EXHIBIT 2.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is made this twelfth
day of March, 1999, by and between EarthWeb Inc., a Delaware corporation (the
"Buyer"), MicroHouse International, Inc., a Florida corporation (the "Target")
and Xxxxx Xxxxxxxx, Xxxx Xxxxxxxx and Xxxxxx Xxxxxxxx (collectively, the
"Seller").
R E C I T A L S:
Buyer desires to purchase, and Seller desires to sell, assign and transfer
to the Buyer all of the capital stock in the Target which any Seller owns or in
which a Seller has an interest, all on the terms and subject to the conditions
hereinafter set forth. Collectively, the securities of the Target to be
purchased by the Buyer pursuant to this Agreement are "Securities".
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, agreements, representations, warranties, and covenants herein
contained, the parties hereby agree as follows:
SECTION 1
Closing
1.1. Closing Date. The closing (the "Closing") of the transactions
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contemplated hereby shall be held at the offices of counsel to Buyer, Xxxxxxxx &
Xxxxxxxx LLP, 1290 Avenue of the Americas, 41st Floor, New York, New York 10104-
0185 on April 15, 1999 or such earlier date and place as may be mutually agreed
upon by the parties (the "Closing Date").
1.2. Purchase and Sale of Securities. On the terms and subject to the
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conditions herein set forth, the Buyer shall purchase from the Seller all of the
Securities, as of the Closing Date.
1.3. Method of Conveyance.
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(a) The sale, transfer, conveyance, assignment and delivery by the
Seller of the Securities to the Buyer shall be effected on the Closing Date by
the delivery of the Securities and execution of customary stock powers, duly
guaranteed and other appropriate documents by the Seller, as appropriate
(collectively, the "Instruments of Conveyance") to the Buyer or its assignees.
(b) At the Closing, good and valid title to all of the Securities
shall be transferred, conveyed, assigned and delivered by the Seller to the
Buyer or its assignees pursuant to this Agreement and the Instruments of
Conveyance, free and clear of any and all Liens (as defined below). For the
purposes of this Agreement, the term "Lien" shall mean any pledge, security
interest, encumbrance, lien or charge of any kind whatsoever.
(c) At the Closing, the Seller shall cause the Target to provide to
the Buyer with an estoppel certificate signed by each creditor (excluding trade
creditors) of the Target (the "Third Party Funded Debt"), each certificate
indicating the balance due on the Third Party Funded Debt, including any accrued
and unpaid interest thereon, as of the end of the preceding month, together with
a per diem interest rate during the month in which the Closing occurs.
(d) At the Closing the Seller shall cause the Target to provide to the
Buyer a certificate signed by Target indicating the balance of trade accounts
payable ("Trade Accounts Payable") due to third parties indicated Schedule
1.3(d) hereto, including any accrued and unpaid interest thereon, as of the end
of the preceding month.
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1.4. No Assumed Obligations. Pursuant to this Agreement, the Buyer does
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not assume any of the liabilities or obligations of the Target whether absolute,
accrued, contingent or otherwise, whenever incurred; provided, that the Buyer
understands that the assets of the Target are subject to existing liabilities
and obligations.
1.5. Purchase Price.
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The aggregate purchase price for the Securities (the "Purchase Price")
shall be payable as follows (and allocated among the persons comprising the
Seller as set forth in Exhibit A-1 hereto):
(a) at the Closing, Buyer shall pay Seller One Million Dollars
($1,000,000) in cash;
(b) on the fourth month anniversary of the Closing Date, Buyer shall
pay Seller Five Hundred Thousand Dollars ($500,000) in cash;
(c) at the Closing, Buyer shall deliver to each party comprising
Seller a pro rata portion (based on the Purchase Price to be received by such
party ("Pro Rata")) of shares of Buyer's common stock, $.01 par value ("Common
Stock"), which have not been registered under the Securities Act of 1933, having
an aggregate value of One Million Nine Hundred Thousand Dollars ($1,900,000),
such number of shares to be determined by taking the average of the closing
price of Buyer Common Stock on the Nasdaq National Market (the "Average Price")
during the twenty (20) trading days immediately preceding the Closing Date and
dividing such Average Price into $1,900,000 (the "Closing Price");
(d) at the Closing, Buyer shall deliver to each party comprising
Seller a note in substantially the form of Exhibit B hereto (the "Notes") in the
Pro Rata portion of an aggregate original principal amount equal to Four Million
Nine Hundred Seventy Three Thousand and Seven Hundred Nineteen Dollars
($4,973,719); and
(e) on April 1, 2000, Buyer shall pay Seller Ninety Five Thousand
Dollars ($95,000) in cash.
1.6. Purchase Price Adjustment. The Purchase Price shall be adjusted as
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follows:
(a) The Purchase Price shall be reduced by $1.50 for each dollar that
the net revenue from continuing operations of the Target for the year ended
December 31, 1998 (the "Revenue Figure") was less than $3,707,566.00 (the
aggregate amount of such reduction, the "Purchase Price Adjustment"). The
Purchase Price Adjustment shall not exceed $611,349. Following delivery of the
financial statements of the Target for the year ended December 31, 1998 audited
by PricewaterhouseCoopers ("PwC") (the date of delivery of the audited financial
statements, the "Delivery Date"), PwC shall calculate the Revenue Figure on a
basis consistent with the basis used in determining the net revenue from
continuing operations of the Target set forth in the Target's unaudited
statement of income for the fiscal year ended December 31, 1998, attached hereto
as Schedule 2.12.
(b) The determination of the Revenue Figure by PwC, subject to the
other provisions of Section 1.6, shall be conclusive and binding on all parties.
Any fees and expenses of PwC shall be borne by Buyer.
(c) If the Revenue Figure indicates that a Purchase Price Adjustment
should be made, i.e., the net revenue from continuing operations of the Target
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for the year ended December 31, 1998 was less than $3,707,566.00, then each Note
delivered to Seller in accordance with Section 1.5(d) shall be reduced Pro Rata
(and Seller agrees to such reduction and to deliver such Notes for reduction
subject to subsection (d) hereof).
(d) If Seller has any objections to the Revenue Figure, Seller shall
deliver to Buyer within 20 days from the Delivery Date a detailed statement (the
"Objections Statement") describing Seller's specific objections, and the amount
in dispute shall be deducted from each Note by means of creation of a new Note
in the amount of such deduction (the "Escrow Note") and the reduction of the
principal amount of each such original Note. The Escrow Note shall be deposited
in the escrow account established pursuant to an escrow agreement (the "Escrow
Account") in a form mutually agreeable to the parties (the "Escrow Agreement")
pending resolution of the disputes pursuant to the procedures hereinafter set
forth. Thereafter, Xxxxxx & Xxxxxxxxxx ("Seller's Accountant")
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on behalf of Seller, and PwC on behalf of Buyer, shall seek to resolve Seller's
objections by mutual agreement in order to determine the Revenue Figure. If
Seller's Accountant and PwC are unable to resolve such objections within 15 days
after delivery of the Objections Statement, they shall promptly jointly appoint
a third independent certified public accountant (the "Third Party Firm") for the
purpose of resolving Seller's objections in order to determine the Revenue
Figure. The written determination (the "Post Closing Determination") by the
Third Party Firm of the Revenue Figure, after considering all written objections
thereto in accordance with the foregoing procedure, shall be conclusive and
binding upon the parties. Any fees and expenses payable to the Third Party Firm
for services pursuant to this subsection (d) shall be borne by Buyer unless the
Post Closing Determination by the Third Party Firm results in a determination of
Revenue Figure that is equal to or lower than the Revenue Figure originally
determined by PwC, in which case Seller shall bear all fees and expenses payable
to the Third Party Firm.
(e) Any amounts deposited in the Escrow Account pursuant to subsection
(d) above shall be distributed by the Escrow Agent (as defined in the Escrow
Agreement) promptly as directed in the Post Closing Determination.
(f) The Purchase Price as adjusted by the Purchase Price Adjustment
shall be referred to herein as the "Adjusted Purchase Price."
1.7. Method of Payment. Except as otherwise expressly provided herein, all
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payments from one party to another under this Agreement shall be made by check
or wire in United States dollars to an address designated in writing by the
party to receive such payment.
SECTION 2
Representations and Warranties of Seller
Each Seller represents and warrants to Buyer as follows, except as set
forth on the Schedules hereto numbered to correspond to the sections below:
2.1. Organization and Standing. Target is a corporation duly organized and
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validly existing under, and by virtue of, the laws of the State of Florida and
is in good standing under such laws. Target has all requisite corporate power
to own and operate its properties and assets and to carry on its business as
currently conducted and as proposed to be conducted. Target is not qualified to
do business in any jurisdiction other than the States of Florida and Colorado,
and either no such qualification is required in any other jurisdiction, or the
failure to so qualify in any other jurisdiction does not have a material adverse
affect on Target. Target has no subsidiaries.
2.2. Power. Target has all requisite corporate or other power to execute
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and deliver this Agreement and to carry out and perform its obligations under
the terms of this Agreement and each of the Transaction Documents to which it is
a party. This Agreement constitutes, and the Transaction Documents to which
Target is a party will each constitute, the valid and binding obligations of
Target, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and to general principles of equity.
2.3. No Conflict. Target is not in violation of its Certificate of
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Incorporation or By-Laws. The execution, delivery, and performance of this
Agreement and each of the Transaction Documents to which Target is a party by
Target have not resulted and will not result in, nor will consummation of the
transactions contemplated hereby or thereby result in, any violation of, or
conflict with, or constitute a material default under, any of the foregoing
charter documents or any of Material Agreement (as hereinafter defined), or
result in the creation of any lien, encumbrance, or charge upon any of the
assets of Target, or the acceleration of maturity of any obligation of Target or
right of any third party under such charter documents or Material Agreements;
and there exists no such violation or default that does or could adversely
affect the business or the assets of Target or the ability of Target to
consummate its obligations hereunder.
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2.4. Governmental Consents, etc. No consent, approval or authorization of
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or designation, declaration, or filing with any governmental, regulatory or
administrative body, agency or authority, or any court or judicial authority
(each, an "Authority") on the part of Target is required in connection with the
valid execution and delivery of this Agreement or any Transaction Document to
which Target is a party or the consummation of the transactions contemplated
hereby or thereby. The execution, delivery, and performance of this Agreement
and each Transaction Document, and the consummation of the transactions
contemplated hereby or thereby, does not require consent, approval, or
authorization under any Material Agreement to which Target is a party or by
which its properties or assets are bound or affected.
2.5. Notes and Accounts Receivable. All notes and accounts receivable of
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Target are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, and are current and collectible within
120 days from the date of such note or receivable, as applicable, at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Unaudited Financial Statements (as hereinafter defined), as adjusted
in a manner consistent with past practice for operations and transactions in the
ordinary course of business through the Closing Date, or as contemplated by
Section 5.1(g) of this Agreement.
2.6. Tax Matters. Target has, within the times and in the manner
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prescribed by law, filed all required Tax returns, including sales and use Tax
returns, has paid all Taxes required to have been paid prior to becoming
delinquent, including sales and use Tax owed by Target (whether or not shown on
any Tax return to be due and owing by it), has paid all deficiencies or other
assessments of Taxes, interest or penalties owed by it, and all such Tax returns
were correct and complete. Except as set forth on Schedule 2.6, no taxing
authority has asserted any claim for the assessment of any additional Taxes of
any nature with respect to any periods covered by any such Tax returns; and all
Taxes required to be withheld or collected by Target have been duly withheld or
collected and, to the extent required, have been paid to the proper taxing
Authority or properly segregated or deposited as required by law. No Seller has
knowledge of any dispute or claim concerning any Tax liability of the Target.
The Company is qualified, and has been qualified since its inception, for
treatment as an S corporation under the applicable provisions of Subchapter S of
the Internal Revenue Code of 1986, an amended (the "Code") and the applicable
provisions of Florida and Colorado law and has made all elections required for
such treatment as an S corporation for all periods since its inception, provided
that such election will terminate at Closing to the extent required by the
acquisition of Target stock by Buyer pursuant to the Transaction Documents.
Target is not liable for Tax in any jurisdiction other than the United States
and Florida and Colorado (and the political subdivisions of Florida and
Colorado). For purposes of this Agreement, "Tax" or "Taxes" shall mean any
federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, property, franchise, profits,
withholding, social security (or similar), sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, imposed by
any United States federal, state, local or foreign taxing authority. Target
does not own stock of any other corporation meeting the requirements of Code
Section 1504(a)(2), and Target is not liable for the Tax of any other person or
entity under Treasury Regulation 1.1502-6 (or any similar provision of state,
local or foreign law) as transferee or successor, by contract, or otherwise.
Target is not and has not been a United States real property holding corporation
within the meaning of Code Section 897.
2.7. Compliance and Laws. Target has in all material respects complied
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with, and is now in all material respects in compliance with, all laws, rules,
regulations, orders, judgments, and decrees of all Authorities applicable to it,
and no material capital expenditure will be required to insure continued
compliance therewith. Target possesses each material franchise, license,
permit, authorization, certification, consent, variance, permission, order or
approval of or from any Authority, and has filed all filings, notices or
recordings with any Authority (collectively, "Licenses") material to, or
necessary for the conduct of, its business and is now and, has at all times in
the past been in material compliance with each thereof. Each such License is
identified on Schedule 2.7. No proceeding or other action is pending, or
threatened, to revoke, amend, or limit any License, and Target has no basis to
believe that any such proceeding or action would result from the consummation of
the transactions contemplated hereby or by the Transaction Documents, or that
any such License would not be renewed in the ordinary course.
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2.8. Litigation. There is no pending or threatened adverse claim,
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dispute, governmental investigation, suit, action, arbitration, legal,
administrative or other proceeding of any nature, domestic or foreign, criminal
or civil, at law or in equity, by or against Target.
2.9. Tangible Property. Target has good and marketable title to all of
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its tangible property ("Assets"), free and clear of all liens and other
encumbrances, and each such item of tangible personal property is in good
operating condition and repair, useable in the ordinary course of business.
Schedule 2.9 contains a complete and accurate list setting forth a description
of each Asset with an original purchase price of greater than $500, and
describes the nature of Target's interest in any property listed thereon that is
not owned entirely by Target free and clear of security interests or other
encumbrances.
2.10. Material Agreements. Schedule 2.10 sets forth a true and complete
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list of all material agreements (individually, a "Material Agreement" and,
collectively, the "Material Agreements") of Target as of the Closing Date. True
and complete copies of each such agreement, commitment or instrument have been
delivered or made available to Buyer. Furthermore:
(a) each such agreement is the valid and binding obligation of the
other contracting party, enforceable in all material respects in accordance with
its terms against the other contracting party, and is in full force and effect;
(b) Target has fulfilled all material obligations required to have
been performed by it prior to the date hereof with respect to each such
agreement, and there is no reason to believe that Target will not be able to
fulfill all of its obligations when due in respect thereof;
(c) to Seller's knowledge, no other contracting party to any such
agreement is now in breach thereof, and there are not now, nor have there been
in the twelve (12) month period prior to the date hereof, any disputes between
Target and any other contracting party; and
(d) Target is not a party to, or is bound by, any agreement or
commitment that restricts its conduct anywhere in the world.
2.11. Capitalization. The authorized stock of Target consists of 10,000
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shares of common stock, par value $1.00 per share. As of December 31, 1998, 204
shares of common stock were validly issued and outstanding, fully paid and
nonassessable, and there have been no changes in such numbers of shares through
the date of this Agreement. All of the Individual Shares (as hereinafter
defined) have been duly authorized and validly issued and are fully paid and
non-assessable, and are all of the shares of capital stock, or any securities
exchangeable, convertible or exercisable into, capital stock of Target. As of
the date of this Agreement, there are no bonds, debentures, notes or other
indebtedness issued or outstanding having the right to vote on any matters on
which the Target stockholders may vote. As of the date of this Agreement, except
as set forth on Schedule 2.11, there are not now, and at the Closing Date there
will not be any, options, warrants, calls, convertible securities or other
rights, agreements or commitments presently outstanding obligating Target to
issue, deliver or sell shares of its stock or debt securities, or obligating
Target to grant, extend or enter into any such option, warrant, call or other
such right, agreement or commitment, and, there have been no changes in such
numbers through the date of this Agreement. After the Closing Date, there will
be no obligation to issue, transfer or sell any shares of stock of the Target
pursuant to any Target Employee Benefit Plan (as hereinafter defined).
2.12. Financial Statements. Attached hereto as Schedule 2.12 are unaudited
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balance sheets and statements of income as of and for the fiscal year ended
December 31, 1998 for Target (the "Unaudited Financial Statements"). The
Unaudited Financial Statements (including the notes thereto) have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the period covered thereby and present fairly the
financial condition of Target as of such dates and the results of operations,
changes in stockholders' equity and cash flows of Target for such period.
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2.13. Absence of Certain Changes or Events. Except as contemplated by this
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Agreement, since December 31, 1998, Target has operated its business in the
ordinary course of business consistent with past practice and there has not been
(i) any transaction, commitment, dispute or other event or condition (financial
or otherwise) of any character (whether or not in the ordinary course of
business) which, alone or in the aggregate, has had or would reasonably be
expected to have, a material adverse effect; (ii) any damage, destruction or
loss, whether or not covered by insurance, which has had, or would reasonably be
expected to have, a material adverse effect; (iii) except as specifically
permitted by this Agreement, any declaration, setting aside or payment of any
dividend or distribution (whether in cash, stock or property) with respect to
the stock of Target; (iv) any material change in Target's accounting principles,
practices or methods; (v) any repurchase or redemption with respect to its
stock; (vi) any stock split, combination or reclassification of any of Target's
stock or the issuance or authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for, shares of Target's stock;
(vii) any grant of or any amendment of the terms of any option to purchase
shares of stock of Target; (viii) any granting by Target to any director,
officer or employee of Target of (A) any increase in compensation (other than in
the case of employees in the ordinary course of business consistent with past
practice), (B) any increase in severance or termination pay, or (C) acceleration
of compensation or benefits; (ix) any entry by Target into any employment,
severance, bonus or termination agreement with any director, officer or employee
of Target; or (x) any agreement (whether or not in writing), arrangement or
understanding to do any of the foregoing.
2.14. No Undisclosed Liabilities. Target had at December 31, 1998 no
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material liabilities which were not reflected on the unaudited balance sheet of
Target as of such date and which were required to be so reflected by generally
accepted accounting principles consistently applied. Since December 31, 1998,
Target has not incurred any liabilities material to the business, operations or
financial condition of Target, except liabilities incurred in the ordinary and
usual course of business and consistent with past practice and liabilities
incurred in connection with this Agreement and the transactions contemplated
hereby.
2.15. Employee Benefit Plans. Schedule 2.15 sets forth a list of all
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"employee benefit plans," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all other material
employee benefit or compensation 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 (including those held by directors, employees, and consultants),
hospitalization insurance, medical insurance, life insurance, scholarships or
tuition reimbursements, that are maintained by Target or any Target ERISA
Affiliate (as defined below) or to which Target or any Target ERISA Affiliate is
obligated to contribute thereunder for current or former directors, employees,
independent contractors, consultants and leased employees of Target or any
Target ERISA Affiliate (the "Target Employee Benefit Plans").
(b) None of the Target Employee Benefit Plans is subject to Code
Section 412 or Title IV of ERISA.
(c) Target does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance or medical or
other employee welfare benefits to any employee or former employee upon his
retirement or termination of employment, other than pursuant to Code Section
4980B, nor has Target represented, promised or contracted (whether in oral or
written form) to any employee or former employee that such benefits would be
provided.
(d) The execution of, and performance of the transactions
contemplated in, this Agreement will not, either alone or upon the occurrence of
subsequent events, result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee. The only severance agreements or severance policies applicable to
Target in the event of a change of control of Target are the agreements and
policies specifically referred to in Schedule 2.15. The Board of Directors of
Target has determined that the transactions contemplated hereby do not
constitute a change of control for purposes of any such agreement, plan, policy
or stock option plan or program to the extent Target or its Board has discretion
to make such determination under such agreement, plan or policy and such Board
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shall not change such determination, provided that the foregoing shall not apply
to the accelerated vesting of any stock options.
(e) Each Target Employee Benefit Plan that is intended to qualify
under Section 401 of the Code, and each trust maintained pursuant thereto, has
been determined to be exempt from federal income taxation under Section 501 of
the Code by the Internal Revenue Service (the "IRS"), and, to Target's
knowledge, nothing has occurred with respect to the operation or organization of
any such Target Employee Benefit Plan that would cause the loss of such
qualification or exemption or the imposition of any material liability, penalty
or tax under ERISA or the Code.
(f) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
Target Employee Benefit Plans to any funds or trusts established thereunder or
in connection therewith have been made by the due date thereof, (ii) Target has
complied in all material respects with any notice, reporting and documentation
requirements of ERISA and the Code, (iii) other than routine claims for
benefits, there are no pending actions, claims or lawsuits which have been
asserted, instituted or, to Target's knowledge, threatened, in connection with
Target Employee Benefit Plans, and (iv) Target Employee Benefit Plans have been
maintained, in all material respects, in accordance with their terms and with
all provisions of ERISA and the Code (including rules and regulations
thereunder) and other applicable federal and state laws and regulations.
(g) For purposes of this Agreement, "Target ERISA Affiliate" means
any business or entity which is a member of the same "controlled group of
corporations," under "common control" with or an "affiliated service group" of
Target within the meanings of Sections 414(b), (c) or (m) of the Code, or
required to be aggregated with Target under Section 414(o) of the Code, or is
under "common control" with Target, within the meaning of Section 4001(a)(14) of
ERISA, or any regulations promulgated or proposed under any of the foregoing
sections.
2.16. Bank Accounts. Schedule 2.16 lists each bank, trust company or
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similar institution with which Target maintains an account or safe deposit box,
and accurately identifies each such account or safe deposit box by its number or
other identification and the names of all individuals authorized to draw thereon
or have access thereto.
2.17. Officers and Directors. Schedule 2.17 accurately lists by name and
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title all officers and directors of Target.
2.18. Insurance. Target maintains insurance coverage with reputable
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insurers in such amounts and covering such risks as are in accordance with
normal industry practice for companies engaged in businesses similar to that of
Target (taking into account the cost and availability of such insurance).
Schedule 2.18 sets forth a complete listing of all insurance maintained by
Target (indicating form of coverage, name of carrier and broker, coverage limits
and premium, whether occurrence or claims made, expiration dates, deductibles,
and all endorsements).
2.19. Change in Control. None of the Material Agreements contain a "change
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in control" provision or "potential change in control" provision, or a provision
which will effectively terminate such Material Agreement or provides for any
payment or event of default in the event Target's equity ownership changes.
Except as set forth in Section 7.15, no compensation payable by Target will vest
or be accelerated by reason of the transactions contemplated by this Agreement.
2.20. Software Developers, Advertisers, Software Customers and Site
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Visitors. Schedule 2.20 is a true and complete list of the software developers
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and advertisers with whom Target has done business within six (6) months prior
to the Closing Date. With respect to each software developer required to be
disclosed pursuant to this Section 2.20, Schedule 2.20 sets forth the following
information: (i) developer name; (ii) address; (iii) URL address; (iv) e-mail
address; (v) telephone/facsimile number; (vi) software product name; (vii)
standard retail price; (viii) electronic retail price; (ix) discounts and (xii)
royalties. The relationships of Target with the persons listed in such Schedule
are good commercial working relationships, and no such person has canceled or
otherwise
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terminated, or threatened to cancel or terminate, its relationship with Target,
or decreased or limited materially, or threatened to decrease or limit
materially, its business done with Target, and there is no reason to believe
that any such person would not continue its business relationship with Target
following the Closing on substantially the same terms Target. Schedule 2.20
lists each outstanding (a) purchase order (or correspondence with respect to a
proposed purchase order) of any customer or prospective customer of the Business
initiated prior to the Closing Date, and not completed as of the Closing Date;
and (b) purchase order (or correspondence with respect to a proposed purchase
order) (in each case in excess of $500) of Target, to any vendor, supplier,
contractor or inventor, identifying each such vendor, supplier, contractor or
inventor and the items being purchased and stating the quantity and price
thereof.
2.21. Brokers or Finders. Except as provided in the next succeeding
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sentence, Target has not incurred, nor will incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby. Seller shall indemnify and hold Buyer harmless with respect to any
claim by any broker, agent, or finder claiming to have acted on behalf of Seller
or Target, respecting the subject matter hereof, other than the fees of Ascent
Partners, who shall receive upon the consummation of the transactions
contemplated by this Agreement, as payment in full satisfaction of all fees to
which he is entitled to receive from any party to this Agreement (except as
provided in Section 7.7 hereof), that number of shares of Buyer Common Stock
equal to the result obtained by dividing $100,000 by the Average Price during
the twenty (20) trading day period prior to the Closing Date. Ascent Partners
hereby makes the representations and warranties set forth in Section 3.4 with
respect to itself and the above-referenced shares.
2.22. Intellectual Property.
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(a) Target owns, and Target's Assets include, all patents,
trademarks, service marks, trade names, and copyrights (including registrations,
licenses, and applications pertaining thereto) and all other intellectual
property rights, software (in object and source code formats), trade secrets,
and other proprietary information, processes, and formulas used in, or necessary
for the operation of its business, including, without limitation, the design,
development, manufacture, use, import and sale of the products, technology and
services of Target (including products, technology or services currently under
development by Target) ("IP Assets"), other than software products of third
parties that are or have been made generally commercially available by third
parties ("Commercially Available Software" or "CAS"). Schedule 2.22(a) sets
forth all registered trademarks and service marks, all reserved trade names, all
registered copyrights, and all filed patent applications and issued patents used
in or necessary for the operation of its business.
(b) Schedule 2.22(b) sets forth the form and placement of the
proprietary legends and copyright notices displayed in or on Target's web site,
or any of its software programs. To Target's best knowledge, in no instance has
the eligibility of such software programs for protection under applicable
copyright law been forfeited to the public domain in any material respect.
(c) Target has used best efforts to protect the confidentiality of
its trade secrets. There has been no material disclosure of any trade secrets by
any person or entity. The source code and system documentation relating to any
of Target's software programs have at all times been maintained in confidence
and have been disclosed by Target only to employees and consultants having a
reasonable need to know of the contents thereof in connection with the
performance of their duties to Target and who are subject to confidentiality
obligations.
(d) All personnel, including employees, agents, consultants, and
contractors, who have contributed protectible material (including any
copyrightable expression, any invention or discovery and/or any confidential or
proprietary information) to or participated in the conception and development of
the software programs, technical documentation, or intellectual property on
behalf of Target, either (1) have been party to a "work-for-hire" arrangement or
agreement with Target, in accordance with federal law, that has accorded Target
full, effective, exclusive, and original ownership of all tangible and
intangible property thereby arising, or (2) have executed appropriate
instruments of assignment, including those instruments of assignment listed on
Schedule 2.22(d), in favor of Target as assignee that have conveyed to Target
full, effective, and exclusive ownership of all tangible and intangible property
thereby arising.
8
(e) No intellectual property right or other claims have been asserted
by any person or entity to the use of any of the IP Assets (or assets embodying
any such IP Asset), and neither Target nor the shareholders of Target are aware
of any valid basis for any such claim. The use of any of the IP Assets (or
assets embodying any such IP Asset) does not infringe on (i) any non-patent
intellectual property rights or other rights of any person or entity and/or (ii)
the U.S. patent rights of any person or entity.
(f) As of the Closing Date, all of the Target Software (as defined
below) is free of any bugs or defects which have caused material or repeated
interruptions in or to the operation of such Target Software, or other material
bugs which have manifested themselves as of the Closing Date, and is and shall
be useable in the same form as on the Closing Date in the ordinary course of the
business from and after the Closing Date. There are no "time bombs" or other
intentionally harmful components in the Target Software. All Target Software, to
the extent relevant, is year 2000 compatible and allows for date data century
recognition, calculations that accommodate same century and multi-century
formulas and date values, and date data interface elements that reflect the
proper century. Further, as of the Closing Date, any third party software that
is reasonably necessary to the operation of Target's business is, to the best
knowledge of Target's shareholders, free of any bugs or defects which have
caused material or repeated interruptions in and to Target's business, or other
material bugs in such software which have manifested themselves as of the
Closing Date, and is and shall be useable in the same form as on the Closing
Date in the ordinary course of the business from and after the Closing Date. As
used in this Section 2.22, "Target Software" means software (including CD-ROMs)
of Target that Target makes available or is under development with the intention
of making available to third parties in connection with Target's business, and
excludes CAS.
(g) Target has good and marketable title to each item of the IP
Assets, free and clear of all liens and other encumbrances. Target is the sole
and rightful owner of all right, title and interest in and to each item of such
IP Assets, and has the unrestricted right to market, license and otherwise
exploit each such item of the IP Assets.
(h) The operation of the business of Target as it currently is
conducted or is currently contemplated by Target to be conducted, including but
not limited to Target's design, development, use, import, sale of the products,
technology or services (including products, technology, or services currently
under development), does not infringe or misappropriate the intellectual
property or other proprietary rights of any person or entity, violate any other
rights of any person or entity (including rights to privacy or publicity), or
constitute unfair competition or trade practices under applicable laws.
2.23. Technical Documentation. Target's Assets shall include all
-----------------------
information and materials in Target's possession, custody and/or control
(including information and materials in the possession of Target employees,
consultants and/or other individuals obligated to make such information and
materials available to Target) reasonably required to diagnose problems in,
maintain, support, enhance and otherwise modify the IP Assets, including source
code, system documentation, statements of principles of operation and schematics
for any Target Software, as well as any pertinent commentary or explanation that
may be reasonably necessary to render such information or materials
understandable and useable by an experienced computer programmer.
2.24. Third Party Components, Rights, etc.
------------------------------------
(a) Except as set forth in Schedule 2.24(a), Target has, or by the
time of the Closing will have, validly and effectively obtained the right and
license to use such CAS and other third party materials as used in, or as
necessary for use in, Target's business. The Target Software will not contain or
incorporate any CAS or other third party materials to which Target has no right
to use in connection with such Target Software.
(b) Target has not granted, transferred, or assigned any right, title
or interest in or to any IP Assets to any person or entity, and there are no
contracts, agreements, licenses, and other commitments and arrangements in
effect with respect to the marketing, distribution, licensing, or promotion of
any IP Assets by any independent salesperson, distributor, sublicensor, or other
remarketer or sales organization, other than as set forth in Schedule 2.24(b) or
non-exclusive licenses to end-users granted by Target in the ordinary course of
business.
9
2.25. Interest, Participation Rights and Ownership Position. Target has no
-----------------------------------------------------
interest, participation rights, or ownership position in any corporation,
partnership, joint venture, co-marketing arrangement, or similar enterprise or
undertaking.
2.26. Certain Business Relationships With Company. No Seller nor any of
-------------------------------------------
his relatives or affiliates (other than Company) owns any material asset,
tangible or intangible, which is used by Target. All transactions between
Target, on the one hand, and any affiliate of Target, on the other hand, have
occurred in the ordinary course of business on a basis no less favorable to
Target as would be obtained in a comparable arm's length transaction with a
person not an affiliate.
2.27. General. To Seller's knowledge, no representation or warranty made
-------
herein or in any agreement, Schedule, Exhibit or document delivered pursuant
hereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
SECTION 3
Individual Representations and Warranties of Seller
Each of the persons who is a Seller, severally and not jointly, represents
and warrants to the Buyer as of the date of this Agreement as to such person as
follows:
3.1. Capital Stock. No class of stock of Target is authorized or
-------------
outstanding other than as described in Section 2.11. Seller is the owner,
beneficially and of record, of the Securities set forth opposite such person's
name on Schedule 3.1 hereto (the "Individual Shares"). At the Closing, the
Individual Shares will not be subject to any liens or restrictions on transfer,
other than restrictions imposed by applicable securities laws and, upon the
transfer of the Individual Shares to the Buyer, the Buyer will obtain good and
marketable title to the Individual Shares, free and clear of all liens, claims
and encumbrances of any kind. At the Closing Date, there will be no authorized
or outstanding option, subscription, warrant, call, right, commitment or other
agreement obligating Seller to issue or transfer any of his shares of capital
stock of the Company or any securities convertible into or exercisable for any
shares of such capital stock. None of Target or Seller is a party to any voting
trust, proxy or other agreement or understanding with respect to the Individual
Shares.
3.2. Authorization; Consents; Enforceability.
---------------------------------------
(a) This Agreement and the Transaction Documents to which such Seller
is a party or a signatory, have been duly authorized, executed and delivered by
such Seller and constitute the legal, valid and binding obligation of such
Seller enforceable in accordance with their respective terms subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general principles of equity.
(b) No Consent is required to be obtained by any Seller, (or by any
of their respective Affiliates (as such term is defined in the Securities
Exchange Act of 1934, as amended)) from, and no notice or filing is required to
be given by, any Seller (or by any of their respective Affiliates) to or made by
any Seller (or by any of their respective Affiliates) with, any Governmental
authority or other person in connection with the execution, delivery and
performance by such person of this Agreement other than in all cases where the
failure to obtain such consent or to give or make such notice or filing would
not, individually or in the aggregate, reasonably be expected to result in a
material adverse effect on Target.
(c) The execution and delivery by each Seller of this Agreement and
the Transaction Documents to which it is a party do not, and the consummation by
such person of the transactions contemplated hereby or thereby will not (i)
violate or conflict with, or result (with the giving of notice or lapse of time
or both) in a violation of or constitute a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, agreement or other instrument or obligation to which any
Seller is a party or by which any of their assets may be bound, except for such
violations or defaults (or rights of termination,
10
cancellation or acceleration) as to which requisite waivers or consents have
been obtained or which, individually or in the aggregate, would not have a
material adverse effect on Target, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any Seller or any of their
respective assets except for such violations that individually or in the
aggregate would not have a material adverse effect on Target.
3.3. Litigation. There is no litigation, action, claim, proceeding or
----------
governmental investigation pending or, to the knowledge of any Seller threatened
against such Seller which may affect such Seller's ability to perform his
obligations under this Agreement.
3.4. Investment. Each Seller (a) understands that the Buyer common stock
----------
to be received by such Person has not been, as of the date hereof, registered
under the Securities Act of 1933, as amended (the "Securities Act"), or under
any state securities laws, and is being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(b) understands that the Buyer common stock may not be reoffered, resold,
pledged or otherwise transferred except pursuant to an effective registration
statement or in accordance with another exemption from the registration
requirements of the Securities Act, (c) is acquiring the Buyer common stock
solely for his own account as a principal, for investment purposes and not with
a view to the sale or distribution thereof except pursuant to the Registration
Rights Agreement (as hereinafter defined), (d) has received certain information
concerning the Buyer and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks inherent in
holding the Buyer common stock, (e) is able to bear the economic risk and lack
of liquidity inherent in holding the Buyer common stock, (f) is a sophisticated
investor with knowledge and experience in business and financial matters, and
(g) is an "accredited investor" (as such term is defined under the Securities
Act).
3.5. Xxxx-Xxxxx-Xxxxxx. The revenue of Target in calendar year 1998 did
-----------------
not exceed $10 million and the gross assets of Target as of the date of the most
recent regularly prepared balance sheet of Target did not exceed $10 million.
SECTION 4
Representations and Warranties of Buyer
Buyer represents and warrants to Seller as follows, except as set forth on
the Schedules numbered to correspond to the sections below:
4.1. Requisite Power. Buyer has all requisite corporate power to execute
---------------
and deliver this Agreement and to carry out and perform its obligations under
the terms of this Agreement and the Transaction Documents to which it is a
party.
4.2. Authorization. All action on the part of Buyer necessary for the
-------------
authorization, execution, delivery and performance of this Agreement and the
Transaction Documents to which it is a party has been taken and remains in full
force and effect. This Agreement constitutes, and the Transaction Documents to
which Buyer is a party will each constitute, the valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms.
4.3. No Conflict. The execution, delivery, and performance of this
-----------
Agreement and any of the Transaction Documents to which it is a party by Buyer
has not resulted and will not result in, nor will consummation of the
transactions contemplated hereby or thereby result in, any violation of, or
conflict with, or constitute a default under, any of its charter documents, or
result in any material violation of, or conflict with, or constitute a default
under, any of its material agreements; and there exists no such violation or
default that does or could materially and adversely affect the ability of Buyer
to consummate its obligations hereunder.
4.4. Governmental Consents, etc. No consent, approval or authorization of
--------------------------
or designation, declaration, or filing with any Authority on the part of Buyer
is required in connection with the valid execution and delivery of
11
this Agreement or any Transaction Document to which it is a party or the
consummation of the transactions contemplated thereby or thereby.
4.5. Brokers or Finders. Except as described in Section 2.21, Buyer has
------------------
not incurred, and will not incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby. Buyer
shall indemnify and hold Seller harmless with respect to any claim by any
broker, agent or finder claiming to have acted on behalf of Buyer(except as
described in Section 2.21) respecting the subject matter hereof.
4.6. Organization and Qualification. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted and is qualified to do business
in each jurisdiction where such qualification is required except where the
failure to be so qualified would not have a material adverse effect.
4.7. Securities and Exchange Common Reports. Buyer has previously
--------------------------------------
furnished Target with true and complete copies of its Registration Statement No.
333-60837 on Form S-1 effective November 10, 1998, as filed with the Securities
and Exchange Commission (the "Commission") and any other reports or registration
statements filed by Buyer with the Commission since November 10, 1998, except
for preliminary material, which are all the documents that Buyer was required to
file with the Commission since that date (collectively, the "Buyer SEC
Reports"). As of their respective dates, the Buyer SEC Reports complied as to
form in all material respects with the requirements of the Securities Act of
1933, as amended (the "Securities Act") or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Buyer SEC Reports.
As of their respective dates, the Buyer SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of Buyer included in the
Buyer SEC Reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto (except as may be indicated thereon or in the
notes thereto) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of the Buyer as of
such dates and the results of operations, changes in stockholders' equity and
cash flows of the Buyer for such period.
4.8. Validity of Shares to be Issued. The issuance of the shares of Buyer
-------------------------------
Common Stock to the Seller under this Agreement has been duly authorized by all
necessary corporation action, and, upon issuance in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable and issued
free of pre-emptive rights.
SECTION 5
Closing
5.1. Conditions to Obligation of Buyer. The obligation of Buyer to
---------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions;
(a) the representations and warranties set forth in Sections 2 and 3
above shall be true and correct in all material respects at and as of the
Closing Date;
(b) Target shall have procured all of the third party consents
specified in Schedule 2.4 at or prior to the Closing;
(c) no action, suit, or proceeding is pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated
12
by this Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, or (C) affect adversely Target
or its value or the right of Buyer to acquire the Individual Shares and to
operate the business of Target, (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) Target shall have delivered to Buyer a certificate signed by the
Chief Executive Officer and the Chief Financial Officer of Target to the effect
that each of the conditions specified above in Section 5.1(a) through (c) is
true in all respects;
(e) Buyer shall have received from or on behalf of Seller or other
applicable party delivery of all the Closing Documents listed in Section 5.3
below;
(f) all actions to be taken by Target and Seller in connection with
consummation of the transactions contemplated hereby and by the other
Transaction Documents and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby and thereby
will be reasonably satisfactory in form and substance to Buyer;
(g) No later than one business day prior to the Closing Date, Target
shall have delivered to Buyer a balance sheet estimated as of the Closing Date
(the "Closing Balance Sheet") and an estimated income statement for the period
in calendar 1999 preceding the Closing Date (the "Closing Date Income
Statement"), prepared in accordance with GAAP and which shall be satisfactory to
PwC (and which balance sheet PwC shall determine is auditable), reflecting the
forgiveness of certain intercompany receivables and accounts payable (the net
amount of which shall not exceed $500,000) and the Closing Balance Sheet shall
indicate that the amount of Target's working capital (defined as current assets
less current liabilities (excluding any deferred revenue)) is equal to or
greater than $(425,000); and
(h) All the actions to be taken as set forth in Exhibit C hereto
shall have been completed.
Buyer may waive any condition specified in this Section 5.1 if it
executes a writing so stating at the Closing.
5.2. Conditions to Obligation of Seller. The obligation of Seller to
----------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the Closing
Date.
(b) no action, suit, or proceeding is pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect).
(c) Buyer shall have delivered to Seller a certificate to the effect
that each of the conditions specified above Sections 2(a) and (b) is true in all
respects;
(d) Seller shall have received from Buyer all of the Closing
Documents listed in Section 5.4 below; and
(e) all actions to be taken by Buyer in connection with consummation
of the transactions contemplated hereby and by the other Transaction Documents
and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby and thereby will be reasonably
satisfactory in form and substance to Seller.
13
(f) Buyer shall have listed the shares of Common Stock to be issued
to Seller hereunder with Nasdaq.
Seller may waive any condition specified in this Section 5.2 if
it executes a writing so stating at the Closing.
5.3. Seller Deliveries. Simultaneously with the Closing of the
-----------------
transactions contemplated by this Agreement, the following documents shall be
executed and/or delivered by Seller or other applicable party to Buyer:
(a) the Certificates representing the Individual Shares, together
with stock powers executed in blank;
(b) the consulting agreement, of even date herewith, between Buyer
and each of Mr. Xxxxx Xxxxxxxx and Mr. Xxxx Xxxxxxxx, in substantially the form
of Exhibit D-1 and D-2, respectively, hereto (collectively the "Consulting
Agreements");
(c) an employment agreement, of even date herewith, between Buyer
and Xx. Xxxxx Xxxxxxxxxx, in substantially the form of Exhibit E hereto (the
"Employment Agreement");
(d) a certificate, dated the Closing Date, of the Secretary of
Target: (i) attaching resolutions of the Board of Directors of Target in
connection with the authorization and approval of the execution, delivery and
performance by Target of this Agreement and the Transaction Documents to which
Target is a party, certified as being in full force and effect as of the Closing
Date; (ii) attaching a copy, certified by such officer as true and complete, of
Target's By-Laws, as amended to the date hereof; (iii) setting forth the
incumbency of the officers of Target who have executed and delivered this
Agreement and each other Transaction Document to which Target is a party,
including therein a signature specimen of each such officer; and (iv) attaching
a copy, certified by the Secretary of State of the State of Florida of Target's
Certificate of Incorporation;
(e) a good standing certificate from the Secretary of State of the
State of Florida;
(f) the Escrow Agreement;
(g) a registration rights agreement in substantially the form of
Exhibit F hereto the (the "Registration Rights Agreement");
(h) a transition agreement in substantially the form of Exhibit C
hereto (the "Transition Agreement");
(i) the resignations of each of Target's directors and officers
effective as of the Closing Date;
(j) a release signed by each holder of rights to securities of
Target set forth on Schedule 2.11 hereto; and
(k) evidence satisfactory to Buyer that all amounts due Xxxx-Xxxxx
Inc. ("Xxxx-Xxxxx") have been paid and satisfied in full as of the Closing Date,
other than the principal amount (not to exceed $1,500,000.00) plus all interest
which has accrued thereon since January 1, 1999, payable to Xxxx-Xxxxx pursuant
to that certain promissory note, and a consent of Xxxx-Xxxxx, if required, to
such indebtedness continuing in accordance with its terms from and after the
Closing Date.
5.4. Buyer Deliveries. Simultaneously with the Closing of the transactions
----------------
contemplated by this Agreement, the following documents shall be executed and/or
delivered by Buyer to Seller or other applicable party:
14
(a) the Consulting Agreements;
(b) the Employment Agreement;
(c) the Escrow Agreement;
(d) the Registration Rights Agreement;
(e) the Transition Agreement; and
(f) the Purchase Price.
SECTION 6
Covenants
6.1. Covenants Pending Closing.
(a) Prior to the Closing, Buyer shall be entitled, through its
employees and representatives, to make such investigations and examinations of
Target, its books and records, business and assets as Buyer may reasonably
request. In order that Buyer may have the full opportunity to do so, Target
shall furnish Buyer and its representatives during such period with all
information concerning Target as Buyer or such representatives may reasonably
request and cause Target's officers, employees, consultants, agents,
accountants, and attorneys to cooperate fully with Buyer and such
representatives and to make full disclosure of all information and documents
requested by Buyer or such representatives. Any such investigations and
examinations shall be conducted at reasonable times and under reasonable
circumstances. No investigation by Buyer shall, however, limit, diminish or
obviate in any way the effectiveness of any of the representations, warranties,
covenants, or agreements of Target contained in this Agreement or the
Transaction Documents.
(b) From the date hereof through the Closing Date, Target shall
conduct its business and its corporate affairs in such a manner that its
representations and warranties contained herein shall continue to be true and
correct in all material respects as of the Closing Date as if made on and as of
the Closing Date, except for changes occurring in the ordinary course of
business, changes from actions of Target, previously approved by Buyer
(including forgiveness of related party receivables that shall not exceed
$500,000 on the date of the Closing Balance Sheet), or as otherwise contemplated
herein. Target, on the one hand, and Buyer, on the other, shall use best efforts
to cause the satisfaction of the conditions precedent to the obligation of the
other parties to consummate the transactions contemplated hereby.
(c) From the date hereof through the Closing Date, except as
otherwise contemplated herein, or as previously approved by Buyer, Target shall
conduct its business only in the ordinary course and consistent with its prior
practices, shall not make or institute any unusual or novel methods of purchase,
sale, lease, management, accounting, or operation or that vary materially from
those in use as of the date hereof and shall maintain, keep, and preserve its
business and the Assets in good condition and repair. In addition, Target shall
use its best efforts; (i) to preserve the business and organization of Target
intact; (ii) to keep available to Buyer the services of Target's present
officers, employees, agents, and independent contractors; (iii) to preserve for
the benefit of Buyer the goodwill of Target's suppliers, customers, licensors,
and others having business relations with it; and (iv) to cooperate with Buyer
and use reasonable efforts to assist Buyer in obtaining the consent of any note
holder, licensor, or other party to any agreement with Target where the consent
of such other party may be required or advisable by reason of the transactions
contemplated herein or in the Transaction Documents. Without limiting the
generality of the foregoing, prior to the Closing:
(i) Target shall not enter into any material agreement or
incur any material obligation without the prior consent of Buyer.
15
(ii) Target shall not, without Buyer's prior written approval,
amend or propose to amend its Certificate of Incorporation or By-laws or
take any action or enter into any transaction of the sort described in
Section 2.13, or which would cause any representation or warranty made in
Section 2.13 to be untrue.
(d) From the date hereof through the Closing Date, Target shall: (i)
maintain in force (including necessary renewals thereof) the insurance policies
currently in effect, except to the extent that they may be replaced with
equivalent policies providing insurance to the same extent as currently insured,
without material increase in cost; (ii) comply in all material respects with all
agreements to which it is a party and will not suffer or permit to exist any
condition or event that, with notice or lapse of time or both, would constitute
a material default by it under any material contract, license or governmental
authorization or permit; (iii) duly and timely file all tax returns required to
be filed with Authorities and duly observe and conform, in all material
respects, to all applicable laws and orders; and (iv) notify Buyer of any
lawsuit, claim, proceeding, or investigation that after the date hereof is
threatened or commenced against it.
(e) Unless and until this Agreement shall be terminated, Target shall
not, nor shall it cause, suffer, or permit its directors, officers, employees,
representatives, agents, accountants, or attorneys to, initiate or solicit,
directly or indirectly, any inquiries or the making of any proposal, or engage
in negotiations or discussions with any person, or provide any confidential
information or data to any person, with respect to any acquisition, business
combination or purchase of all or substantially all of the outstanding shares or
Assets, or any significant Asset of Target, or any direct or indirect equity
interest in Target or otherwise facilitate any effort or attempt to seek any of
the foregoing. Furthermore, Target shall immediately terminate any existing
activities, discussions, or negotiations with any person other than Buyer with
respect to any of the foregoing.
(f) Each party shall cooperate in obtaining all required consents,
audits, and completion of other transactions contemplated to have occurred as of
the Closing and to use best efforts to cause the fulfillment of the conditions
to the other party's obligation to consummate the transactions contemplated
hereby. Target shall update the Schedules hereto to a date that is within one
week of the Closing Date to reflect changes therein that are permitted to occur
under this Agreement. No such update shall be deemed to cure (or affect the
rights of Buyer with respect to) any breach of any representation or warranty
made in this Agreement or have any effect for the purpose of determining
satisfaction of the conditions set forth in subsection 5.1(a) hereof or the
obligations by Target set forth in Section 6 hereof.
(g) Each party will give to the other prompt written notice of any
material adverse change in any fact respecting which a representation or
warranty has been made by it herein.
(h) Unless and until the transactions contemplated hereby shall have
been consummated, Buyer and Target shall hold all information and documents
received from the other party in strictest confidence, except such information
and documents available to the public, and all such information in written form
and documents shall be returned to the party originally delivering them in the
event the transactions contemplated hereby are not consummated. Buyer, before
the Closing, and Target, both before and after the Closing, shall hold in
strictest confidence all information concerning the terms of the Transaction
Documents and the transactions contemplated thereby.
(i) Target and Seller will not revoke Target's election to be taxed
as an S corporation within the meaning of Code Sections 1361 and 1362. Target
and Seller will not take or allow any action that could result in the
termination of Target's status as a validly electing S corporation within the
meaning of Code Sections 1361 and 1362, provided that such election will
terminate at Closing to the extent required by the acquisition of Target stock
by Buyer pursuant to the Transaction Documents.
6.2. Post-Closing Covenants.
----------------------
(a) From and after the Closing, Seller shall, at Buyer's expense,
execute all such instruments or documents and take all such other actions as
Buyer may reasonably request to effectuate the transactions
16
contemplated hereby, including, without limitation obtaining of any necessary or
advisable consents not required by Buyer prior to Closing in connection with the
transactions contemplated hereby (including consents to assignment of contract
rights and obligations as Buyer may reasonably request).
(b) Seller shall indemnify (pro rata, based on the Purchase Price
receivable by each party comprising Seller), defend and hold harmless Buyer, its
officers, directors, employees, partners, members, shareholders, affiliates (and
their officers, directors, employees, members, partners and shareholders), and
agents (collectively, the "Buyer Indemnified Parties") from and against any
action, loss, liability, damage, claim, fine, penalty, lien or expense,
including legal costs, attorneys' fees, and expenses, (collectively, "Buyer
Loss") to the extent the same arises out of any breach by any Seller of any
representation, warranty, agreement, or covenant made by any Seller herein or in
any Transaction Document (including (i) in the case of Seller, the Alteris, Inc.
patent action identified as item 1 on Schedule 2.8 and (ii) in the case of Xxxxx
Xxxxxxxx, the lease of the 1997 Porsche set forth on Schedule 2.9, which shall
be fully indemnified by Seller and Xxxxx Xxxxxxxx, respectively, as if such item
and such lease had not been scheduled pursuant to this Agreement) (provided,
that with respect to the individual representations and warranties of each
Seller pursuant to Section 3 of this Agreement, each Seller shall only be
obligated under this subsection (b) for its own representations and warranties).
No Seller shall have any obligation to indemnify the Buyer Indemnified Parties
from and against any Buyer Loss (including any amount to be indemnified by
Seller under Section 7.14) until the aggregate of the Buyer Losses suffered in
the aggregate by all Buyer Indemnified Parties is in excess of Seventy-Five
Thousand Dollars ($75,000) (the "Buyer Basket Amount") (and then only for Buyer
Losses in excess of the Buyer Basket Amount); provided, that the obligation of
--------
each Seller to indemnify the Buyer Indemnified Parties shall not exceed for such
Seller an amount equal to 75% of the Purchase Price received or receivable by
such Seller. Except as expressly provided in this Agreement, the foregoing
indemnification shall be the sole and exclusive remedy of Buyer Indemnified
Parties for any Buyer Loss. Notwithstanding the foregoing, except as provided in
Section 7.14(e)(3) and (e)(6), Seller shall not indemnify Buyer Indemnified
Parties for Buyer Losses that relate to Taxes attributable to periods (or
portions thereof) on or after the Closing Date (whether under this Section
6.2(b) or otherwise).
(c) Buyer shall indemnify, defend and hold harmless Seller, its
agents and affiliates (collectively, the "Seller Indemnified Parties") from and
against any action, loss, liability, damage, claim, fine, penalty, lien or
expense, including legal costs, attorneys' fees, and expenses, (collectively,
"Seller Loss") to the extent the same arises out of any breach by Buyer of any
representation, warranty, agreement, or covenant made by Buyer herein or in any
Transaction Document (including any claims against Seller under any guarantee by
Seller set forth on Schedule 6.2(c) of an obligation of Target, which shall be
fully indemnified by Buyer). Buyer shall have no obligation to indemnify the
Seller Indemnified Parties from and against any Seller Loss (including any
amount to be indemnified by Buyer under Section 7.14) until the aggregate of the
Seller Losses suffered in the aggregate by all Seller Indemnified Parties is in
excess of Seventy-Five Thousand Dollars ($75,000) (the "Seller Basket Amount")
(and then only for Seller Losses in excess of the Seller Basket Amount);
provided, that the obligation of Buyer to indemnify the Seller Indemnified
--------
Parties shall not exceed an amount equal to 75% of the Purchase Price. Except as
expressly provided in this Agreement, the foregoing indemnification shall be the
sole and exclusive remedy of Seller Indemnified Parties for any Seller Loss.
Notwithstanding the foregoing, except as provided in Section 7.14(e)(4) and
(e)(6), Buyer shall not indemnify Seller Indemnified Parties for Seller Losses
that relate to Taxes attributable to periods (or portions thereof) on or prior
to the Closing Date (whether under this Section 6.2(c) or otherwise).
(d) (i) If any third party shall notify any Buyer Indemnified
Party, or Seller Indemnified Party (the "Indemnified Party") with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification against Seller or Buyer, as the case may be (the "Indemnifying
Party") under Section 6.2(b) or (c), then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided, however, that no
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delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party is prejudiced thereby.
(ii) Any Indemnifying Party will have the right to assume the defense
of the Third Party Claim with counsel of his or its choice reasonably
satisfactory to the Indemnified Party at any time within twenty
17
(20) days after the Indemnified Party has given notice of the Third Party Claim;
provided, however, that the Indemnifying Party must conduct the defense of the
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Third Party Claim actively and diligently thereafter in order to preserve its
rights in this regard; and provided further that the Indemnified Party may
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retain separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim; provided that, if the named parties to any
--------
such Third Party Claim (including any impleaded parties) include an Indemnified
Party and the Indemnifying Party or one or more other Indemnified Parties and
such Indemnified Party shall have been advised by its counsel in writing that
there is a conflict of interest between such Indemnified Party in the conduct of
the defense hereof, then in any such case the reasonable fees and expenses of
one (1) such separate counsel for such Indemnified Party shall be borne by the
Indemnifying Party. In the event that the Indemnifying Party fails to assume the
defense of a Third Party Claim in the manner provided about in this Paragraph
(ii) or fails to conduct the defense of a Third Party Claim actively and
diligently after such assumption, the Indemnified Party shall have the right to
select counsel of his or its choice (and at his or its sole discretion) and the
reasonable fees and expenses of such counsel shall be paid by the Indemnifying
Party.
(iii) So long as the Indemnifying Party has assumed and is conducting
the defense of the Third Party Claim in accordance with Paragraph (ii) above,
(A) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be unreasonably withheld)
unless the judgment or proposed settlement involves only the payment of money
damages by one or more of the Indemnifying Parties and does not impose an
injunction or other equitable relief upon the Indemnified Party and (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably).
(iv) In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third Party Claim in accordance with Paragraph (ii)
above, (A) the Indemnified Party may defend against and consent to the entry of
any judgment, or enter into any settlement with respect to, the Third Party
Claim in any manner he or it reasonably may deem appropriate (although the
Indemnified Party shall use its best efforts to consult with, and obtain prior
written consent from, any Indemnifying Party in connection therewith, which
consent shall not be unreasonably withheld or delayed) and (B) the Indemnifying
Parties will remain responsible for any Buyer Loss or Seller Loss, as
applicable, that the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by, the Third Party Claim to the
fullest extent provided in Section 6.2(b) or (c), as applicable.
(v) Buyer shall first seek to recoup any Buyer Loss pursuant to the
set-off provisions of the Notes and any property held pursuant to the Escrow
Agreement.
(vi) Buyer Losses and Seller Losses shall be net of any tax benefits
and insurance coverage or other recoveries from third parties actually received
by such Indemnified Party. All indemnification payments under Section 6.2(b) or
(c) shall be deemed adjustments to the Purchase Price.
(vii) The Seller hereby agrees that Seller will not make any claim
for indemnification against the Target by reason of the fact that he or she was
a director, officer, employee, or agent of the Target or any of its Affiliates
or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by Buyer against
such Seller for any breach by such Seller of any representation, warranty,
agreement or covenant made by such Seller herein or in any Transaction Document.
(viii) Seller shall have the option in paying any claim under Section
6.2(b) in cash or Notes reduction or in Buyer Common Stock; in the event such
claim is to be paid using Buyer Common Stock, such Buyer Common Stock shall be
valued using the Closing Price.
18
(e) The Articles of Incorporation of Target shall not be amended,
repealed or otherwise modified for a period of four years after the Closing Date
in any manner that would materially adversely affect the rights thereunder of
persons who at any time prior to the Closing Date were or would have been
entitled to indemnification, advancement or exculpation under the Articles of
Incorporation of Target in respect of actions or omissions occurring at or prior
to the Closing Date (including, without limitation, the transactions
contemplated hereby).
SECTION 7
Miscellaneous
7.1. Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of New York, without giving effect to any choice or
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction that would cause the application of the laws of any jurisdiction
other that the State of New York).
7.2. Survival. The representations and warranties made herein shall
--------
survive any investigation made by the parties and the Closing of the
transactions contemplated hereby. Except as expressly provided otherwise herein,
the covenants and agreements made herein shall survive the Closing of the
transactions contemplated hereby for a period of 18 months from the Closing
Date; provided, that, notwithstanding the foregoing, the representations and
-------- ----
warranties set forth in Section 2.6 shall survive for the period of the
applicable statute of limitation and the representations and warranties set
forth in the first sentence of Section 2.2, and Sections 2.11, 3.1, 3.2(a) and
3.4 in their entirety shall survive forever; provided, further, that
------- --------
notwithstanding anything to the contrary contained in this Agreement, with
respect to any claim for indemnity which is related to a Buyer Loss which
resulted from intentional fraud on the part of a Seller, such Seller that is
responsible for such intentional fraud will not have the benefit of any of the
limitations of Section 6.2 or this Section 7.2.
7.3. Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
No party may assign any of its rights or obligations hereunder without the
express written consent of the other party hereto, which consent may not be
unreasonably withheld; provided, however, any party may assign any and all of
its rights and interests hereunder to one or more of its affiliates and
designate one or more of its affiliates to perform its obligations hereunder;
provided, however, that such party remains liable for full and total performance
of its obligations hereunder.
7.4. Notices. Any notices authorized to be given hereunder shall be in
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writing and deemed given, if delivered personally or by overnight courier, on
the date of delivery, if a Business Day, or if not a Business Day, on the first
Business Day following delivery, or if mailed, three days after mailing by
registered or certified mail, return receipt requested, and in each case,
addressed, as follows:
If to Buyer, or to Target:
EarthWeb Inc.
Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxx, President
19
and a copy to:
Xxxx Xxxxxxx, Esq.
Xxxxxxxx & Xxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Facsimile: (000) 000-0000
If to Seller:
Xxxxx Xxxxxxxx
000 Xxxx Xxxxx Xxx
Xxxxxxxxxx, XX 00000
Xxxx Xxxxxxxx
00000 Xxxxxx Xxx Xxxxx
Xxxxxx, XX 00000
and a copy to:
Xxxx Xxxxxxxx, Esq.
Xxxxxxxx & Associates
000 X. Xxxxx Xxx., Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
or if delivered by telecopier, on a Business Day before 4:00 PM local time of
addressee, on transmission confirmed electronically, or if at any other time or
day on the first Business Day succeeding transmission confirmed electronically,
to the facsimile numbers provided above, or to such other address or telecopy
number as any party shall specify to the other, pursuant to the foregoing notice
provisions.
7.5. Waiver; Amendments. This Agreement and the Transaction Documents, (i)
------------------
set forth the entire agreement of the parties respecting the subject matter
hereof, (ii) supersede any prior and contemporaneous understandings, agreements,
or representations by or among the parties, written or oral, to the extent they
related in any way to the subject matter hereof, and (iii) may not be amended
orally, and no right or obligation of any party may be altered, except as
expressly set forth in a writing signed by such party.
7.6. Counterparts. This Agreement may be signed in several counterparts.
------------
7.7. Expenses. Each party shall bear its own expenses incurred with
--------
respect to the preparation of this Agreement and the consummation of the
transactions contemplated hereby including, without limitation, the obligation
of Seller to pay any sales, use or similar, taxes incurred by Target as a result
of the transactions contemplated by this Agreement); provided, that Buyer shall,
in the event the transactions contemplated by this Agreement are consummated,
either pay directly or permit Target to pay directly up to $150,000 of the
legal, accounting and investment bank fees (a portion of which may be paid to
Ascent Partners in addition to the fees referred to in Section 2.21 hereof)
incurred by Seller in connection with the transactions contemplated by this
Agreement upon presentation of invoices or other documentation satisfactory to
Buyer (which shall, in any event, be similar to the documentation Buyer's
finance department ordinarily requires for payment of Buyer's expenses).
7.8. Arbitration.
-----------
(a) If at any time there shall be a dispute arising out of or
relating to any provision of this Agreement, any Transaction Document or any
agreement contemplated hereby or thereby, such dispute shall be submitted for
binding and final determination by arbitration in accordance with the
regulations then obtaining of the
20
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) resulting from such arbitration shall be in writing, and shall be
final and binding upon all involved parties. The site of any arbitration shall
be within New York City, New York.
(b) This arbitration clause shall survive the termination of this
Agreement, any Transaction Document and any agreement contemplated hereby or
thereby.
7.9. Waiver of Jury Trial; Exemplary Damages. THE PARTIES HERETO HEREBY
---------------------------------------
WAIVE THEIR RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY DISPUTE ARISING UNDER
THIS AGREEMENT OR ANY TRANSACTION DOCUMENT. No party shall be awarded punitive
or other exemplary damages respecting any dispute arising under this Agreement
or any Transaction Document contemplated hereby.
7.10. Attorneys' Fees. The unsuccessful party to any court or other
---------------
proceeding arising out of this Agreement or any Transaction Document that is not
resolved by arbitration under Section 7.8 shall pay to the prevailing party all
attorneys' fees and costs actually incurred by the prevailing party, in addition
to any other relief to which it may be entitled. Otherwise, attorneys' fees
shall be paid in accordance with the judgment rendered. As used in this Section
7.10 and elsewhere in this Agreement, "actual attorneys' fees" or "attorneys'
fees actually incurred" means the full and actual cost of any legal services
actually performed in connection with the matter for which such fees are sought,
calculated on the basis of the usual fees charged by the attorneys performing
such services, and shall not be limited to "reasonable attorneys' fees" as the
term may be defined in statutory or decisional authority.
7.11. Transaction Documents. When used in this Agreement, the term
---------------------
"Transaction Documents" shall mean this Agreement, the Consulting Agreements,
the Employment Agreement, the Registration Rights Agreement, the Transition
Services Agreement and the Escrow Agreement.
7.12. Business Day. When used in this Agreement, the term "Business Day"
------------
shall mean a day other than a Saturday, Sunday or a day on which commercial
banks in New York City are generally closed for business.
7.13. Termination.
-----------
(a) This Agreement may be terminated prior to the Closing as follows:
(i) at the election of the Seller, if any one or more of
the conditions to its obligation to close set forth in Section 5.2 of this
Agreement has not been fulfilled as of the Closing Date;
(ii) at the election of the Buyer, if any one or more of
the conditions to its obligation to close set forth in Section 5.1 of this
Agreement has not been fulfilled as of the Closing Date;
(iii) at the election of the Seller, if the Buyer has
breached any material representation, warranty, covenant or agreement contained
in this Agreement;
(iv) at the election of the Buyer, if Target or Seller has
breached any material representation, warranty, covenant or agreement contained
in this Agreement;
(v) at the election of the Target, Seller or the Buyer,
if any legal proceeding is commenced or threatened by any governmental agency or
other person directed against the consummation of the Closing or any other
material transaction contemplated under this Agreement or the other Transaction
Documents and the Seller, Target or the Buyer, as the case may be, on the advice
of legal counsel, reasonably and in good xxxxx xxxxx it impractical or
inadvisable to proceed in view of such legal proceeding or threat thereof;
(vi) at any time on or prior to the Closing Date, by
mutual written consent of the Target, Seller and the Buyer; or
21
(vii) by any party if the Closing has not occurred by April
15, 1999.
(b) If any party terminates this Agreement pursuant to Section
7.13(a) above, all rights and obligations of the parties hereunder shall
terminate without any liability of any party hereto to any other party (except
for any liability of any party then in breach).
7.14. Tax Matters.
-----------
The following provisions shall govern the allocation of responsibility as
between the Buyer and the Seller for certain tax matters following the Closing
Date:
(a) Tax Periods Ending on or Before the Closing Date. Except as
------------------------------------------------
provided in this paragraph, the Buyer shall prepare or cause to be prepared and
file or cause to be filed all tax returns for the Target for all periods ending
on or prior to the Closing Date which have not been filed prior to the Closing
Date. The Buyer shall permit the Seller to review and comment on each such tax
return described in the preceding sentence at least ten (10) days prior to
filing and shall make such revisions to such tax returns as are reasonably
requested by the Seller. Notwithstanding the foregoing, Seller shall prepare or
cause to be prepared all S corporation tax returns of Target for period ending
on or prior to the day before the Closing Date, including the final S
corporation tax returns of Target. The Seller shall permit the Buyer to review
and comment on each such tax return described in the preceding sentence at least
ten (10) days prior to filing and shall make such revisions to such tax returns
as are reasonably requested by the Buyer. All tax returns to be prepared
pursuant to this paragraph shall be prepared in a manner consistent with prior
practice of Target, except as otherwise required by law.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
--------------------------------------------------------------
The Buyer shall prepare or cause to be prepared and filed or cause to be filed
any Tax returns of the Target for periods which begin before the Closing Date
and end after the Closing Date. The Buyer shall permit the Seller to review and
comment on each such tax return described in the preceding sentence at least ten
(10) days prior to filing and shall make such revisions to such tax returns as
are reasonably requested by the Seller. All tax returns to be prepared pursuant
to this paragraph shall be prepared in a manner consistent with prior practice
of Target, except as otherwise required by law.
(c) Cooperation on Tax Matters.
---------------------------
(i) The Buyer, the Target and the Seller shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of tax returns pursuant to this section and any
audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other Party's
request) the provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Buyer,
Target and the Seller agree (A) to retain all books and records with
respect to Tax matters pertinent to the Target relating to any taxable
period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by the Buyer or the
Seller, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing
Authority, and (B) to give the other party reasonable written notice prior
to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Target, Buyer or the Seller, as the
case may be, shall allow the other party to take possession of such books
and records.
(ii) The Buyer and the Seller further agree, upon request,
to use their best efforts to obtain any certificate or other document from
any Authority or any other Person as may be necessary to mitigate, reduce
or eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
22
(iii) The Buyer and Seller further agree, upon request, to
provide the other Party with all information that either Party may be
required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) Tax Sharing Agreements. All tax sharing agreements or similar
----------------------
agreements with respect to or involving the Target shall be terminated as of the
Closing Date and, after the Closing Date, the Target shall not be bound thereby
or have any past or future liability thereunder.
(e) Section 338(h)(10) Election. (1) Seller hereby covenants and
---------------------------
agrees with Buyer that if Buyer so elects, by written notice to Seller on or
before the date fifteen (15) days before such election is filed, Seller will
join in making an election under Section 338(h)(10) of the Code, and the
regulations promulgated thereunder, and any applicable analogous provision of
state or local law, with respect to the sale and acquisition of the Individual
Shares hereunder (the "Section 338(h)(10) Elections").
(2) In the case of any Section 338(h)(10) Elections that are
made in accordance with this Section 7.14(e):
(i) Buyer shall be responsible for the preparation and
timely filing of all documents, statements and other forms required to be filed
with any federal, state or local taxing authority or any other governmental body
in connection with the Section 338(h)(10) Elections, including Form 8023 and the
required attachments thereto (the "Section 338 Forms"); and shall provide copies
of all such information to Seller no later than fifteen (15) days prior to the
filing thereof with the relevant taxing authority. Seller shall have the right
to review such materials and, if any reasonable changes are requested by Seller,
such changes shall be made. The parties agree that Seller shall determine the
amount reported on any such Section 338 Forms as the amounts realized from the
deemed sale of assets resulting from the Section 338(h)(10) Elections, and Buyer
shall determine the amount reported on any such Section 338 Forms as the amounts
paid upon such deemed sale of assets; and
(ii) Seller shall cooperate with Buyer to enable Buyer
to prepare and file the Section 338 Forms and shall execute and deliver to Buyer
such documents or forms as are required by the Code or the regulations
promulgated thereunder (and any applicable analogous provision of state or local
law) and as are requested by Buyer to properly complete the Section 338 Forms
and to complete the Section 338 Elections, provided that such material is
completed and delivered by Buyer to Seller for execution at least 15 days prior
to the date Buyer wishes to file such material.
(3) In the case of any Section 338(h)(10) Elections that are
made in accordance with this Section 7.14(e), subject to the limitations and in
accordance with the procedures set forth in Section 6.2(b) and (d), Seller shall
be responsible for and pay any and all tax liability or other Taxes of the
Target that arise under the provisions of Sections 1374 or 1375 of the Code or
any other section of the Code or the regulations issued thereunder that arise as
a result of such Section 338(h)(10) Elections, and shall indemnify and hold
Buyer harmless (on an after-tax basis) from any such tax liability or other
Taxes. In the case that Section 338(h)(10) Elections are not made in accordance
with this Section 7.14(e), subject to the limitations and in accordance with the
procedures set forth in Section 6.2(b) and (d), Seller shall be responsible for,
and shall indemnify and hold Buyer harmless (on an after-tax basis) from any and
all Taxes of the Target that arise due to income recognized subsequent to the
Closing Date due to amounts that had already been received by Target before the
Closing Date for products or services that had not been delivered on the Closing
Date; provided that Seller's liability under this sentence shall be limited to
an amount equal to the amount Seller's taxes would have been increased due to
the inclusion of such amounts if the Section 338 Elections had been made.
(4) In the case of any Section 338 Elections that are made
in accordance with this Section 7.14(e), subject to the limitations and in
accordance with the procedures set forth in Section 6.2(c) and (d), Buyer shall
be responsible for, and shall, indemnify and hold Seller harmless (on an after-
tax basis) from (and shall not have a claim based on a breach of a
Representation or Warranty for):
23
(i) Any state, local or other Taxes owed by Target (other than
those described in Section 7.14(e)(3)) arising from such elections;
(ii) The additional Tax incurred by Seller as a result of the
characterization of income resulting from the deemed sale of receivables (other
than receivables for services and products delivered prior to the Closing Date)
as ordinary income rather than capital gain; provided that Buyer's liability
under this Section 7.14(e)(4)(ii) shall be limited to $175,000.
(5) Buyer, Target and Seller agree that the Purchase Price and
the liabilities of Target will be allocated to the assets of Target for all
purposes using the methodology shown on the allocation schedule attached hereto
as Exhibit A-2. Buyer, Target and Seller will file all Tax returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such methodology.
(6) Adjustments Affecting Pre-Closing and Post-Closing Periods.
----------------------------------------------------------
(i) In the event of a final adjustment by any Tax
Authority to one or more Tax returns of Target that results in a net increase in
taxable income of the Seller (by reason of Target's status as an S corporation)
and a corresponding adjustment to one or more tax returns of Target in a period
beginning on or after the Closing Date that results in a net decrease in taxable
income of Target for such post-Closing period, Target shall pay to the Seller an
amount equal to the amount of such net decrease multiplied by the sum of the
maximum marginal corporate federal and state income tax rate (after taking into
account the deduction of state income taxes for federal income tax purposes)
anticipated to be in effect for the year of the adjustment to the income of
Target. Target shall pay the amount due to the Seller within ten (10) business
days of the date on which Seller provides proof reasonably satisfactory to
Target that they have paid the taxes arising from the adjustment. In the event a
payment is made to Seller based on facts that subsequently are determined to
have been incorrect, the parties shall adjust the payments hereunder in order to
reflect the subsequent determination. Notwithstanding the foregoing, the amount
payable by Target hereunder shall not exceed the lesser of the additional taxes
payable by Seller as a result of such adjustment (and the receipt of payments
hereunder) or the net tax benefit actually realized by Target, Buyer and their
affiliates subsequent to Closing in the form of a refund or reduction in Taxes
otherwise actually payable as a result of the decrease in taxable income
resulting from such adjustment. The facts establishing any payment due hereunder
shall not form the basis of a claim by Buyer or Target against Seller for breach
of any representation or covenant in this Agreement.
(ii) In the event of a final adjustment by any Tax
Authority to one or more tax returns of Target that results in a net increase in
taxable income of Target for a period on or after the Closing Date and a
corresponding adjustment to one or more tax returns of Seller or Target in a
period beginning before the Closing Date that results in a net decrease in
taxable income of Seller (by reason of Target's status as an S corporation) in
such pre-Closing period, Seller shall pay to Target an amount equal to the
amount of such net decrease multiplied by the sum of the maximum marginal
individual federal and state income tax rate (after taking into account the
deduction of state income taxes for federal income tax purposes) anticipated to
be in effect for the year of the adjustment to the income of Seller. Seller
shall pay the amount due to the Target within ten (10) business days of the date
on which Target provides proof reasonably satisfactory to Seller that it has
paid the taxes arising from the adjustment. In the event a payment is made to
Target based on facts that subsequently are determined to have been incorrect,
the parties shall adjust the payments hereunder in order to reflect the
subsequent determination. Notwithstanding the foregoing, the amount payable by
Seller hereunder shall not exceed the lesser of the additional taxes payable by
Target as a result of such adjustment (and receipt of payments hereunder) or the
net tax benefit actually realized by Seller in the form of a refund or reduction
in Taxes otherwise actually payable as a result of the decrease in taxable
income resulting from such adjustment. The facts establishing any payment due
hereunder shall not form the basis of a claim by Seller against Buyer for breach
of any representation or covenant in this Agreement.
(iii) Amended Returns. None of the Target, Buyer or their
---------------
affiliates shall be entitled to amend any Tax return filed prior to the Closing
Date by or with respect to Target with respect to any period that ends prior to
the Closing Date without the advance written consent of the Seller (which
consent may not be unreasonably withheld).
24
7.15. Incentive Arrangements. In accordance with Buyer's 1998 Stock
----------------------
Incentive Plan, Buyer shall grant to the persons identified on Schedule 7.15 who
are employees of Buyer on the Grant Date (as defined below) (each, an "Employee)
a starting bonus, in the amount shown on Schedule 7.15, in options to purchase
shares of Buyer Common Stock (the "Employee Options"). The Employee Options
shall have an aggregate intrinsic value of $1,026,281. The "intrinsic value"
means the difference between the strike price of the Employee Options and the
fair market value of the Common Stock on the business day between April 1, 1999
and April 9, 1999 to be designated by the Company (such business day, the "Grant
Date," and such amount, the "Stock Value"), and the aggregate number of Employee
Options issued to Employees hereunder shall equal 75% of the Stock Value divided
into $1,026,281. Fifty percent of each Employee's Employee Options shall vest
on the Grant Date; fifty percent of such Employee Options shall vest quarterly
during the following two years of Employee's employment by Buyer, provided that
all of such Employee's unvested Employee Options shall vest immediately upon
termination of such Employee (except if such termination is for cause); and such
Employee Options shall have the other terms and conditions as the Board of
Directors shall provide in such Employee's option agreement. If Buyer
terminates any Employee's employment prior to the Grant Date, Buyer shall pay to
such Employee an amount equal to fifty percent of such Employee's starting bonus
as set forth on Schedule 7.15.
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IN WITNESS WHEREOF, the undersigned have executed this Securities Purchase
Agreement as of the date first written above.
EARTHWEB INC.
By: /s/ Xxxxxx Xxxxxx
-------------------
Name: Xxxxxx Xxxxxx
Title: Executive Vice President
MICROHOUSE INTERNATIONAL, INC.
By: /s/ Xxxxx Xxxxxxxx
--------------------
Name: Xxxxx Xxxxxxxx
Title: President and Chief
Executive Officer
SELLERS
/s/ Xxxxx Xxxxxxxx
--------------------
/s/ Xxxx Xxxxxxxx
-------------------
/s/ Xxxxxx Xxxxxxxx
---------------------
For Purposes of Section 2.21 Only:
ASCENT PARTNERS
By: /s/ Xxx Xxxxxxxxxx
----------------------
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