to the Purchaser in form acceptable to the
Purchaser in its sole discretion.
Tax Sharing Agreements. Any tax sharing agreements among the
Company or any Subsidiaries and any other Person shall have been terminated as
of the Closing Date with no further liability to the Purchaser, the Company or
any such Subsidiary.
Pre-Closing Merger. The Pre-Closing Merger shall have been
declared effective and the Purchaser shall have received from the Seller a
certificate from the Secretary of State of the State of Arizona certifying the
same.
Founder Certificates. The Purchaser shall have received from
Xxxxxxx Xxxxxxx and Xxxxx Xxxxxxx, the two principal founders of the Company,
duly executed certificates in the form attached hereto as Exhibit E.
THE CLOSING
The Closing. The Closing of the transactions contemplated
hereby (the "Closing") shall be held two Business Days after each of the
conditions precedent set forth in Articles VII and VIII have been satisfied or
waived by the party entitled to the benefit thereof and in any event on or prior
to June 30, 2003 (the "Closing Date") or at such other time as the parties may
mutually agree. The Closing shall be held at the offices of Xxxxxx & Diamond
LLP, 00 Xxx Xxxxxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxxxxxxx, XX 00000 or at such
other place as the parties may mutually agree. At the Closing, all of the
transactions provided for in Article II hereof shall be consummated on a
substantially concurrent basis.
Deliveries by the Seller at the Closing. At the Closing, the
Seller shall deliver, or cause to be delivered, to the Purchaser, the following
items:
the duly executed officer's certificates and certified
resolutions referred to in Sections 8.1, 8.2, and 8.4;
the consents listed on Schedule 8.3;
Seller's Opinion of Counsel;
the resignations referred to in Section 8.13.
the Escrow Agreement and the Registration Rights Agreement
duly executed by the Seller;
a certificate or certificates representing the Stock, duly
endorsed in blank for transfer or accompanied by appropriate powers
duly executed in blank; and
all other previously undelivered documents that the Seller is
required to deliver to the Purchaser pursuant to this Agreement.
Deliveries by the Purchaser at the Closing. At the Closing,
the Purchaser shall deliver, or cause to be delivered, to the Seller, the
following items:
the duly executed officer's certificates referred to in
Sections 7.1, 7.2, and 7.4;
duly executed and acknowledged transfer tax and other required
tax forms reasonably required by the Seller to consummate the
transactions contemplated hereby, all in the form required by
applicable law;
the Escrow Agreement and the Registration Rights Agreement
duly executed by the Purchaser;
the Closing Date Cash Payment;
evidence of receipt by the Escrow Agent of the Cash Escrow
Amount; and
all other previously undelivered documents that the Purchaser
is required to deliver to the Seller pursuant to this Agreement;
INDEMNIFICATION
Survival. Except as otherwise set forth in Section 10.2(b),
all of the representations and warranties of the Seller contained in Article III
of this Agreement or in any certificate delivered by the Seller pursuant to this
Agreement shall survive the Closing and continue in full force and effect as
follows: (a) in the case of the representations and warranties of the Seller
contained in Section 3.23 (Tax Matters), until six months after the expiration
of the statute of limitations with respect to the matter to which the claim
relates (including any extension of the statute of limitation consented to by or
on behalf of the Company), (b) in the case of the representations and warranties
of the Seller contained in Section 3.22 (Environmental Matters), until the fifth
anniversary of the Closing Date, and (c) in the case of any other representation
or warranty of the Seller contained in this Agreement and any certificate
delivered by the Seller pursuant to this Agreement pertaining to any of the
Seller's representations and warranties, until the second anniversary of the
Closing Date. Notwithstanding the foregoing, any notice given in accordance with
Section 12.1 of this Agreement claiming an alleged breach of any representation
or warranty hereunder shall without further action extend the survival period
for the representation or warranty alleged to have been breached as applied to
the circumstances set forth in such notice until immediately after the final
resolution of the matter. All of the representations and warranties of the
Purchaser contained in Article IV of this Agreement or in any certificate
delivered by the Purchaser pursuant to this Agreement pertaining thereto shall
survive the Closing and continue in full force and effect until the second
anniversary of the Closing Date.
Indemnification Provisions for Benefit of Purchaser.
In the event that the Seller breaches any of its
representations, warranties or covenants contained in this Agreement,
any other Transaction Document or in any certificate delivered by the
Seller pursuant hereto or thereto and provided that, as to any claim
for breach of representations or warranties, the Purchaser makes a
written claim for indemnification against the Seller within the
applicable survival period, if applicable, then the Seller agrees to
indemnify the Purchaser and its Affiliates from and against all
Damages the Purchaser and its Affiliates suffer resulting from or
arising out of such event; provided, however, that the Seller shall
not have any obligation to indemnify the Purchaser from and against
any Damages resulting from the breach of any representation or
warranty of the Seller (as opposed to any covenant of the Seller)
contained in Article III of this Agreement until the Purchaser has
suffered aggregate Damages, by reason of all such breaches in excess
of $87,500 (after which point the Seller will be obligated to
indemnify the Purchaser from the first dollar of Damages).
Without limiting the generality or effect of the foregoing,
the Seller shall indemnify, defend and hold harmless the Company, the
Purchaser and any of their respective Affiliates from and against any
and all Damages resulting from or arising out of any of the following
(which indemnification, defense and hold harmless shall not be subject
to any of the limitations set forth in Section 10.2(a)):
Any business or property formerly owned or operated
by the Company or any of its predecessors but not owned or
operated by the Company immediately after the Closing;
Any product shipped or manufactured by, or any
services provided by, the Company prior to the Closing Date to
the extent that the total Damages resulting therefrom exceed
the amount of the reserve for returns and allowances that is
specifically allocated to products shipped and/or manufactured
by the Company as set forth in the Balance Sheet;
Any claim of any creditor or beneficiary of the
Seller or any of its Affiliates (other than the Company),
whether arising prior to, on or after the Closing Date;
Except as set forth on the Closing Date Balance Sheet
as a current liability: (x) any liability to any Employee or
Former Employee of the Company or any of its predecessors as
of the Closing Date arising under any Plan or otherwise in
connection with their employment by the Company, including,
without limitation, post-retirement health benefits, to the
extent not fully funded immediately prior to the Closing, and
(y) any severance or other benefit payable to any Employee or
Former Employee by reason of this Agreement or the
transactions contemplated hereby, including, without
limitation, any stay bonus, golden parachute or other
change-in-control payment or benefit;
Pre-Closing Taxes. For purposes of this Agreement,
"Pre-Closing Taxes" shall mean, except to the extent included
in the determination of Adjusted Net Assets, (a) all liability
for Taxes of the Company for Pre-Closing Tax Periods; (b) all
liability for Taxes described in Section 6.1; (c) all
liability attributable to any misrepresentation or breach of
warranty made by the Seller in Section 3.23 of this Agreement;
(d) all liability for Taxes attributable to any failure to
comply with any of the covenants or agreements of the Seller
or the Company under this Agreement; and (e) all liability for
Taxes of any other person pursuant to any contractual
agreement entered into on or before the Closing Date;
Any claim or liability resulting from or in
connection with the Seller's (or any of Seller's Affiliate's)
breach, and not any portion of such claim or liability which
relates to a breach by the Company, of that certain Settlement
and Release Agreement, dated April 18, 2003, among Imageline,
Inc., Xxxxxx Xxxxxxx, the Seller and the Company;
Any claim or liability resulting from or in
connection with the Seller having failed to obtain, prior to
the Closing Date, the approval of its shareholders for any of
the transactions contemplated by this Agreement or any other
Transaction Document;
For a period of six years after the Closing Date, any
claim or liability resulting from or in connection with (i)
the Pre-Closing Merger (including but not limited to any claim
by an actual or alleged holder, other than the Seller, of an
equity interest in NewCo or the Company) or (ii) a breach of
any of the representations contained in Section 3.3;
Any claim or liability resulting from or in
connection with the Seller's or the Company's breach, prior to
the Closing Date, of the terms of any Software license
agreement or the Seller's or the Company's failure to obtain a
license for the Company's use of Software prior to the Closing
Date; or
Seller's failure to pay when due and payable that
certain Promissory Note, dated April 18, 2003, made by the
Seller and the Company in principal amount of $178,250 held by
Imageline, Inc. or its assigns.
Matters Involving Third Parties.
If any third party notifies the Purchaser (the "Indemnified
Party") with respect to any matter which may give rise to a claim
(other than a Tax Claim) for indemnification against the Seller (the
"Indemnifying Party") under this Article X, then the Indemnified Party
shall use reasonable efforts to notify the Indemnifying Party thereof
promptly and in any event within ten days after receiving any written
notice from a third party; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder
unless, and then solely to the extent that, the Indemnifying Party is
actually prejudiced thereby.
Once the Indemnified Party has given notice of the matter to
the Indemnifying Party, the Indemnified Party may, subject to the
Indemnifying Party's rights to assume the defense of such matter
pursuant to paragraph (c) below, defend against the matter in any
manner it deems appropriate.
The Indemnifying Party may at any point in time choose to
assume the defense of all of such matter, in which event:
the Indemnifying Party shall defend the Indemnified
Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party,
the Indemnified Party may retain separate counsel at
its sole cost and expense (except that the Indemnifying Party
shall be responsible for the fees and expenses of one separate
co-counsel for all Indemnified Parties to the extent the
Indemnified Party is advised, in writing by its counsel, that
either (x) the counsel the Indemnifying Party has selected has
a conflict of interest, or (y) there are legal defenses
available to the Indemnified Party that are different from or
additional to those available to the Indemnifying Party), and
the Indemnifying Party shall reimburse the
Indemnified Party for the reasonable costs of defense or
investigation for the period prior to the assumption of the
defense.
Assumption of the defense of any matter by the Indemnifying
Party shall without further action constitute an irrevocable waiver by
the Indemnifying Party of its right to claim at a later date that such
third party action for which the defense was assumed is not a proper
matter for indemnification pursuant to this Article X.
The Indemnified Party shall not consent to the entry of a
judgment or enter into any settlement with respect to any matter which
may give rise to a claim for indemnification without the written
consent of the Indemnifying Party, which consent may not be
unreasonably withheld or delayed; provided, however, that if the
Indemnifying Party has failed to provide indemnification required to
be provided pursuant to this Article X for fifteen days after a
request therefor, then the Indemnified Party may take any such action
without the consent of the Indemnifying Party.
The Indemnifying Party shall not consent to the entry of a
judgment with respect to any matter which may give rise to a claim for
indemnification or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the
written consent of the Indemnified Party (not to be unreasonably
withheld or delayed).
Certain Additional Provisions Relating to Indemnification.
Notwithstanding Section 12.12, after the Closing Date, the
indemnification provisions set forth in this Article X shall
constitute the sole and exclusive recourse and remedy available to the
Purchaser with respect to the breach of any representation or warranty
contained in this Agreement or in any certificate delivered pursuant
to this Agreement except for actual fraud.
Notwithstanding anything in this Agreement to the contrary,
for purposes of this Article X, in determining the existence of a
breach of any representation, warranty, covenant or agreement and the
amount of Damages, no effect shall be given to any qualification as to
materiality or Material Adverse Effect.
All payments by an Indemnifying Party under Article X shall be
treated as an adjustment to the Purchase Price for all foreign,
federal, state and local income tax purposes.
The Indemnification provided for in this Article X shall
survive any investigation at any time made by or on behalf of the
Purchaser or any knowledge or information that the Purchaser may have.
Procedures Relating to Tax Claims. If a claim is made by any
Tax authority which, if successful, is likely to result in an indemnity payment
to the Purchaser or any of its Affiliates pursuant to this Article X, the
Purchaser shall notify the Seller of such claim (a "Tax Claim"), stating the
nature and basis of such claim and the amount thereof, to the extent known.
Failure to give such notice shall not relieve the Seller from any liability
which it may have on account of this indemnification or otherwise, except to the
extent that the Seller is materially prejudiced thereby. The Seller will have
the right, at its option, upon timely notice to the Purchaser, to assume control
of any defense of any Tax Claim (other than a Tax Claim relating solely to Taxes
of the Company for a Straddle Period) with its own counsel, provided, however,
such counsel is reasonable satisfactory to the Purchaser. The Seller's right to
control a Tax Claim will be limited to amounts in dispute which would be paid by
the Seller or for which the Seller would be liable pursuant to this Article X.
Costs of such Tax Claims are to be borne by the Seller unless the Tax Claim
relates to taxable periods ending after the Closing Date, in which event such
costs will be fairly apportioned. The Purchaser and the Company shall cooperate
with the Seller in contesting any Tax Claim, which cooperation shall include the
retention and, upon the Seller's request, the provision of records and
information which are reasonably relevant to such Tax Claim and making employees
available on a mutually convenient basis to provide additional information or
explanation of any material provided hereunder. Notwithstanding the foregoing,
the Seller shall neither consent nor agree (nor cause the Company to consent or
agree) to the settlement of any Tax Claim with respect to any liability for
Taxes that may affect the liability for any state or federal income tax of the
Company or any Affiliated Group of which the Company is a member for any taxable
period ending subsequent to the Closing Date without the prior written consent
of the Purchaser, and neither the Seller, nor any Seller Entity, shall file an
amended Tax Return that may affect the liability for Taxes of the Company
without the prior written consent of the Purchaser. The Purchaser and the Seller
shall jointly control all proceedings taken in connection with any claims for
Taxes relating solely to a Straddle Period of the Company.
TERMINATION
Termination. Anything in this Agreement to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby may be
terminated in any of the following ways at any time before the Closing and in no
other manner:
By mutual written consent of the Purchaser and the Seller;
By the Purchaser upon five (5) Business Days notice if, at or
before the Closing Date, satisfaction of any condition set forth in
Article VIII is or becomes impossible (other than through the breach
by the Purchaser of any of its representations or warranties or the
failure of the Purchaser to perform any of its obligations pursuant to
this Agreement) and the Purchaser shall not have waived such condition
in writing at or before the Closing Date;
By the Seller upon five (5) Business Days notice if, at or
before the Closing Date, satisfaction of any condition set forth in
Article VII is or becomes impossible (other than through the breach by
the Seller of any of its representations or warranties or the failure
of the Seller to perform any of its obligations pursuant to this
Agreement) and the Seller shall not have waived such condition in
writing at or before the Closing Date;
After July 31, 2003, by the Purchaser or the Seller (if such
terminating party is not then in default of any obligation hereunder),
if the Closing has not occurred on or before such date; provided,
however, that such date shall be extended for ten (10) Business Days
after any notice given pursuant to Section 11.1(b) on or prior to such
date; or
By the Purchaser if the Purchaser has reasonable grounds to
believe that the Seller has violated the terms of Section 5.5.
Effect of Termination; Termination Fee.
In the event this Agreement is terminated pursuant to Section
11.1, all further obligations of the parties hereunder shall
terminate, except for the obligations set forth in Article X and in
Sections 11.2(b), 12.4, 12.5, and 12.9, and except that nothing in
this Section 11.2 shall relieve any party hereto of any liability for
breach of any of the covenants or any of the representations or
warranties contained in this Agreement prior to such termination.
If (i) this Agreement is terminated pursuant to Section
11.1(e), and (ii) a Business Combination shall occur within eighteen
months after the date this Agreement is terminated, then the Seller
shall immediately, upon consummation of such Business Combination, pay
to the Purchaser in same day funds the sum of $500,000 plus all
reasonable, documented attorneys', accountants', consultants' and
other out-of-pocket expenses incurred by Purchaser in connection with
the transactions contemplated by this Agreement. For purposes of this
Agreement, the term "Business Combination" means any of the following
events: (i) the Company, directly or indirectly, is acquired by merger
or otherwise by any person or group, including, without limitation,
any officer or director or any group which includes such officer or
director as a member (a "Third Party"); (ii) the Company or the Seller
enters into an agreement with a Third Party which contemplates the
acquisition, directly or indirectly, of 30% or more of the total
assets of the Company; (iii) the Company or the Seller enters into a
stock purchase, subscription, merger, consolidation, share exchange or
other agreement with a Third Party which contemplates the acquisition,
directly or indirectly, of 30% or more of the outstanding shares of
the Company's capital stock; (iv) a Third Party directly or indirectly
acquires 30% or more of the total assets of the Company; (v) a Third
Party directly or indirectly acquires 30% or more of the outstanding
shares of the Company's capital stock; or (vi) the Company or the
Seller adopts a plan of liquidation relating to 30% or more of the
total assets of the Company.
MISCELLANEOUS PROVISIONS
Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given (a) when delivered
personally to the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, (c) one Business Day
after the date when sent to the recipient by reputable express courier service
(charges prepaid), or (d) seven Business Days after the date when mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to the
Seller and to the Purchaser at the addresses indicated below:
If to the Seller: International Microcomputer Software, Inc.
00 Xxxxxxx Xxx
Xxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxxxxx, President
Fax: (000) 000-0000
With a copy to: Xxxxxx & Diamond LLP
(which shall not 00 Xxx Xxxxxxxxxx Xxxxxx
constitute notice) 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
If to the Purchaser: Jupitermedia Corporation
00 Xxx Xxxxx Xxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxx 00000
Attn: Xxxxxxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
With a copy to: Xxxxxxx Xxxx & Xxxxxxxxx
(which shall not 000 Xxxxxxx Xxxxxx
constitute notice) Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Facsimile No. (000) 000-0000
or to such other address as either party hereto may, from time to time,
designate in writing delivered pursuant to the terms of this Section.
Amendments. The terms, provisions and conditions of this
Agreement may not be changed, modified or amended in any manner except by an
instrument in writing duly executed by both of the parties hereto.
Assignment and Parties in Interest.
Neither this Agreement nor any of the rights, duties, or
obligations of any party hereunder may be assigned or delegated (by
operation of law or otherwise) by either party hereto except with the
prior written consent of the other party hereto, provided, however,
that (i) prior to or after the Closing, the Purchaser may assign
all of its rights hereunder to any Affiliate of the Purchaser, provided
that no such assignment shall relieve the Purchaser of its obligations
hereunder, (ii) the Purchaser (or the assignee pursuant to clause (i))
has a one-time right to assign all of its rights hereunder to any other
Person which acquires all or substantially all of the assets of, or
equity interest in, the Company and (iii) the Seller has a one-time
right to assign all of its rights hereunder to any other Person which
acquires all or substantially all of the assets of, or equity interest
in, the Seller provided that (A) such Person assumes the obligations of
the Seller hereunder as if such Person were a party hereto and (B) no
such assignment shall relieve the Seller of its obligations hereunder.
Nothing contained in this Section 12.3(a) shall prohibit the Seller
from granting a security interest in its rights under this Agreement in
connection with a bona fide debt financing.
Except as provided in Article X, this Agreement shall not
confer any rights or remedies upon any person or entity other than the
parties hereto and their respective permitted successors and assigns.
Announcements. All press releases, notices to customers and
suppliers and similar public announcements prior to or within five days after
the Closing Date with respect to this Agreement and the transactions
contemplated by this Agreement shall be approved by both the Purchaser and the
Seller prior to the issuance thereof; provided that either party may make any
public disclosure it believes in good faith is required by law, regulation or
rule of any stock exchange on which its securities are traded (in which case the
disclosing party shall use reasonable efforts to advise the other party prior to
making such disclosure and to provide the other party a reasonable opportunity
to review the proposed disclosure).
Expenses. Except as expressly set forth in this Agreement,
each party to this Agreement shall bear all of its legal, accounting, investment
banking, and other expenses incurred by it or on its behalf in connection with
the transactions contemplated by this Agreement, whether or not such
transactions are consummated.
Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof,
supersedes and is in full substitution for any and all prior agreements and
understandings among them relating to such subject matter, and no party shall be
liable or bound to the other party hereto in any manner with respect to such
subject matter by any warranties, representations, indemnities, covenants, or
agreements except as specifically set forth herein. The Exhibits and Schedules
to this Agreement are hereby incorporated and made a part hereof and are an
integral part of this Agreement.
Descriptive Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Counterparts. For the convenience of the parties, any number
of counterparts of this Agreement may be executed by any one or more parties
hereto, and each such executed counterpart shall be, and shall be deemed to be,
an original, but all of which shall constitute, and shall be deemed to
constitute, in the aggregate but one and the same instrument.
Governing Law; Jurisdiction.
This Agreement and the legal relations between the parties
hereto shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made and performed
therein without regard to principles of conflicts of law.
Any legal action or proceeding with respect to this Agreement
shall be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and,
by execution and delivery of this Agreement, the parties hereto hereby
accept for themselves and in respect of their property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The parties
hereto hereby irrevocably waive any objection, including any objection
to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the
bringing of any such action or proceeding in such respective
jurisdictions.
Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party. Any
references to any federal, state, local or foreign statute or law will also
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless the context otherwise requires: (a) a term has the
meaning assigned to it by this Agreement; (b) including means "including but not
limited to"; (c) "or" is disjunctive but not exclusive; (d) words in the
singular include the plural, and in the plural include the singular; and (e) "$"
means the currency of the United States of America.
Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall
be added as a part of this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be possible and be valid and
enforceable.
Specific Performance. Without limiting or waiving in any
respect any rights or remedies of Purchaser under this Agreement now or
hereinafter existing at law or in equity or by statute, each of the parties
hereto shall be entitled to seek specific performance of the obligations to be
performed by the other in accordance with the provisions of this Agreement.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the Seller and the Purchaser have executed
and delivered this Agreement as of the day and year first written above.
SELLER International Microcomputer Software, Inc.
By:
--------------------------------------
Name:
Title:
PURCHASER Jupitermedia Corporation
By:
--------------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: President
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS 1
Section 1.1. Definitions 1
Section 1.2. Accounting Terms and Determinations12
ARTICLE II. SALE AND PURCHASE 12
Section 2.1. Agreement to Sell and to Purchase 12
Section 2.2. Purchase Price. 12
Section 2.3. Purchase Price Adjustment.13
Section 2.4. Earn-Out Payments 14
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER 16
Section 3.1. Authority of the Seller 16
Section 3.2. Organization of XxxXxxxx.xxx, Inc 17
Section 3.3. Capitalization of XxxXxxxx.xxx, Inc. 17
Section 3.4. No Conflict or Violation; Consents 17
Section 3.5. Subsidiaries and Investments 18
Section 3.6. Financial Statements. 18
Section 3.7. Undisclosed Liabilities 19
Section 3.8. Material Adverse Effect 19
Section 3.9. Accounts Receivable 19
Section 3.10. Inventory 19
Section 3.11. Real Property. 20
Section 3.12. Condition and Compliance of Property. 21
Section 3.13. Compliance with Legal Requirements.22
Section 3.14. Affiliate Agreements and Liabilities 23
Section 3.15. Contracts. 23
Section 3.16. Intellectual Property. 25
TABLE OF CONTENTS
(continued)
Section 3.17. Software. 27
Section 3.18. Labor Relations 27
Section 3.19. Employee Benefits. 27
Section 3.20. Insurance 29
Section 3.21. Litigation 30
Section 3.22. Environmental Matters 30
Section 3.23. Tax Matters. 31
Section 3.24. Interim Operations 32
Section 3.25. Brokers 33
Section 3.26. Product Liability 33
Section 3.27. Books and Records of the Company 34
Section 3.28. Suppliers 34
Section 3.29. Projections 34
Section 3.30. Certain Payments 34
Section 3.31. Accounts 34
Section 3.32. Disclosure. 35
Section 3.33. Investment Intent; Status 35
Section 3.34. Representations as to NewCo. 35
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER 36
Section 4.1. Authority of Purchaser 36
Section 4.2. No Conflict or Violation 36
Section 4.3. Litigation 37
Section 4.4. Brokers 37
Section 4.5. Stock Consideration 37
Section 4.6. SEC Reports and Financial Statements 37
TABLE OF CONTENTS
(continued)
Section 4.7. Investment Intent; Status 38
ARTICLE V. CERTAIN COVENANTS OF THE SELLER 38
Section 5.1. Conduct of Business 38
Section 5.2. Information and Access 39
Section 5.3. Confidentiality Agreements39
Section 5.4. Best Efforts 39
Section 5.5. No Shop. 40
Section 5.6. Notices of Certain Events 40
Section 5.7. No Duplicates 40
ARTICLE VI. CERTAIN COVENANTS AND AGREEMENTS 41
Section 6.1. Transfer Taxes 41
Section 6.2. Obligation to File Tax Returns. 41
Section 6.3. Certain Provisions Relating to Consents 42
Section 6.4. Nondisclosure; Noncompetition; Nonsolicitation. 42
Section 6.5. Ongoing Tax Cooperation 43
Section 6.6. Section 338(h)(10) Election. 43
Section 6.7. Tax Related Covenants 45
Section 6.8. Further Assurances 45
Section 6.9. Purchaser Conduct of Business 45
ARTICLE VII. CONDITIONS TO SELLER'S OBLIGATIONS 46
Section 7.1. Representations and Warranties 46
Section 7.2. Compliance with Agreement 46
Section 7.3. No Violation of Orders 46
Section 7.4. Corporate Documents 46
Section 7.5. Transaction Documents 46
TABLE OF CONTENTS
(continued)
ARTICLE VIII. CONDITIONS TO PURCHASER'S OBLIGATIONS 46
Section 8.1. Representations and Warranties 47
Section 8.2. Compliance with Agreement 47
Section 8.3. Consents 47
Section 8.4. Corporate Documents 47
Section 8.5. FIRPTA 47
Section 8.6. Employees 47
Section 8.7. Material Adverse Effect 47
Section 8.8. No Claim Regarding Stock Ownership or Sale Proceeds 47
Section 8.9. Opinion of Counsel 48
Section 8.10. No Violation of Orders 48
Section 8.11. Due Diligence 48
Section 8.12. Transaction Documents 48
Section 8.13. Resignations 48
Section 8.14. Options and Warrants 48
Section 8.15. DCDC Non-Competition Agreement 48
Section 8.16. No Liens 48
Section 8.17. Tax Sharing Agreements 49
Section 8.18. Pre-Closing Merger 49
Section 8.19. Founder Certificates 49
ARTICLE IX. THE CLOSING 49
Section 9.1. The Closing 49
Section 9.2. Deliveries by the Seller at the Closing 49
Section 9.3. Deliveries by the Purchaser at the Closing 49
ARTICLE X. INDEMNIFICATION 50
Section 10.1. Survival 50
Section 10.2. Indemnification Provisions for Benefit of Purchaser. 50
Section 10.3. Matters Involving Third Parties. 52
Section 10.4. Certain Additional Provisions Relating to Indemnification. 53
Section 10.5. Procedures Relating to Tax Claims 54
ARTICLE XI. TERMINATION 54
TABLE OF CONTENTS
(continued)
Section 11.1. Termination 55
Section 11.2. Effect of Termination; Termination Fee. 55
ARTICLE XII. MISCELLANEOUS PROVISIONS 56
Section 12.1. Notices 56
Section 12.2. Amendments 57
Section 12.3. Assignment and Parties in Interest.57
Section 12.4. Announcements 57
Section 12.5. Expenses 57
Section 12.6. Entire Agreement 58
Section 12.7. Descriptive Headings 58
Section 12.8. Counterparts 58
Section 12.9. Governing Law; Jurisdiction. 58
Section 12.10. Construction 58
Section 12.11. Severability 58
Section 12.12. Specific Performance 59
