EXECUTION COPY
ArtToday, Inc.
STOCK PURCHASE AGREEMENT
BETWEEN
International Microcomputer Software, Inc.,
AND
Jupitermedia Corporation
Dated as of June 24, 2003
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of June 24, 2003, between International Microcomputer Software, Inc., a
California corporation (the "Seller") and Jupitermedia Corporation, a Delaware
corporation (the "Purchaser").
PRELIMINARY STATEMENT
WHEREAS, but for certain options outstanding as of the date hereof, the
Seller owns 100% of the outstanding shares of capital stock of XxxXxxxx.xxx,
Inc., an Arizona company (the "Company");
WHEREAS, prior to the Closing Date (as hereinafter defined), the Seller
intends to merge the Company with and into ArtToday, Inc. (which shall be an
Arizona corporation formed on or after the date hereof and a wholly owned
subsidiary of the Seller ("NewCo"), upon the effectiveness of which the Company
shall cease to exist as a separate corporation apart from NewCo, NewCo shall be
the sole surviving corporation and the Seller shall own 100% of the outstanding
shares (the "Stock") of capital stock of NewCo (such merger hereinafter referred
to as the "Pre-Closing Merger");
WHEREAS, the Purchaser desires to purchase the Stock from the Seller after
the Pre-Closing Merger, and the Seller desires to sell the Stock to the
Purchaser at such time, in each case upon the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. In addition to the terms defined elsewhere
herein, the terms defined in the introductory paragraph and the Recitals to this
Agreement shall have the respective meanings specified therein, and the
following terms shall have the meanings specified below when used herein with
initial capital letters:
"Accounts Receivable" has the meaning set forth in Section 3.9.
"Adjusted Net Assets" as of any date means, with respect to the
Company and its Subsidiaries, current assets minus (i) current liabilities
(excluding deferred revenue and intercompany accounts payable) and (ii)
long term liabilities (excluding the effect of the potential acquisition by
the Seller or the Company of Xxxxxxxxxx.xxx prior to the Closing Date), in
each case as would be reflected in a balance sheet prepared in accordance
with GAAP Consistency, provided, however, that current assets, current
liabilities and long term liabilities shall exclude any amounts related to
income or similar Taxes.
"Adjustment Report" has the meaning set forth in Section 2.3(a).
"Affiliate" means "affiliate" as defined in Rule 405 promulgated under
the Securities Act of 1933, as amended.
"Affiliated Group" means any affiliated group within the meaning of
Code ss.1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Agreement" has the meaning set forth in the preamble, and shall
include all Schedules and Exhibits hereto.
"Arbiter" has the meaning set forth in Section 2.3(d).
"ArtToday Revenue" has the meaning set forth in Section 2.4(b).
"Balance Sheet" has the meaning set forth in Section 3.6(a).
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that could reasonably be expected to
result in any specified consequence.
"Business" means the business and operations of the Company and its
Subsidiaries as conducted on the Closing Date, including but not limited to
the operation of the ArtToday network of Web sites (including but not
limited to xxxxxxx.xxx, xxxxxx.xxx, xxxxxxxxxxx.xxx, xxxxxxxxxxxxxxx.xxx,
xxxxxxxx.xxx, xxxxxxxxxxxxxx.xxx, xxxxxxxxxxxx.xxx, xxxxxxxxx.xxx,
xxxx-xxx.xxx, xxxxxxxxxxxxxxxxx.xxx, xxxxxxx.xxx, xxxxxxxx.xxx,
xxxxxxxx.xxx and xxxxxxxxxxxxx.xxx).
"Business Combination" has the meaning set forth in Section 11.2(b).
"Business Day" means a day, other than a Saturday or a Sunday, on
which commercial banks are not required or authorized to close in the City
of New York.
"Cash Consideration" has the meaning set forth in Section 2.2(a).
"Cash Escrow Amount" has the meaning set forth in Section 2.2(b).
"Closing" has the meaning set forth in Section 9.1.
"Closing Date" has the meaning set forth in Section 9.1.
"Closing Date Balance Sheet" has the meaning set forth in Section
2.3(a) as finally adjusted pursuant to Section 2.3(d).
"Closing Date Cash Payment" has the meaning set forth in Section
2.2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
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"Company" has the meaning set forth in the preamble hereto and, except
where the context otherwise requires, (i) includes the Company and the
Company's Subsidiaries and (ii) means NewCo as the surviving entity in the
Pre-Closing Merger if such reference relates to any time after the
effectiveness of the Pre-Closing Merger.
"Competitive Business Activities" means providing, distributing,
publishing, selling or licensing any of the following: clipart, webart,
photos, animations, sounds or fonts (collectively the "Content"), directly
or indirectly , via (i) online, (ii) the Internet, (iii) the Web, (iv)
computer disc or hard drive, (v) compact disc (CD), (vi) digital video disk
(dvd), (vii) telephone, cellular, wireless or mobile transmission, (viii)
e-mail or (ix) personal digital assistant (pda); other than Content that is
provided, distributed, published, sold or licensed by the Seller solely in
the following manner:
(A) in the packaged software programs branded "ClipArt and More,
Animations and More, PhotoArt & More, MasterClips" and the translated
titles of such software for international distribution, by means of
packaged CD, dvd or direct download purchase of such packaged software but
not, directly or indirectly, by means of bundling or otherwise, by way of
Web site subscription, online database, the Internet, the Web, telephone,
cellular, wireless or mobile transmission, e-mail, pda or
(B) for use in conjunction with, and directly related to, Seller's (1)
visual/precision design ( focused on computer-aided design for
architectural, design and engineering applications) and business
applications ( focused on business solutions for flowcharts, organization
charts, typing and foreign language but specifically excluding print and
Web site design products) software programs, and any directly related Web
sites that are in direct promotional support of such software programs,
(namely XXXXXxxx.xxx, TurboCAD, TurboCADCAM, XxxxxXXX.xxx, XxxXxxxxx.xxx,
TurboProject, FloorPlan, XxxxxXxxx.xxx, Xxxxxxxx.xxx, FlowCharts and More,
Easy Language branded programs, IMSI Resume Builder, TurboTyping, Net
Accelerator, OrgPlus branded programs, IMSI Legacy Family Tree, and
Quickverse) or (2) future software programs that are in the area of
visual/precision design ( focused on computer-aided design for
architectural, design and engineering applications or business applications
( focused on business solutions for flowcharts, organization charts, typing
and foreign language but specifically excluding print and Web site design
products), but not graphic design (focused on providing collections of some
or all of the following: clipart, webart, animations, photos, fonts, sounds
and other digital content), provided that Seller's current and future
products are consistent with products it has historically sold in its
visual/precision design and business application software divisions (as
further described in the Seller's Form 10-Ks for the years ended June 30,
2002 and June 30, 2001 filed with the Securities and Exchange Commission
(SEC) prior to the date hereof)
Notwithstanding anything to the contrary above, and for the avoidance
of doubt, Seller's publishing, offering, providing, selling, licensing or
otherwise making photos available via (i) online; (ii) the Web; (iii) the
Internet; (iv) e-mail; (v) telephone, cellular, wireless or mobile
transmission, or (vi) pda, except on compact disc (CD) and or digital video
disk (dvd), provided such is not on a download basis, directly or
indirectly, shall be deemed a Competitive Business Activity except for
photos contained in Seller's visual/precision design and business
application software products, provided such photos are not the primary
feature of such product, and are used consistent with the end-user license
agreement for the programs which shall be consistent with the restrictions
herein.
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"Contracts" as of any date means, collectively, all contracts,
agreements, commitments, instruments and guaranties to which the Company is
a party as of such date, including those listed or required to be listed on
Schedule 3.15, all unfilled orders outstanding as of such date for the
purchase of raw materials, goods or services by the Company, and all
unfilled orders outstanding as of such date for the sale of goods or
services by the Company.
"Costs of Remediation" means all losses, amounts paid in settlement,
investigation, removal, remediation, monitoring and reporting costs and
expenses, Taxes, claims, Damages, Liabilities, obligations, judgments,
settlements and out-of-pocket costs (including, without limitation, costs
of investigation or enforcement), expenses and attorneys' fees including,
without limitation, fees for services of attorneys, consultants,
contractors, experts, engineers and laboratories, and all other
out-of-pocket costs, incurred in connection with investigation,
characterization, remediation, monitoring, reporting or mitigation, arising
out of or related to the presence or Release of any Hazardous Materials
existing as of or prior to the Closing Date at, on, or emanating from any
of the Leased Property or any real property at or to which the Company, any
Subsidiary or predecessor of any of the foregoing disposed, Released,
transported, stored, emitted, treated, or arranged to dispose of Hazardous
Materials prior to the Closing Date including, without limitation, off-site
liability under any Environmental Law arising from or in connection with
transportation, treatment, storage, disposal, Release, or arranging for
disposal of Hazardous Materials.
"Damages" means any losses, amounts paid in settlement, claims,
damages, Liabilities, obligations, judgments, settlements and reasonable
out-of-pocket costs (including, without limitation, costs of investigation
or enforcement), expenses and attorneys' fees, including, without
limitation, (i) any consequential damages or (ii) any special or punitive
damages which are assessed against an Indemnified Party as a result of a
third party action.
"Earn-Out Payment" has the meaning set forth in Section 2.4(a).
"Earn-Out Period" means any one of the First Earn-Out Period, the
Second Earn-Out Period or the Third Earn-Out Period.
"Employee Benefit Plan" means an Employee Pension Benefit Plan or an
Employee Welfare Benefit Plan, where no distinction is required by the
context in which the term is used.
"Employee Pension Benefit Plan" has the meaning set forth in Section
3(2) of ERISA.
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"Employee Welfare Benefit Plan" has the meaning set forth in Section
3(1) of ERISA.
"Employees" means each individual who, on the applicable date,
performs services as an employee primarily for the Company or any of its
Subsidiaries (including such persons who are on an approved leave of
absence, vacation, short-term disability or otherwise treated as an active
employee of the Company or its Subsidiaries).
"Environmental Laws" means any Legal Requirement with respect to the
protection of the public health, safety or the environment, including,
without limitation, with respect to any Hazardous Materials, drinking
water, groundwater, wetlands, landfills, open dumps, storage tanks, solid
waste, or waste water, water, soil, air, pollution, the protection,
preservation or restoration of natural resources, plant and animal life or
human health or the environment, or waste management, regulation or
control. Without limiting the generality of the foregoing, the term shall
encompass each of the following statutes, and the regulations promulgated
thereunder, in each case as in effect as of Closing: (a) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (codified in
scattered sections of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42 U.S.C.ss.9601
et seq.); (b) the Resource Conservation and Recovery Act of 1976 (42
U.S.C.ss.6901 et seq.); (c) the Hazardous Materials Transportation Act (49
U.S.C.ss.1801 et seq.); (d) the Toxic Substances Control Act (15 X.X.X.xx.
2061 et seq.); (e) the Federal Water Pollution Control Act (33
U.S.C.ss.1251 et seq.); (f) the Clean Air Act and Amendments (42
U.S.C.ss.7401 et seq.); (g) the Safe Drinking Water Act (21 U.S.C.ss.349;
42 U.S.C.ss.201 andss. 300 et seq.); (h) the Superfund Amendment and
Reauthorization Act of 1986 (codified in scattered sections of 10 U.S.C.,
29 U.S.C., 33 U.S.C. and 42 U.S.C.); and (i) the Occupational, Health and
Safety Act (29 U.S.C. ss. 651 et seq.).
"Environmental Reference Date" has the meaning set forth in Section
3.22 .
"Equity Distributions" as of any date means the following: (i) all
dividends, distributions, forgiveness of debt, transfer of value or similar
transactions with respect to the Stock, and (ii) with respect to each
transaction between the Company on the one hand and the Seller, its
Affiliates, or advisors on the other hand, the amount (measured on a
transaction by transaction basis, which amount shall never be deemed to be
less than zero) by which the cash value of the goods or services received
by the Company was less than the greater of (x) the amount which the
Company would have had to pay in a comparable transaction with an
unaffiliated third party entered into on an arm's length basis, or (y) the
cash value of the goods and services paid by the Company in the
transactions.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" means any trade or business (whether or not
incorporated) which has been under common control or treated as a single
employer with the Company under Section 414(b), (c) or (m) of the Code.
"Escrow Agreement" has the meaning set forth in Section 2.2(b).
"Excluded Costs" has the meaning set forth in Section 3.6(a).
"FIRPTA Affidavit" has the meaning set forth in Section 8.5.
"First Earn-Out Period" has the meaning set forth in Section 2.4(a).
"First Minimum Revenue Target" has the meaning set forth in Section
2.4(a).
"Final Net Asset Adjustment" means: (i) if the Seller does not timely
deliver an Objection Notice, the Net Asset Adjustment as set forth in the
Adjustment Report, or (ii) if the Seller timely delivers an Objection
Notice, the Net Asset Adjustment as determined pursuant to Section 2.3(d).
"Financial Statements" has the meaning set forth in Section 3.6.
"Former Employee" means each individual other than an Employee on the
Closing Date who at any time prior to the Closing Date performed services
as an employee primarily for the Company or any Subsidiary of the Company.
"GAAP Consistency" means in accordance with GAAP applied on a basis
consistent with that used in the preparation of the Financial Statements.
"Governmental Agency" means (a) any international, foreign, federal,
state, county, local or municipal government or administrative agency or
political subdivision thereof, (b) any governmental agency, authority,
board, bureau, commission, department or instrumentality, (c) any court or
administrative tribunal, (d) any non-governmental agency, tribunal or
entity that is vested by a governmental agency with applicable
jurisdiction, or (e) any arbitration tribunal or other non-governmental
authority with applicable jurisdiction.
"Hazardous Materials" means each and every element, compound, chemical
mixture, pollutant, contaminant, material, waste or other substance which
is defined, designated, regulated, determined, classified or identified as
of the Closing Date as hazardous, radioactive, harmful or toxic under any
Environmental Law, or the Release of which is prohibited or regulated under
any Environmental Law, or which to the Knowledge of the Seller could
reasonably be expected to cause, whether now or with the passage of time,
damage to Persons, property, flora, fauna or the environment. Without
limiting the generality of the foregoing, the term shall include any "toxic
substance," "hazardous substance," "hazardous waste," or "hazardous
material" as defined in any Environmental Law as amended to date, and any
explosive or radioactive material, asbestos, asbestos-containing material,
waste water, sludge, untreated dye, other effluent, coal ash,
polychlorinated biphenyls, special waste, petroleum or any derivative or
byproduct thereof, and toxic waste.
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"Indebtedness" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such
Person, (i) the principal of and premium, if any, in respect of any
indebtedness of such Person for money borrowed, (ii) the principal,
premium, if any, and interest of such Person with respect to obligations
evidenced by bonds, debentures, notes or, except for accrued liabilities
arising in the ordinary course of business, other similar instruments,
including obligations incurred in connection with the acquisition of
property, assets or businesses (other than trade payables which are not
overdue or in default), (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto) but only to the extent of drawings
thereunder, (iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (excluding trade accounts
payable or accrued liabilities arising in the Ordinary Course of Business
which are not overdue or in default), (v) every capital lease obligation
(determined in accordance with GAAP Consistency) of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons, (vii) the
present value (discounted using an interest rate of 5% per annum) as of the
date of determination of every obligation to pay rent or other payment
amounts of such Person with respect to any sale-leaseback transaction to
which such Person is a party, payable through the stated maturity of such
sale-leaseback transaction, and (viii) every obligation of the type
referred to in clauses (i) through (vii) of another Person the payment of
which, in any case, such Person has guaranteed or is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise.
"Indemnified Party" has the meaning set forth in Section 10.3(a) and
in the case of Purchaser shall also include the Company and its
Subsidiaries.
"Indemnifying Party" has the meaning set forth in Section 10.3(a).
"Insurance Policies" has the meaning set forth in Section 3.20.
"Intellectual Property" shall mean all of the following, owned, used
or licensed by the Company as licensee or licensor: (i) the names
"ArtToday", xxxxxxx.xxx, xxxxxx.xxx, xxxxxxxxxxx.xxx, xxxxxxxxxxxxxxx.xxx,
xxxxxxxx.xxx, xxxxxxxxxxxxxx.xxx, xxxxxxxxxxxx.xxx, xxxxxxxxx.xxx,
xxxx-xxx.xxx, xxxxxxxxxxxxxxxxx.xxx, xxxxxxx.xxx, xxxxxxxx.xxx,
xxxxxxxx.xxx, xxxxxxxxxxxxx.xxx, all fictional business names, trademarks
and service marks (registered or unregistered), trade dress, trade names
and other names and slogans embodying business or product goodwill or
indications of origin, all applications or registrations in any
jurisdiction pertaining to the foregoing and all goodwill associated
therewith (collectively "Marks"); (ii) patents, patentable inventions,
discoveries, improvements, ideas, know-how, formula methodology, processes,
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technology and computer programs, software and databases (including source
code, object code, development documentation, programming tools, drawings,
specifications and data) and all applications or registrations in any
jurisdiction pertaining to the foregoing, including all reissues,
continuations, divisions, continuations-in-part, renewals or extensions
thereof (collectively "Patents"); (iii) trade secrets, know-how, including
confidential and other non-public information, and the right in any
jurisdiction to limit the use or disclosure thereof (collectively, "Trade
Secrets"), (iv) copyrights in writings, artwork, clipart, webart, sounds,
graphics, photographs, animations, images, designs, mask works or other
works, and registrations or applications for registration of copyrights in
any jurisdiction; (v) licenses, immunities, covenants not to xxx and the
like relating to any of the foregoing; (vi) Internet Web sites, domain
names and registrations or applications for registration thereof; (vii)
books and records describing or used in connection with any of the
foregoing; and (viii) claims or causes of action arising out of or related
to infringement or misappropriation of any of the foregoing.
"Interim Balance Sheet" has the meaning set forth in Section 3.6(b).
"Interim Balance Sheet Date" means March 31, 2003.
"Interim Financial Statements" has the meaning set forth in Section
3.6(b).
"IRS" means the Internal Revenue Service of the U.S. Department of the
Treasury.
"Knowledge" as applied to the Seller, means the actual knowledge,
after reasonable inquiry, of any person listed on Schedule 1.1 hereto.
"Leased Property" has the meaning set forth in Section 3.11(b).
"Leases" has the meaning set forth in Section 3.11(b).
"Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative Order,
constitution, law, rule, ordinance, permit, principle of common law,
regulation, statute, or treaty.
"Liability" means any liability or obligation (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated and
whether due or to become due), including, without limitation, any liability
for Taxes.
"Lien" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"Major Suppliers" has the meaning set forth in Section 3.28.
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"Xxxx" has the meaning set forth in this Section 1.1 in the definition
of "Intellectual Property."
"Material Adverse Effect" means a material adverse change in or effect
with respect to the business, results of operations, properties, financial
condition or prospects of the Company and its subsidiaries.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of
ERISA.
"Net Asset Adjustment" means the amount of Adjusted Net Assets as of
the Closing Date, it being understood that the Net Asset Adjustment may be
less than zero.
"Objection Notice" has the meaning set forth in Section 2.3(b).
"Order" means any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Agency or by any
arbitrator.
"Ordinary Course of Business" means an action which is both: (a)
consistent with the past practices of the Company and is taken in the
ordinary course of the normal day-to-day operations of the Company; and (b)
similar in nature and magnitude to actions customarily taken, without any
authorization by the board of directors, in the ordinary course of the
normal day-to-day operations of other Persons that are in a similar line of
business as the Company.
"NewCo" has the meaning set forth in the preamble hereto.
"Patent" has the meaning set forth in this Section 1.1 in the
definition of "Intellectual Property."
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permit" means any permit, approval, consent, authorization, license,
variance, or permission required by a Governmental Agency under any Legal
Requirement.
"Permitted Liens" means, with respect to any asset, (i) covenants,
conditions, restrictions, encroachments, encumbrances, easements, rights of
way, licenses, grants, building or use restrictions, exceptions,
reservations, limitations or other imperfections of title (other than a
Lien securing any Indebtedness) with respect to such asset which,
individually or in the aggregate, does not materially detract from the
value of, or materially interfere with the present occupancy or use of,
such asset and the continuation of the present occupancy or use of such
asset; (ii) the matters set forth on Schedule 1.2 hereto; (iii) unfiled
mechanic's, materialmen's and similar liens with respect to amounts not yet
due and payable or which are being contested in good faith through
appropriate proceedings and, for those existing on the Interim Balance
Sheet Date or the Closing Date, for which adequate reserves in accordance
with GAAP Consistency are reflected on the Interim Balance Sheet or the
Closing Date Balance Sheet, as the case may be; (iv) liens for Taxes not
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yet delinquent or which are being contested in good faith through
appropriate proceedings and, for those existing on the Interim Balance
Sheet Date or the Closing Date, for which adequate reserves in accordance
with GAAP Consistency are reflected on the Interim Balance Sheet or the
Closing Date Balance Sheet, as the case may be; and (v) liens securing
rental payments under capital lease arrangements, which capital lease
arrangements existing as of the Closing Date are in accordance with GAAP
Consistency reflected as Indebtedness on the Closing Date Balance Sheet.
"Person" means any individual, partnership, corporation, trust,
association, limited liability company, Governmental Agency or any other
entity.
"Plan" has the meaning set forth in Section 3.19(a).
"Pre-Closing Merger" has the meaning set forth in the Preamble hereto.
"Pre-Closing Tax Period" has the meaning set forth in Section 6.2(a).
"Pre-Closing Taxes" has the meaning set forth in Section 10.2(b)(v).
"Product" has the meaning set forth in Section 3.26.
"Product Claim" has the meaning set forth in Section 3.26.
"Property Taxes" has the meaning set forth in Section 6.2(b).
"Purchase Price" has the meaning set forth in Section 2.2.
"Purchaser" has the meaning set forth in the preamble hereto.
"Purchaser SEC Documents" has the meaning set forth in Section 4.6.
"Recalls" has the meaning set forth in Section 3.26.
"Registration Rights Agreement" has the meaning set forth in Section
7.5.
"Release" means any spilling, leaking, pumping, releasing, depositing,
pouring, emitting, emptying, migrating, discharging, injecting, storing,
escaping, leaching, dumping, burying, abandoning, disposing or moving into
the environment.
"Salaried Employee" has the meaning set forth in Section 3.24.
"Schedules" means, collectively, the various Schedules referred to in
this Agreement delivered separately to Purchaser on or before the date of
this Agreement.
"Second Earn-Out Period" has the meaning set forth in Section 2.4(a).
"Second Minimum Revenue Target" has the meaning set forth in Section
2.4(a).
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"Section 338(h)(10) Election" has the meaning set forth in Section
6.6(f).
"Section 338 Forms" has the meaning set forth in Section 6.6(d).
"Seller Entity" means the Seller and its respective Affiliates (other
than the Company and its Subsidiaries).
"Seller" has the meaning set forth in the preamble hereto.
"Seller's Opinion of Counsel" has the meaning set forth in Section
8.9.
"Single-Employer Plan" means an Employee Pension Benefit Plan which is
described in Section 4001(a)(15) of ERISA and which is subject to Title IV
of ERISA.
"Software" has the meaning set forth in Section 3.17.
"Stock" has the meaning set forth in the preamble hereto.
"Stock Consideration" has the meaning set forth in Section 2.2(a).
"Straddle Period" has the meaning set forth in Section 6.2(a).
"Straddle Tax Return" has the meaning set forth in Section 6.2(a).
"Subsidiary" means "subsidiary" as defined in Rule 405 promulgated
under the Securities Act of 1933, as amended.
"Substantial Content" has the meaning set forth in Section 2.4(b).
"Tax Claim" has the meaning set forth in Section 10.5.
"Tax Return" means any report, return, information return, forms,
declarations, claims for refund, statements or other information (including
any amendments thereto and including any schedule or statement thereto)
required to be supplied to a Governmental Agency in connection with Taxes.
"Taxes" means all federal, state, local, foreign and other taxes,
assessments and water and sewer charges and rents, including without
limitation, income, gross receipts, excise, employment, sales, use,
transfer, license, payroll, franchise, severance, stamp, withholding,
Social Security, unemployment, real property, personal property, property
gains, registration, capital stock, value added, single business,
occupation, workers' compensation, alternative or add-on minimum,
estimated, or other tax, including without limitation any interest,
penalties or additions thereto.
"Third Earn-Out Period" has the meaning set forth in Section 2.4(a).
"Third Minimum Revenue Target" has the meaning set forth in Section
2.4(a).
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"Third Party" has the meaning set forth in Section 11.2(b).
"Trademark Assignment" has the meaning set forth in Section 7.5.
"Trade Secret" has the meaning set forth in this Section 1.1 in the
definition of "Intellectual Property."
"Transaction Documents" means this Agreement, the Registration Rights
Agreement, the Escrow Agreement and the Trademark Assignment.
"Valuation" has the meaning set forth in Section 6.6(c).
Section 1.2. Accounting Terms and Determinations. All references in this
Agreement to "generally accepted accounting principles" or "GAAP" shall mean
generally accepted accounting principles in effect in the United States of
America at the time of application thereof, applied on a consistent basis.
Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished hereunder shall be prepared, in
accordance with generally accepted accounting principles, applied on a
consistent basis.
ARTICLE II.
SALE AND PURCHASE
Section 2.1. Agreement to Sell and to Purchase. On the terms and subject to
the conditions set forth in this Agreement, at the Closing, the Purchaser shall
purchase from the Seller, and the Seller shall sell, transfer, assign, convey
and deliver to the Purchaser, the Stock. At the Closing, the Seller shall
deliver to the Purchaser or its designees a certificate or certificates
representing the Stock, duly endorsed in blank for transfer or accompanied by
appropriate powers duly executed in blank.
Section 2.2. Purchase Price.
(a) The purchase price (the "Purchase Price") for the Stock shall
consist of the following:
(i) $13,000,000, as may be reduced or increased, as the case may
be, by the Net Asset Adjustment pursuant to Section 2.3 (the "Cash
Consideration");
(ii) 250,000 shares of restricted common stock, par value $0.01
per share, of the Purchaser (the "Stock Consideration"); and
(iii) Earn-Out Payments, if any.
(b) The Purchaser shall deliver to the Seller at the Closing, by wire
transfer of immediately available funds an amount (the "Closing Date Cash
Payment") equal to $13,000,000 less (A) any amounts paid by the Purchaser
at the written direction of the Seller to third parties in satisfaction of
one or more of the conditions set forth in ARTICLE VIII and (B) $1,300,000,
which $1,300,000 (the "Cash Escrow Amount") shall be held in escrow in
accordance with the terms of an Escrow Agreement to be entered into between
the Seller and the Purchaser on the Closing Date in substantially the form
attached hereto as Exhibit A (the "Escrow Agreement").
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(c) At the Closing, the Purchaser shall deliver to the Escrow Agent
(as defined in the Escrow Agreement) the Cash Escrow Amount by wire
transfer of immediately available funds. At or as promptly as practical
following the Closing, the Purchaser shall deliver to the Escrow Agent a
stock certificate in the name of the Seller representing the Stock
Consideration, which stock certificate shall be held in escrow in
accordance with the terms of the Escrow Agreement.
Section 2.3. Purchase Price Adjustment.
(a) As soon as reasonably practical after the Closing, but in no event
more than thirty (30) days after the Closing Date, the Purchaser shall
prepare a consolidated balance sheet of the Company as of the close of
business on the Closing Date (the "Closing Date Balance Sheet"), together
with (ii) a draft schedule (the "Draft Adjustment Report") showing the
Purchaser's computation of the Net Asset Adjustment as of the Closing Date
and the Purchaser's proposed purchase price adjustment to be made in
accordance with this Section 2.3. The Closing Date Balance Sheet shall be
prepared in accordance with GAAP Consistency. The Purchaser shall deliver
the Closing Date Balance Sheet and the Draft Adjustment Report to the
Seller within such 30 day period after the Closing Date.
(b) During the thirty (30) day-period after the Seller's receipt of
the Closing Date Balance Sheet and the Draft Adjustment Report, the Seller
and the Purchaser shall cooperate with each other to resolve any
disagreements between them with respect to the Draft Adjustment Report. In
the event the Seller and the Purchaser agree on the Draft Adjustment Report
and the proposed Net Asset Adjustment set forth therein (such agreement to
be indicated in writing by the Seller and the Purchaser by signing such
Draft Adjustment Report), then the Draft Adjustment Report shall be deemed
to be the final Adjustment Report (the "Adjustment Report"), and the Net
Asset Adjustment set forth therein shall be conclusive and binding upon the
Purchaser and the Seller and shall have the effect of adjusting the Cash
Consideration as set forth therein.
(c) In the event the Seller and the Purchaser shall not reach
agreement on all aspects of the Draft Adjustment Report, including with
respect to the Net Asset Adjustment set forth therein, within such thirty
(30) day period after the Seller's receipt of the Closing Date Balance
Sheet and the Draft Adjustment Report, the Seller shall promptly (but in no
event later than five (5) days following the expiration of such thirty (30)
day period) prepare a written notice of its objections (the "Objection
Notice"): (i) objecting in good faith to the Closing Date Balance Sheet or
the Net Asset Adjustment set forth in the Draft Adjustment Report, (ii)
setting forth the items being disputed and the reasons therefor, and (iii)
specifying the Seller's calculation of the Net Asset
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Adjustment as of the Closing Date and the adjustment to be made in
accordance with this Section 2.3. In connection with the preparation of the
Objection Notice, the Purchaser shall grant the Seller's accountants and
other representatives reasonable access to all of the books and records of
the Company. If the Seller fails to deliver timely notice of its objection
to the Closing Date Balance Sheet or the Net Asset Adjustment as set forth
in the Draft Adjustment Report, then the Draft Adjustment Report shall be
deemed to be the Adjustment Report, and the Net Asset Adjustment set forth
therein shall be conclusive and binding upon the Purchaser and the Seller
and shall have the effect of adjusting the Cash Consideration as set forth
therein.
(d) The matters in dispute shall be determined by a nationally
recognized independent public accounting firm mutually satisfactory to the
Purchaser and the Seller (the "Arbiter"), and the Purchaser and the Seller
shall promptly deliver to the Arbiter the Closing Date Balance Sheet, the
Draft Adjustment Report and Seller's Objection Notice. Promptly, but not
later than thirty (30) days after the acceptance of its appointment, the
Arbiter shall determine (based solely on presentations by the Seller and
the Purchaser to the Arbiter and not by independent review) only those
items in dispute and shall render a report as to its resolution of such
items and the resulting calculation of the Net Asset Adjustment. For
purposes of the Arbiter's determination, the amounts to be included shall
be the appropriate amounts from the Closing Date Balance Sheet or the Draft
Adjustment Report, as the case may be, as to items that are not in dispute,
and the amounts determined by the Arbiter, as to items that are submitted
for resolution by the Arbiter. In resolving any disputed item, the Arbiter
may not assign a value to such item greater than the greatest value for
such item claimed by either party in the Closing Date Balance Sheet, Draft
Adjustment Report or Objection Notice or less than the lowest value for
such item claimed by either party in the Closing Date Balance Sheet, Draft
Adjustment Report or Objection Notice. The Purchaser and the Seller shall
cooperate with the Arbiter in making its determination and such
determination shall be conclusive and binding upon the Purchaser and the
Seller.
(e) The Purchaser and the Seller shall each bear one-half of the fees
and expenses of the Arbiter.
(f) Within five Business Days after the final determination of the Net
Asset Adjustment in accordance with this Section 2.3: either (x) the
Purchaser shall pay the Seller by wire transfer of immediately available
funds the amount, if any, by which the Final Net Asset Adjustment is
greater than zero; or (y) the Seller shall pay the Purchaser by wire
transfer of immediately available funds the amount, if any, by which the
Final Net Asset Adjustment is less than zero.
(g) Nothing in this Section 2.3 or in the statements, reports or
documents contemplated hereby shall affect the parties' rights and
obligations in respect of a breach or alleged breach of any representation
or warranty herein.
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Section 2.4. Earn-Out Payments
(a) Within forty-five (45) days after the last day of each Earn-Out
Period, the Purchaser shall pay to the Seller the following amounts (each,
an "Earn-Out Payment" and collectively, the "Earn-Out Payments") if, and
only if, the minimum revenue target specified below for the given Earn-Out
Period is satisfied:
(i) In respect of the six calendar month period following the
Closing Date (the "First Earn-Out Period"), one dollar ($1.00) for
each seventy cents ($0.70) of ArtToday Revenue in excess of two
million six hundred thousand dollars ($2,600,000) (the "First Minimum
Revenue Target"), up to a maximum payment in respect of such period of
one million dollars ($1,000,000). No payment shall be made if ArtToday
Revenue for the First Earn-Out Period is below the First Minimum
Revenue Target, and in such case the right to any Earn-Out Payment for
such period shall terminate.
(ii) In respect of the six calendar month period following the
First Earn-Out Period (the "Second Earn-Out Period"), one dollar
($1.00) for each one dollar and forty cents ($1.40) of ArtToday
Revenue in excess of two million six hundred thousand dollars
($2,600,000) (the "Second Minimum Revenue Target"), up to a maximum
payment in respect of such period of one million dollars ($1,000,000).
No payment shall be made if ArtToday Revenue for the Second Earn-Out
Period is below the Second Minimum Revenue Target, and in such case
the right to any Earn-Out Payment for such period shall terminate.
(iii) In respect of the twelve calendar month period following
the Second Earn-Out Period (the "Third Earn-Out Period"), one dollar
($1.00) for each one dollar and five cents ($1.05) of ArtToday Revenue
in excess of seven million three hundred thousand dollars ($7,300,000)
(the "Third Minimum Revenue Target"), up to a maximum payment in
respect of such period of two million dollars ($2,000,000). No payment
shall be made if ArtToday Revenue for the Third Earn-Out Period is
below the Third Minimum Revenue Target, and in such case the right to
any Earn-Out Payment for such period shall terminate.
(b) For the purposes of this Section 2.4, "ArtToday Revenue" shall
mean, for any Earn-Out Period, the revenue (excluding deferred revenue) of
the Business as calculated by the Purchaser in accordance with GAAP
Consistency and adjusted as necessary for sales returns, allowances and bad
debts, but excluding any revenue derived from acquisitions of businesses or
of Substantial Content (as defined below) except for the acquisition of
xxxxxxxxxx.xxx or the regular addition of content to the Business in the
Ordinary Course of Business by way of license or otherwise. "Substantial
Content" means content acquired for $150,000 or more, whether in a single
transaction or a series of related transactions together constituting one
transaction. If the Purchaser in good faith is unable to separately track
the revenue derived from Substantial Content acquired during any Earn-Out
Period, then ArtToday Revenue shall be reduced for each Earn-Out Period
ending after the date of such acquisition by an amount equal to the product
of (A) 50% of the purchase price of such Substantial Content multiplied by
(B) a fraction, the numerator of which is the number of days during the
relevant Earn-Out Period that such
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Substantial Content was owned and the denominator of which is the number of
days in the relevant Earn-Out Period. If the Purchaser in good faith is
unable to separately track the revenue derived from any business acquired
during any Earn-Out Period, then ArtToday Revenue shall be reduced for each
Earn-Out Period ending after the date of such acquisition by an amount
equal to the product of (A) the historical twelve month run rate of such
business from the date such business was acquired (or, in the case of the
First Earn-Out Period and the Second Earn-Out Period, an amount equal to
50% of such historical 12-month run rate) multiplied by (B) a fraction, the
numerator of which is the number of days during the relevant Earn-Out
Period that such business was owned and the denominator of which is the
number of days in the relevant Earn-Out Period. The Seller shall not take
any action, whether independently or jointly, directly or indirectly, to
artificially inflate, overstate, or in any manner misrepresent the amount
of the ArtToday Revenue at any time.
(c) The parties hereto acknowledge that the Earn-Out Payments payable
to the Sellers pursuant to this Section 2.4 have been negotiated by the
parties based on their inability to agree as to the valuation of the
Company as of the Closing Date, and such Earn-Out Payments are intended by
the parties to be treated as part of the consideration for the Stock. The
Purchaser and the Seller agree not to take any position, including, without
limitation, for federal, state, foreign or local tax purposes, that is
inconsistent with the intent expressed in this clause (c).
(d) The Purchaser agrees to keep true and accurate books and records
containing sufficiently detailed information to enable the Seller to
accurately determine the amount of the Earn-Out Payment due to the Seller
for each Earn-Out Period. The Purchaser further agrees to permit the Seller
and/or its designated agent access to such books and records at a
reasonable time at the Purchaser's principal offices (or at such other
location at which such books and records may be located) upon reasonable
request by the Seller commencing as of the Closing Date and ending on the
third anniversary of the Closing Date in order to inspect and audit such
books and records.
(e) Within thirty (30) days after the end of each calendar quarter
during any Earn-out Period, the Purchaser shall provide the Seller with a
report of the ArtToday Revenue for such quarter, together with a report of
the bookings during such quarter of all sales that will at any time be
included as ArtToday Revenue.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as set forth in this
Article III:
Section 3.1. Authority of the Seller. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Seller has full corporate power and authority to execute and
deliver the Transaction Documents, and the execution and delivery by the Seller
of the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly
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authorized by all necessary corporate action on the part of the Seller, and do
not require the consent or approval of the common stockholders or any holder of
any other class of equity securities of the Seller. This Agreement constitutes,
and the other Transaction Documents when executed and delivered by the parties
thereto will constitute, the legal, valid and binding obligations of the Seller
enforceable against the Seller in accordance with their terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium, or
similar laws from time to time in effect which affect creditors' rights
generally and by legal and equitable limitations on the enforceability of
specific remedies.
Section 3.2. Organization of XxxXxxxx.xxx, Inc. As of the date hereof and
immediately prior to the effectiveness of the Pre-Closing Merger: (i)
XxxXxxxx.xxx, Inc. is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Arizona (ii) XxxXxxxx.xxx, Inc. is
duly qualified to do business and is in good standing in the states listed in
Schedule 3.2, such states being each jurisdiction in which the ownership of its
properties or the conduct of its business requires such qualification, except
where the failure to so qualify, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect and (iii)
XxxXxxxx.xxx, Inc. has the requisite corporate power and authority to own its
properties and to conduct its business as presently conducted. Schedule 3.2(a)
includes true and correct copies of the Articles of Incorporation and By-Laws of
XxxXxxxx.xxx, Inc. as in effect on the date hereof and as will be in effect
immediately prior to the effectiveness of the Pre-Closing Merger.
Section 3.3. Capitalization of XxxXxxxx.xxx, Inc.. As of the date hereof
and immediately prior to the effectiveness of the Pre-Closing Merger, the
authorized capital stock of XxxXxxxx.xxx, Inc. consists of (i) one million
(1,000,000) shares of common stock, par value $0.01 per share, of which two
hundred twenty-six thousand eight hundred seventy eight (226,878) shares are
outstanding and owned by the Seller and (ii) no shares of preferred stock. There
are or will be at Closing no outstanding options, warrants, agreements,
conversion rights, preemptive rights or other rights to subscribe for, purchase
or otherwise acquire shares of capital stock of XxxXxxxx.xxx, Inc.
Section 3.4. No Conflict or Violation; Consents. Except as set forth on
Schedule 3.4, neither the execution and delivery of this Agreement or any other
Transaction Document nor the consummation or performance of any of the
transactions contemplated hereby or thereby will, directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i) any
provision of the Certificate of Incorporation or By-Laws of either the
Seller or the Company, or (ii) any resolution adopted by the board of
directors or the stockholders of either the Seller or the Company;
(b) contravene, conflict with, or result in a violation of, or give
any Governmental Agency or other Person the right to challenge any of the
transactions contemplated hereby or by any other Transaction Document or to
exercise any remedy or obtain any relief under, any Legal Requirement to
which the Company or the Seller, or any of the assets owned or used by the
Company, may be subject;
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(c) contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Agency the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Permit that is
held by the Company or that otherwise relates to the business of, or any of
the assets owned or used by, the Company;
(d) cause any of the assets owned by the Company to be reassessed or
revalued by any taxing authority or other Governmental Agency;
(e) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Contract, Lease or Permit;
(f) result in the imposition or creation of any Lien upon or with
respect to any of the assets owned or used by the Company; or
(g) except for filings under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, require the consent,
approval, or authorization of, or registration or filing with, any
Governmental Agency or any other Person.
Section 3.5. Subsidiaries and Investments. The Company does not own any
stock of, or any equity participation in, any Person and has no Subsidiaries.
Section 3.6. Financial Statements.
(a) The unaudited balance sheet of the Company at June 30, 2002 (the
"Balance Sheet"), and related statements of income, retained earnings and
cash flow for the periods then ended and the notes thereto (collectively,
the "Financial Statements"), (i) are included as Schedule 3.6(a): (ii) were
prepared in accordance with GAAP Consistency, (iii) present fairly the
financial condition and the results of operations of the Company as of the
dates and for the periods indicated thereon, (iv) are complete, correct and
accordance with the books of account and records of the Company, (v) can be
legitimately reconciled with the financial statements and the financial
records maintained and the accounting methods applied by the Company for
federal income tax purposes, and (vi) reflect accurately all costs and
expenses which the Company incurred, but not necessarily all of the costs,
or a pro-rata portion of the costs, incurred by the Seller which may have
been expenses of the Company if the Company were independent and not
affiliated with any other corporation or business ("Excluded Costs," all of
which are set forth in Schedule 3.6(a)).
(b) The unaudited balance sheet as of the Interim Balance Sheet Date
(the "Interim Balance Sheet"), and the related statements of income,
retained earnings and cash flow for the period then ended (collectively,
the "Interim Financial Statements"): (i) are included as Schedule 3.6(b),
(ii) were prepared in accordance with GAAP Consistency, (iii) present
fairly the financial condition and the results of operations of the Company
as of the dates and for the periods indicated thereon, subject to normal
year-end adjustments, (iv) are complete, correct and accordance with the
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books of account and records of the Company, (v) can be legitimately
reconciled with the financial statements and the financial records
maintained and the accounting methods applied by the Company for federal
income tax purposes, and (vi) reflect accurately all costs and expenses
which the Company incurred, but not necessarily all of the Excluded Costs
(which Excluded Costs are set forth in Schedule 3.6(b). The Interim
Financial Statements included all adjustments, consisting solely of normal
recurring accruals, necessary for a fair presentation of the Company's
consolidated financial position and results of operations.
Section 3.7. Undisclosed Liabilities. As of the Interim Balance Sheet Date
and the Closing Date, the Company has and will have no material Liabilities,
except for Liabilities: (a) reflected or reserved for on the Interim Balance
Sheet or the Closing Date Balance Sheet, as the case may be, (b) relating to
performance obligations, under Leases, Contracts and Permitted Liens in
accordance with the terms and conditions thereof which are not required by GAAP
Consistency to be reflected on the Interim Balance Sheet or the Closing Date
Balance Sheet, as the case may be, or (c) as set forth on Schedule 3.7.
Section 3.8. Material Adverse Effect. Other than changes resulting from
general economic conditions, since the Interim Balance Sheet Date, there has not
been any Material Adverse Effect or Basis therefor, nor have any events occurred
nor do any circumstances exist which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
Section 3.9. Accounts Receivable. All accounts receivable of the Company
that are reflected on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of the respective
reserves shown on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (which reserves are
adequate and calculated in accordance with GAAP Consistency and, in the case of
the reserve as of the Closing Date, will not represent a lesser percentage of
the Accounts Receivable as of the Closing Date than the reserve reflected in the
Interim Balance Sheet represented of the Accounts Receivable reflected therein
and will not represent a material adverse change in the composition of such
Accounts Receivable in terms of aging). Subject to such reserves, each of the
Accounts Receivable either has been or will be collected in full, without any
set-off, within ninety days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than returns in
the Ordinary Course of Business, under any Contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Schedule 3.9 contains a complete and accurate list of all Accounts
Receivable as of the Interim Balance Sheet Date, which list sets forth the aging
of such Accounts Receivable.
Section 3.10. Inventory. The materials, supplies and work-in-process
included in the inventory of the Company as set forth on the Interim Balance
Sheet were, and the inventory of the Company at the Closing and reflected on the
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Closing Date Balance Sheet will be, as the case may be, (a) substantially
equivalent in quality and quantity, subject to seasonality, to the materials,
supplies and work-in-process, and additions thereto, generally included in such
inventory in the past; (b) suitable for the manufacture and distribution of the
Company's products in a manner substantially equivalent in quality to that
achieved generally by the Company in the past and (c) valued in accordance with
GAAP Consistency, in each case, subject to all reserves reflected in the Interim
Balance Sheet with respect to such inventory existing on the Interim Balance
Sheet Date or reflected in the Closing Date Balance Sheet with respect to
inventory existing on the Closing Date. Such reserves on the Interim Balance
Sheet are, and on the Closing Date Balance Sheet will be, adequate under GAAP
Consistency and are, in the case of the Interim Balance Sheet, or will have
been, in the case of the Closing Date Balance Sheet, established in accordance
with GAAP Consistency.
Section 3.11. Real Property.
(a) The Company does not own any real property.
(b) Schedule 3.11(b) contains a list of all leases and subleases,
together with any amendments thereto and any subordination, nondisturbance
and attornment agreements (the "Leases"), with respect to all real property
leased by the Company (the "Leased Property"). Each Lease is in full force
and effect, the Company has performed all material obligations required to
be performed by it to date under each of the Leases and neither the Company
nor, to the Seller's Knowledge, any other party thereto is in material
default under any of the Leases (and no event has occurred which, with due
notice or lapse of time or both, would constitute such a lapse or default).
No amount due under the Leases remains unpaid, no material controversy,
claim, dispute or disagreement exists between the parties to any of the
Leases. The Seller has delivered to the Purchaser a copy of each Lease, and
all amendments thereto, listed in Schedule 3.11(b), except to the extent
otherwise noted therein.
(c) The covenants, conditions, restrictions, encroachments,
encumbrances, easements, rights of way, licenses, grants, building or use
restrictions, exceptions, reservations, limitations or other impediments
affecting the Leased Property do not and will not, with respect to each
Leased Property, materially impair the Company's ability to use any such
Leased Property in the operation of the Company's business as presently
conducted. To Seller's Knowledge there are no pending or threatened
condemnation or similar proceedings affecting the Leased Property. The
Company has access to public roads, streets or the like or valid easements
over private streets, roads or other private property for such ingress to
and egress from the Leased Property, except as would not materially impair
the Company's ability to use any such Leased Property in the operation of
the Company's business as presently conducted.
(d) All brokerage commissions and other compensation and fees payable
by reason of the Leases have been paid in full or are reflected in the
Interim Balance Sheet except for such commissions and other compensation
related to options or extensions in the Leases which are not yet exercised.
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(e) To the Seller's Knowledge, all improvements on the Leased Property
and the operations therein conducted conform in all material respects to
all applicable Legal Requirements, including without limitation, health,
fire, environmental, safety, zoning and building laws, ordinances and
administrative regulations, except for possible nonconforming uses or
violations which do not and will not expose any person or property to
injury or damage, materially and adversely affect any insurance coverage,
give rise to strict liability, penalties or fines, jeopardize any Permit or
materially interfere with the present use, operation or maintenance thereof
by the Company as now used, operated or maintained, and which do not and
will not materially and adversely affect the value thereof. To the Seller's
Knowledge, all buildings, structures, improvements and fixtures owned,
leased or used by the Company in the conduct of its business at the Leased
Property conform in all material respects to all applicable codes and rules
adopted by national and local associations and boards of insurance
underwriters; and all such buildings, structures, improvements and fixtures
are in good operating condition and repair.
(f) There are no outstanding requirements or recommendations by any
insurance company which has issued to the Company a policy covering the
Leased Property, or by any board of fire underwriters or other body
exercising similar functions, requiring or recommending any repairs or work
to be done on such property.
(g) All public utilities required for the operation of the Leased
Property and necessary for the conduct of the business of the Company are
installed and operating, and all installation and connection charges, to
the Seller's Knowledge, are paid in full.
(h) Except as set forth in Schedule 3.11(b), the Leased Property is
not subject to any lease, sublease, license or other agreement granting to
any Person any right to the use, occupancy or enjoyment of such property or
any portion thereof.
(i) The plumbing, electrical, heating, air conditioning, elevator,
ventilating and all other mechanical or structural systems for which the
Company is responsible under the Leases in the buildings or improvements
are in good working order and condition, and the roof, basement and
foundation walls of such buildings and improvements for which the Company
is responsible under said Leases are in good condition and free of leaks
and other material defects. All such mechanical and structural systems and
such roofs, basement and foundation walls for which others are responsible
under said Leases are, to the Seller's Knowledge, in good working order and
condition and free of leaks and other material defects.
Section 3.12. Condition and Compliance of Property.
(a) Schedule 3.12(a) contains a list of owned computers, information
technology, hardware, software, facsimile machines and copier machines. As
of such date, the Company owned outright and had good and marketable title
to all such personal property subject to no Lien except Permitted Liens and
except as set forth on Schedule 3.12(a).
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(b) Schedule 3.12(b) sets forth the name, parties and date of all
personal property leases to which the Company is a party or in respect of
the Business. Except as set forth in Schedule 3.12(b), the Company holds
good leaseholds in all of the personal property shown or required to be
shown on Schedule 3.12(b) as leased by the Company, in each case under
valid and enforceable leases. The Company is not, and to Seller's Knowledge
no other party to any such personal property lease is, in material breach
of or default under any lease of any item of personal property listed on
Schedule 3.12(b) (and no event has occurred which, with due notice or lapse
of time or both, would constitute such a lapse or default).
(c) The assets of the Company: (i) in the aggregate are adequate to
conduct the operations of the Company in substantially the manner currently
conducted, (ii) are suitable for the purposes for which they are currently
used, (iii) have been maintained in accordance with the Company's
historical practices since June 30, 1999, and (iv) are in good condition,
ordinary wear and tear excepted. Each plant, building, office, shop and
other structures and each item of personal property is in good operating
condition and is suitable and sufficient for the operation of the business
of the Company, as currently conducted and currently proposed to be
conducted.
Section 3.13. Compliance with Legal Requirements.
(a) Except as set forth on Schedule 3.13(a), the Company has complied
with, has not received any notice of violation of, and has no Knowledge of
any Basis which with or without notice could reasonably be expected to
constitute a violation of, any material Legal Requirements. Since June 30,
1999, except as set forth on Schedule 3.13(a), neither the Seller nor the
Company have received any notice or other communication (whether oral or
written) from any Governmental Agency or any other Person regarding (i) any
actual, alleged, possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (ii) any actual, alleged, possible, or
potential obligation on the part of the Seller or the Company to undertake,
or to bear all or any portion of the cost of, any remedial action of any
nature, nor is there any Basis for any such notice or other communication.
(b) Schedule 3.13(b) sets forth a list of each Permit that is
necessary or appropriate for the operations of the Company as currently
conducted or currently proposed to be conducted, including the issuing
Governmental Agency, the expiration date, and the permit number. All
Permits included on Schedule 3.13(b), except as noted therein, are in full
force and effect and no proceeding is pending or, to the Knowledge of the
Seller, threatened, to revoke or limit any such Permit, nor is there a
Basis for any such revocation. Except as set forth in Schedule 3.13(b):
(i) the Company is, and at all times since June 30, 1999 has
been, in full compliance with all of the terms and requirements of
each Permit listed in Schedule 3.13(b);
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(ii) since June 30, 1999, neither the Seller nor the Company has
received any notice or other communication (whether oral or written)
from any Governmental Agency or any other Person regarding (A) any
actual, alleged, possible, or potential violation of or failure to
comply with any term or requirement of any Permit, or (B) any actual,
proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any Permit, nor is
there any Basis for such notice or other communication; and
(iii) all applications required to have been filed for the
renewal of the Permits have been duly filed on a timely basis with the
appropriate Governmental Agencies, and all other filings required to
have been made with respect to such Permits have been duly made on a
timely basis with the appropriate Governmental Agencies.
Section 3.14. Affiliate Agreements and Liabilities. Except as set forth on
Schedule 3.14:
(a) there are no written or oral Contracts between the Company and any
Seller Entity including, without limitation, any such Contracts relating to
the provision of any services by the Company to any such Seller Entity, or
by any such Seller Entity to the Company; and
(b) (i) since the Interim Balance Sheet Date, there have been, (ii)
from the date hereof to the Closing Date there will be, and (iii) after the
Closing Date there will be, no transactions, agreements, arrangements or
indebtedness between the Company and (x) any Seller Entity, (y) any
director or officer of the Company or (z) any member of the immediate
family of any individual described in clause (x) or (y) of this sentence.
Section 3.15. Contracts.
(a) Schedule 3.15 hereto lists all of the Contracts, commitments,
arrangements and understandings which are material to the properties,
conduct, operations or financial condition of the Company or are otherwise
material.
(b) Except as set forth on Schedule 3.15 (and for Leases and Permitted
Liens), the Company is not a party to or bound by any:
(i) mortgage, indenture, note, or installment obligation, or
other instrument for or relating to Indebtedness;
(ii) guaranty of any obligation for borrowings or performance, or
guaranty or warranty of products or services, excluding endorsements
or guaranties of instruments made in the ordinary course of business
in connection with the deposit of items for collection, and statutory
warranties;
(iii) agreement or arrangement for the sale or lease of any of
its assets other than in the usual, regular and ordinary course of
business;
-23-
(iv) agreement or other arrangement for the purchase of any real
estate, machinery, equipment, or other capital assets;
(v) Contract for the future purchase of materials, supplies,
services, merchandise, or equipment parts;
(vi) Contract pursuant to which it is or may be obligated to make
payments, contingent or otherwise, on account of or arising out of
prior acquisitions or sales of businesses, assets, or stock of other
companies;
(vii) distribution, dealership, representative, broker, sales
agency, advertising or consulting Contract excepting any such contract
that is terminable at will, or by giving notice of 30 days or less,
without Liability;
(viii) lease or other agreement for the use of real or personal
property;
(ix) agreement imposing non-competition or exclusive dealing
obligations on it;
(x) agreement providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods;
(xi) license or royalty agreement with obligations payable by or
to the Company;
(xii) Contract or agreement for the employment of any
stockholder, director, officer, consultant or key employee not
terminable without penalty or Liability arising from such termination
or any severance or change-in-control contract or arrangement;
(xiii) Contract relating to cleanup, abatement or other actions
in connection with environmental liabilities; or
(xiv) Contract which (A) involves future payment by or to the
Company or (B) is otherwise material to the extent relating to the
conduct of the business of the Company.
(c) Each Contract, including the Contracts listed or required to be
listed on Schedule 3.15, is valid, binding and enforceable against the
Company, and to the Seller's Knowledge the other parties thereto in
accordance with its terms, and is in full force and effect. The Company has
performed all material obligations required to be performed by it to date
under each of the Contracts. Except as set forth in Schedule 3.15, neither
the Company nor, to the Seller's Knowledge, any other party thereto is in
material breach of or default under any Contract to which the Company is a
party or by which it is bound or to which its assets are subject (and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a lapse or default). The Seller has delivered to the
Purchaser a copy of each Contract or other written evidence of the
obligations, and all amendments thereto, listed or required to be listed in
Schedule 3.15, except to the extent otherwise noted thereon.
-24-
Section 3.16. Intellectual Property.
(a) Schedule 3.16 contains a list of all material Intellectual
Property (other than know-how, non-customized computer software, and
customer lists) which the Company owns or has used in connection with, or
which relates to, its business, the jurisdictions in which the Intellectual
Property has been registered or in which a Patent has been issued or in
which an application for such registration or Patent has been filed and any
licenses, sublicenses and other agreements in which the Company grants a
license to any Person to use the Intellectual Property. Except as set forth
on Schedule 3.16 the Company is the owner of all right, title, and interest
in the Intellectual Property, free and clear of all Liens and other adverse
claims, and has the right to use without payment to a third party all of
the Intellectual Property.
(b) Schedule 3.16 contains a complete and accurate list and summary
description, including any royalties paid or received by the Company, of
all Contracts relating to the Intellectual Property to which the Company is
a party or by which the Company is bound, except for any license implied by
the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than $500 under which the
Company is the licensee. There are no outstanding and, to the Seller's
Knowledge, no threatened disputes or disagreements with respect to any such
agreement. Except as listed on Schedule 3.16, Seller has not entered into
any joint ventures, licenses, sublicenses or other arrangements whereby a
third party has the right to, or use of, any Intellectual Property.
(c) The Intellectual Property is valid, subsisting, unexpired, in
proper form and enforceable and all renewal fees and other maintenance fees
which have fallen due on or prior to the effective date of this Agreement
have been paid. The grants, registrations and applications for the
Intellectual Property have not lapsed, expired or been abandoned and no
application or registration thereof is the subject of any legal or
governmental proceeding before any governmental, registration or other
authority in any jurisdiction. All products made, used, or sold under the
Patents have been marked with the proper notice. All products and materials
containing a Xxxx xxxx the proper notice where permitted by law.
(d) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating
to such Trade Secret is current, accurate, and sufficient in detail
and content to identify and explain it and to allow its full and
proper use without reliance on the knowledge or memory of any
individual.
(ii) The Seller and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of the
Trade Secrets.
-25-
(iii) The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade
Secrets are not part of the public knowledge or literature, and, to
the Seller's Knowledge, have not been used, divulged, or appropriated
either for the benefit of any Person (other than the Company) or to
the detriment of the Company. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.
(e) To the Knowledge of the Seller, there are no conflicts with or
infringements of any Intellectual Property by any third party. No Patent
has been or is now involved in any interference, reissue, reexamination or
opposition proceeding. No Xxxx has been or is now involved in any
opposition, invalidation or cancellation and, to the Seller's Knowledge, no
such action is threatened with respect to any of the Marks. The conduct of
the Company's business as currently conducted does not conflict with or
infringe in any way with any proprietary right of any third party, which
conflict or infringement could have a material adverse effect on the
Company, the Intellectual Property or the business of the Company. There is
no claim, suit, action or proceeding pending or threatened against the
Company (i) alleging any such conflict or infringement with any third
party's proprietary rights or (ii) challenging the ownership, use, validity
or enforceability of the Intellectual Property.
(f) Except as set forth on Schedule 3.16, all consents, filings and
authorizations by or with Governmental Agencies or third parties necessary
with respect to the consummation of the transactions contemplated hereby as
they may affect the Intellectual Property have been obtained.
(g) Neither the Seller nor the Company have entered into any material
consent, indemnification, forbearance to xxx, settlement agreement or
cross-licensing arrangement with any person relating to the Intellectual
Property or the intellectual property of any third party other than as may
be contained in the license agreements listed in Schedule 3.16. Except as
set forth in Schedule 3.16, the Company is not under any obligation to pay
royalties or similar payments in connection with any license to any of its
Affiliates.
(h) Except as set forth on Schedule 3.16, the Company is not, nor will
it be as a result of the execution and delivery of this Agreement or any
other Transaction Document or the performance of its obligations hereunder
or thereunder, in breach of any license, sublicense or other agreement
relating to the Intellectual Property. The validity and enforceability of
the Intellectual Property and the registration thereof have not been
impugned or otherwise affected adversely as a result of the consummation of
the transactions contemplated by the Transaction Documents.
(i) No former or present employees, officers or directors of the
Company hold any right, title or interest directly or indirectly, in whole
or in part, in or to any Intellectual Property.
-26-
(j) The Intellectual Property is sufficient, adequate and all that is
necessary for the Company to carry on its business as presently conducted.
Section 3.17. Software.
(a) The current software applications used by the Company in the
operation of its business are set forth and described on Schedule 3.17
hereto (the "Software"). To the extent the Software has been designed or
developed by the Company's management information or development staff or
by consultants on the Company's behalf, are original and are protected by
the copyright laws of the United States, and the Company has complete
rights to and ownership of such Software. No part of any such Software or
the use thereof infringes upon the rights of any other person or entity, or
violates or infringes upon any common law or statutory rights of any other
person or entity, including, without limitation, rights relating to
defamation, contractual rights, copyrights, patents, trade secrets and
rights of privacy or publicity. The Company has not sold, assigned,
licensed, distributed or in any other way disposed of or encumbered the
Software.
(b) The Software, to the extent it is licensed from any third party
licensor or constitutes "off-the-shelf" software, is held by the Company
legitimately and is fully and freely transferable without any third party
consent. All of the Company's computer hardware has legitimately-licensed
software installed therein.
(c) The Software is free from any significant software defect or
programming or documentation error, operates and runs in a reasonable and
efficient business manner, conforms to the specifications thereof, and,
with respect to owned Software, the applications can be recreated from
their associated source code.
(d) The Company has not knowingly altered the data, or any Software or
supporting software which may in turn damage the integrity of the data,
stored in electronic, optical or magnetic form. Except as set forth on
Schedule 3.17 hereto, the Seller has no Knowledge of the existence of any
bugs or viruses with respect to the Software.
Section 3.18. Labor Relations. Except as set forth on Schedule 3.18, the
Company is not a party to any collective bargaining agreement covering
Employees, there are no controversies or unfair labor practice proceedings
pending or, to the Seller's Knowledge, threatened between the Company and any of
its current or former Employees or any labor or other collective bargaining unit
representing any current or former Employee of the Company that could reasonably
be expected to result in a labor strike, dispute, slow-down or work stoppage or
otherwise have a Material Adverse Effect. To the Seller's Knowledge, except as
set forth on Schedule 3.18, no organizational effort is presently being made or
to the Knowledge of the Seller, threatened by or on behalf of any labor union.
-27-
Section 3.19. Employee Benefits.
(a) Schedule 3.19(a) sets forth all Employee Benefit Plans and all
other employee benefit arrangements or payroll practices, including,
without limitation, any such arrangements or payroll practices providing
severance pay, sick leave, vacation pay, salary continuation for
disability, retirement benefits, deferred compensation, bonus pay,
incentive pay, stock options, hospitalization insurance, medical insurance,
life insurance, scholarships or tuition reimbursements, maintained by the
Company or to which the Company is obligated to contribute for Employees or
Former Employees. Each of the employee benefit plans, practices and
arrangements set forth on Schedule 3.19(a) shall hereafter be referred to
as a "Plan" (or "Plans" as the context may require).
(b) Except with respect to any Multiemployer Plan, copies of the
following documents, with respect to each of the Plans as applicable, have
been delivered to Purchaser by the Seller: (i) all plan and related trust
documents, and amendments thereto; (ii) the most recent IRS Form 5500;
(iii) the last IRS determination letter; (iv) summary plan descriptions;
and (v) the most recent actuarial report.
(c) Except as set forth on Schedule 3.19(c), none of the Plans is a
Multiemployer Plan. Neither the Company nor any ERISA Affiliate has
incurred any Liability resulting from a complete or partial withdrawal from
any Multiemployer Plan, and none of them has incurred, or is reasonably
likely to incur, any Liability due to the termination or reorganization of
a Multiemployer Plan which has not been satisfied in full, and to the
Knowledge of the Seller, no event has occurred that would subject the
Company or any ERISA Affiliate to any such liability.
(d) Neither the Company nor any ERISA Affiliate has incurred, or is
reasonably likely to incur, any Liability under Section 4062, 4063 or 4064
of ERISA to the PBGC or to a trustee appointed under Section 4042 of ERISA
with respect to any Single-Employer Plan, and to the Knowledge of the
Seller, no event has occurred that would subject the Company or any ERISA
Affiliate to any such Liability. All premiums due the PBGC with respect to
all Single-Employer Plans maintained by the Company and its ERISA
Affiliates have been timely paid. Neither the Company nor any ERISA
Affiliate has engaged in any transaction described in Section 4069 of
ERISA. Except as set forth on Schedule 3.19(d), there has been no
"reportable event", within the meaning of Section 4043 of ERISA, with
respect to any Single-Employer Plan maintained by the Company or its ERISA
Affiliates which would require the giving of notice to the PBGC. No
Single-Employer Plan maintained by the Company or its ERISA Affiliates has
incurred an accumulated funding deficiency within the meaning of Section
412 of the Code.
(e) Except with respect to any Multiemployer Plan, each Plan complies
with, and has been established, operated and administered in accordance
with its terms and the requirements of, ERISA, the Code and other
applicable laws.
(f) Except with respect to any Multiemployer Plan, there are no
material pending or, to Seller's Knowledge, threatened claims by, on behalf
of or involving any Plan Administrator or any Plan Trustee (other than
routine claims for benefits).
-28-
(g) Neither the Company nor any ERISA Affiliate has incurred any
liability for any tax or penalty imposed by Section 4975 of the Code or
Section 502(i) of ERISA with respect to any Plan.
(h) With respect to each Plan that is a Single-Employer Plan, the most
recent actuarial report prepared by the Plan's actuary, using the actuarial
methods and assumptions contained in such report, fairly presents the fair
market value of the assets of each such Plan and the present value of the
Liabilities in respect of the benefits accrued under each such Plan, and
since the date of such actuarial report there has been no material adverse
change in the funded status of any such Plan after taking into account the
additional accrual of benefits by participants since the date of such
actuarial report through the Closing Date.
(i) Each Plan which is intended to qualify under Section 401(a) of the
Code has received an IRS determination letter concluding that such Plan so
qualifies in form, and no event has occurred and no condition exists that,
to the Seller's Knowledge, would cause such Plan to lose its qualified
status.
(j) Except as set forth on Schedule 3.19(j) or as may be required
under Section 4980B of the Code, Section 601 of ERISA or other applicable
foreign, state or local law, the Company does not have any Liability for
post-retirement medical or life insurance benefits or coverage for any
Employee or Former Employee or any dependent of any such employee. The
reserve reflected in the Closing Date Balance Sheet will be adequate in
accordance with GAAP Consistency for the payment or provision of all such
benefits.
(k) Except as set forth on Schedule 3.19(k), the consummation of the
transactions contemplated by the Transaction Documents will not result in
any increase in the amount of compensation or benefits or accelerate the
vesting or timing of payment of any compensation or benefits payable by the
Company to or in respect of any Employee or Former Employee or the
beneficiary or dependent of any such employee under any Plan.
(l) All payments (including all employer contributions and employee
contributions with respect to the Employee Benefit Plans) required to have
been made under the Plans or by law (without regard to any waivers granted
under Section 412 of the Code) have been made by the due date thereof
(including any valid extension), and all payments for any period ending on
or before the Closing which are not yet due will have been paid or accrued
by the Closing Date.
Section 3.20. Insurance. Schedule 3.20 sets forth a list of all insurance
policies and all material fidelity bonds or other insurance service contracts
(the "Insurance Policies") providing coverage for the properties or operations
of the Company, the type and amount of coverage, and the expiration dates of the
Insurance Policies. There is no claim by the Company pending under any of the
Insurance Policies as to which coverage has been questioned, denied or disputed
by the underwriters of such policies. All premiums payable under all Insurance
Policies have been paid, and the Company has otherwise complied in all material
-29-
respects with the terms and conditions of all the Insurance Policies. The
Insurance Policies are valid and enforceable in accordance with their terms, are
issued by an insurer that is financially sound and reputable, are in full force
and effect and insure against risk and liabilities customary in the industry and
as required by Legal Requirements and the Contracts. Neither the Seller nor the
Company has received notice from any insurance carrier: (i) threatening a
suspension, revocation, modification or cancellation of any Insurance Policy or
a material increase in any premium in connection therewith, or (ii) informing
Seller that any coverage listed on Schedule 3.20 will or may not be available in
the future on substantially the same terms as now in effect.
Section 3.21. Litigation. Except as set forth in Schedule 3.21, there are
no claims, actions, suits, proceedings, labor disputes or investigations pending
or to the Seller's Knowledge threatened before any Governmental Agency brought
by or against the Seller, the Company or any of their respective officers,
directors, Employees, agents or Affiliates involving, affecting or relating to
any assets, properties or operations of the Company or the transactions
contemplated by the Transaction Documents, nor to the Seller's Knowledge is
there any Basis for any such action, suit, proceeding or investigation. Schedule
3.21 sets forth a list and a summary description of all such pending actions,
suits, proceedings, disputes or investigations. Neither the Company nor any of
its assets or properties is subject to any Order that affects or might affect
its assets, properties, operations, prospects, net income or financial condition
or which would or might interfere with the transactions contemplated by the
Transaction Documents.
Section 3.22. Environmental Matters. Except as set forth on Schedule 3.22:
(a) the Company is, and since June 30, 1999 (the "Environmental
Reference Date"), has been, and to the Seller's Knowledge, prior to the
Environmental Reference Date was, in compliance with all Environmental
Laws;
(b) the Company has no Liability, whether contingent or otherwise,
under any Environmental Law;
(c) no request for information, notice, Governmental Agency inquiry,
demand letter, notice of violation or alleged violation of, non-compliance
or alleged non-compliance with or any Liability under, any Environmental
Law by or relating to operations or properties of the Company has been
received by or threatened in writing against the Company since the
Environmental Reference Date, or, to Seller's Knowledge, before the
Environmental Reference Date;
(d) the Company has not entered into or been subject to, and is not
currently a party or respondent to, any Orders nor are any administrative,
civil or criminal actions, suits, proceedings or investigations pending or,
to Seller's Knowledge, threatened, relating to any Environmental Law
affecting the Company;
(e) the Company has neither expressly nor by operation of law, assumed
or undertaken any Liability, including without limitation any obligation
for Costs of Remediation, of any other Person;
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(f) the Company has not, and the Seller has no Knowledge of any other
Person who has, caused any Release or threatened Release of any Hazardous
Material on, in, under, or from the Leased Property nor does the Seller
have Knowledge of any such Release; and
(g) the Company has not received any written or, to the Seller's
Knowledge, other communication indicating or claiming potential Liability
for Damages or Costs of Remediation with respect to a Release or threatened
Release of any Hazardous Material.
Section 3.23. Tax Matters.
(a) Except as otherwise disclosed in Schedule 3.23(a), (i) the Company
has filed (or joined in the filing of) when due all Tax Returns required by
applicable law to be filed with respect to the Company and all Taxes shown
to be due on such Tax Returns have been paid; (ii) all such Tax Returns
were true, correct and complete as of the time of each such filing; (iii)
all Taxes relating to periods ending on or before the Closing Date owed by
the Company (whether or not shown on any Tax Return) or to which the
Company may be liable under Treasury Regulationsss. 1.1502-6 (or analogous
state or foreign provisions) by virtue of having been a member of any
Affiliated Group (or other group filing on a combined or unitary basis) at
any time on or prior to the Closing Date, if required to have been paid,
have been paid (except for Taxes which are being contested in good faith);
(iv) any liability of the Company for Taxes not yet due and payable, or
which are being contested in good faith, has been provided for on the
financial statements of the Company in accordance with generally accepted
accounting principles; (v) there is no action, suit, proceeding,
investigation, audit or claim now pending against, or with respect to, the
Company in respect of any Tax or assessment, nor is any claim for
additional Tax or assessment asserted by any Governmental Agency; (vi)
since January 1, 1999, no claim has been made by any Governmental Agency in
a jurisdiction where the Company does not currently file a Tax Return that
it is or may be subject to Tax by such jurisdiction, nor to the Seller's
Knowledge is any such assertion threatened; (vii) there is no outstanding
request for any extension of time within which to pay any Taxes or file any
Tax Returns (viii) there has been no waiver or extension of any applicable
statute of limitations for the assessment or collection of any Taxes of the
Company; (ix) the Company is not a party to any agreement, whether written
or unwritten, providing for the payment of Taxes, payment for Tax losses,
entitlements to refunds or similar Tax matters; (x) no ruling with respect
to Taxes (other than a request for determination of the status of a
qualified pension plan) has been requested by or on behalf of the Company;
and (xi) the Company has withheld and paid all material Taxes required to
be withheld in connection with any amounts paid or owing to any employee,
creditor, independent contractor or other third party.
(b) (i) no property of the Company is "tax-exempt use property" within
the meaning of Section 168(h) of the Code; (ii) the Company is not a party
to any lease made pursuant to former Section 168(f)(8) of the Internal
Revenue Code of 1954; (iii) the Company has not filed any agreement or
consent under Section 341(f) of the Code; (iv) the Seller is not a "foreign
person" within the meaning of Section 1445 of the Code; (v) the Company has
-31-
not been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code; and (vi) the Company has
withheld and paid all material Taxes required to be withheld in connection
with any amounts paid or owing to any employee, creditor, independent
contractor or other third party.
Section 3.24. Interim Operations. Since the Interim Balance Sheet Date, the
Company has operated only in the Ordinary Course of Business, and except as set
forth in Schedule 3.24 the Company has not:
(a) suffered any material adverse change in the assets, properties,
business, operations, prospects, net income or financial condition of the
Company or any Basis therefor;
(b) changed its authorized or issued capital stock; granted any stock
option or right to purchase shares of capital stock; issued any security
convertible into such capital stock; or made any Equity Distributions;
(c) incurred or become subject to, or agreed to incur or become
subject to, any material obligation or Liability, except in the Ordinary
Course of Business;
(d) mortgaged or pledged any of its assets, tangible or intangible,
except for Permitted Liens;
(e) sold or transferred or agreed to sell or transfer any of its
assets, or canceled or agreed to cancel any debts or claims except in the
Ordinary Course of Business;
(f) suffered any extraordinary losses or, except in the Ordinary
Course of Business, waived any material rights;
(g) terminated any contract, agreement, license, or other instrument
to which it is a party, except in the Ordinary Course of Business;
(h) increased the rate of compensation payable by it to any employee,
whose compensation is determined other than by multiplying the number of
hours worked by an hourly rate (a "Salaried Employee"), over the rate being
paid or accrued to them as of the Interim Balance Sheet Date;
(i) made or agreed to make any accrual or arrangement for or payment
of bonuses or special compensation of any kind to any of its Salaried
Employees; or general increase in the salary or bonus payable or to become
payable by the Company to any Employee other than Salaried Employees (other
than increases granted to individual employees for merit, length of
service, change in position or responsibility or other reasons applicable
to specific Employees and not generally to a class or group thereof);
-32-
(j) entered into any agreement, written or oral, providing for the
employment of any Employee or any severance or termination benefits payable
or to become payable by the Company to any Employee;
(k) taken any action which would have constituted a breach of any
negative covenant of the Seller set forth in Article V or VI if such
negative covenant had applied since the Interim Balance Sheet Date; or
(l) suffered any shortages of materials or supplies or any casualty
that individually or in the aggregate has had or could reasonably be
expected to have a Material Adverse Effect.
Section 3.25. Brokers. All negotiations relative to the Transaction
Documents and the transactions contemplated hereby and thereby have been carried
on by the Seller without the intervention of any other Person acting on their
behalf in such manner as to give rise to any valid claim by any such Person
against the Company or Purchaser for a finder's fee, brokerage commission or
other similar payment based on an arrangement with the Seller.
Section 3.26. Product Liability. Except as disclosed in Schedule 3.26:
(a) to the Company's knowledge (without the requirement of due
inquiry) there has not been during the past six (6) years and there is no
notice, demand, claim, action, suit, inquiry, hearing, proceeding, notice
of violation or investigation of a civil, criminal or administrative nature
by or before any Governmental Agency against or involving any product,
substance or material (collectively, a "Product"), or class of claims or
lawsuits involving a Product manufactured, produced, distributed or sold by
or on behalf of the Company which is pending or, to the Seller's knowledge
(without the requirement of due inquiry), threatened, on behalf of the
ultimate retail purchaser of any Product, resulting from an alleged defect
in design, manufacture, materials or workmanship of any Product
manufactured, produced, distributed or sold by or on behalf of the Company,
or any alleged failure to warn, or from any breach of express or implied
specifications or warranties or representations (a "Product Claim");
(b) there has not been, nor is there under consideration or
investigation by the Company, any Product recall, rework, retrofit or
post-sale warning (collectively, recalls, reworks, retrofits and post-sale
warnings are referred to in this Agreement as "Recalls") conducted by or on
behalf of the Company concerning any Products manufactured, produced,
distributed or sold by or on behalf of the Company or, to the Knowledge of
the Seller, any Recall conducted by or on behalf of any entity as a result
of any alleged defect in any Product supplied by the Company; and
(c) there is no Product Claim pending or, to the Seller's Knowledge
threatened, on behalf of a customer of the Company or any Governmental
Agency which individually or in the aggregate has had or could reasonably
be expected to have a Material Adverse Effect.
-33-
Section 3.27. Books and Records of the Company. The books of account,
minute books, stock record books, and other records of the Company, all of which
have been made available to the Purchaser, are complete and correct, accurately
reflect in reasonable detail the transactions to which the Company is a party or
by which its properties are bound in accordance with GAAP Consistency and have
been maintained in accordance with sound business practices and the requirements
of Section 13(b)(2) of the Securities Exchange Act of 1934, as amended
(regardless of the fact that the Company is not subject to that Section),
including the maintenance of an adequate system of internal controls. The minute
books of the Company contain accurate and complete records of all meetings held
of, and corporate action taken by, the stockholders, the boards of directors,
and committees of the board of directors of the Company, and no meeting of any
such stockholders, board of directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be delivered to the Purchaser.
Section 3.28. Suppliers. Schedule 3.28 lists the ten largest suppliers
(measured by dollar volume) of the Company during the last fiscal year ("Major
Suppliers") and the amount of business done with each Major Supplier in such
year. As of the date of this Agreement, except as set forth on Schedule 3.28,
(a) the Company is not engaged in a material dispute with any Major Supplier,
(b) there has been no material adverse change in the business relationship of
the Company with any Major Supplier since December 31, 2002, and (d) no Major
Supplier has threatened in writing any material modification or change in the
business relationship with the Company.
Section 3.29. Projections. The business plans, forecasts and projections
set forth in Schedule 3.29 were prepared in good faith for the internal use of
the Company and on the basis of reasonable assumptions. After appropriate
inquiry of the officers of the Company, the Seller does not have reason to
believe that such projections, forecasts and plans are not reasonably
achievable.
Section 3.30. Certain Payments. Since June 30, 1999, neither the Seller nor
the Company nor any of their respective directors, officers, agents, or
Employees, or to the Seller's Knowledge any other Person associated with or
acting for or on behalf of the Seller or the Company, has directly or indirectly
(a) made any contribution, gift, bribe, rebate, payoff, influence payment,
kickback, or other payment to any Person, private or public, regardless of form,
whether in money, property, or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business secured,
(iii) to obtain special concessions or for special concessions already obtained,
for or in respect of the Company, or (iv) in violation of any Legal Requirement,
or (b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
Section 3.31. Accounts . Schedule 3.31 hereto correctly identifies each
bank account, brokerage account and safety deposit box maintained by or on
behalf or for the benefit of the Company and the name of each person with any
power or authority to act with respect thereto.
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Section 3.32. Disclosure.
(a) No representation or warranty of the Seller in this Agreement
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not
misleading.
(b) There is no fact known to the Seller that has specific application
to either the Seller or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as
the Seller can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that has not been set forth in this Agreement or the Schedules
hereto.
Section 3.33. Investment Intent; Status. The Stock Consideration will be
acquired hereunder solely for the account of the Seller for investment, and not
with a view to the resale or distribution thereof in violation of the Securities
Act of 1933, as amended, subject to the right of the Seller to sell, assign,
transfer or distribute any or all of the Stock Consideration to any Person which
is an Affiliate of the Seller. Seller is an "accredited investor" within the
meaning of Regulation 501 promulgated under the Securities Act of 1933, as
amended.
Section 3.34. Representations as to NewCo.
(a) Organization. Immediately prior to, and after, the Pre-Closing
Merger and as of the Closing Date: (i) NewCo will be a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Arizona, (ii) NewCo will be duly qualified to do business and is
in good standing in the states listed in Schedule 3.2, such states being
each jurisdiction in which the ownership of its properties or the conduct
of its business requires such qualification, except where the failure to so
qualify, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect, (iii) NewCo will have the requisite
corporate power and authority to own its properties and to conduct its
business as then conducted and (iv) the Articles of Incorporation and
By-Laws of NewCo will be substantially similar in form and substance to the
Articles of Incorporation and Bylaws of the Company set forth in Schedule
3.2(b).
(b) Capitalization; Ownership of the Stock. Immediately after the
Pre-Closing Merger and as of the Closing Date, the authorized capital stock
of NewCo will consist of (i) one million (1,000,000) shares of common
stock, par value $0.01 per share, of which two hundred twenty-six thousand
eight hundred seventy eight (226,878) shares will be outstanding and (ii)
no shares of preferred stock; the shares of capital stock described in (i)
as outstanding being all the Stock. Immediately and after the Pre-Closing
Merger and as of the Closing Date, (A) the Stock will have been duly
authorized and validly issued, and fully paid and nonassessable and no
personal liability will attach to the ownership thereof, (B) the Stock will
be the sole outstanding shares of capital stock of NewCo, and except for
this Agreement there will be no outstanding options, warrants, agreements,
conversion rights, preemptive rights or other rights to subscribe for,
purchase or otherwise acquire any of the Stock or any unissued or treasury
shares of capital stock of NewCo and (C) the Seller will own 100% of the
Stock and will have at the Closing valid and marketable title to the Stock,
free and clear of any Liens, except those arising under this Agreement.
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(c) Other Representations. Immediately after the effectiveness of the
Pre-Closing Merger and as of the Closing Date, all of the representations
and warranties set forth in this Article III made by the Seller in
reference to the Company will be true and correct as if made by the Seller
in reference to NewCo.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Seller as follows:
Section 4.1. Authority of Purchaser. The Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. The Purchaser has full corporate power and authority to execute and
deliver the Transaction Documents, the execution and delivery by Purchaser of
the Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of the Purchaser, and this Agreement constitutes,
and the other Transaction Documents when executed and delivered by the parties
thereto will constitute, the legal, valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with their terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws from time to time in effect which affect creditors'
rights generally, and by legal and equitable limitations on the enforceability
of specific remedies. The Purchaser has the requisite corporate power and
authority to own its properties and to carry on the business presently being
conducted by it.
Section 4.2. No Conflict or Violation. Neither the execution and delivery
of the Transaction Documents by the Purchaser, nor the consummation or
performance of any of the transactions contemplated hereby or thereby will,
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i) any
provision of the Certificate of Incorporation or By-Laws of the Purchaser,
or (ii) any resolution adopted by the board of directors or the
stockholders of the Purchaser;
(b) contravene, conflict with, or result in a violation of, or give
any Governmental Agency or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any
relief under, any Legal Requirement to which the Purchaser may be subject;
(c) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any material contract, lease, or permit
of the Purchaser; or
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(d) except for filings under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, require the consent,
approval, or authorization of, or registration or filing with, any
Governmental Agency or any other Person on behalf of Purchaser;
provided, however, that no representation or warranty is made hereby by the
Purchaser with respect to the effect of antitrust laws or regulations.
Section 4.3. Litigation. There are no actions, causes of action, claims,
suits, proceedings or Orders pending or, to the actual knowledge, after
reasonable inquiry, of the executive officers of the Purchaser, threatened
against the Purchaser at law, in equity, in admiralty or otherwise, or before or
by any Governmental Agency, which seek to restrain or enjoin the consummation of
the transactions contemplated hereby.
Section 4.4. Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by the Purchaser without
the intervention of any other Person acting on its behalf in such manner as to
give rise to any valid claim by any such Person against the Seller or its
Affiliates (other than, after the Closing, the Company) for a finder's fee,
brokerage commission or other similar payment based on an arrangement with the
Purchaser.
Section 4.5. Stock Consideration. The issuance of the Stock Consideration
to the Seller has been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable.
Section 4.6. SEC Reports and Financial Statements. The Purchaser has filed
with the Securities and Exchange Commission true and complete copies of the
Purchaser's Annual Report on Form 10-K for the year ended December 31, 2002 and
all forms, reports, schedules, statements and other documents required to be
filed by the Purchaser under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, from and after the filing thereof
(such annual report, forms, reports, schedules, statements and other documents,
including any financial statements or schedules included therein, the "Purchaser
SEC Documents"). The Purchaser SEC documents, at the time filed, (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended, as the case may be, and the applicable rules
and regulations promulgated thereunder. There have not been any amendments to
the Purchaser SEC Documents since the initial filing thereof. The financial
statements of the Purchaser contained in the Purchaser SEC Documents have been
prepared in accordance with GAAP applied on a consistent basis during the period
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Rule 10-01 of Regulation S-X promulgated
by the Securities and Exchange Commission) and fairly present (subject, in the
case of the unaudited statements, to normal, recurring audit adjustments) the
consolidated financial position of the Purchaser and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
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Section 4.7. Investment Intent; Status. The Stock will be acquired
hereunder solely for the account of the Purchaser for investment, and not with a
view to the resale or distribution thereof in violation of the Securities Act of
1933, as amended, subject to the right of the Purchaser and any such designees
to sell, assign, transfer or distribute any or all of the Stock to any Person
which is an Affiliate of the Purchaser. Purchaser is an "accredited investor"
within the meaning of Regulation 501 promulgated under the Securities Act of
1933, as amended.
ARTICLE V.
CERTAIN COVENANTS OF THE SELLER
The Seller covenants with the Purchaser that from and after the date hereof
through the Closing Date (except as consented to or approved by the Purchaser in
writing):
Section 5.1. Conduct of Business. The Seller shall cause the Company:
(a) to operate only in the Ordinary Course of Business and to continue
to maintain, in all material respects, its properties in accordance with
present practices in a condition suitable for their current use;
(b) to use commercially reasonable efforts to keep available generally
the services of its present officers and Employees, and preserve generally
the present relationships with Persons having business dealings with it;
(c) not to make any sale, assignment, transfer, abandonment, or other
conveyance of any of its assets or any part thereof;
(d) to keep in full force and effect insurance comparable in amount
and scope to coverage maintained by it (or on behalf of it) on the date
hereof;
(e) not to settle, release or forgive any material claim or litigation
or waive any material right;
(f) not to make, change or revoke, or permit to be made, changed or
revoked, without the consent of the Purchaser, any material election or
method of accounting with respect to Taxes;
(g) not to enter into, or permit to be entered into, without the
consent of the Purchaser any closing or other agreement or settlement with
respect to Taxes affecting or relating to the Company;
(h) not to enter into or amend any Plan and not to grant any increase
in the salary or other compensation of any Employee, except as would not
constitute a breach of Section 3.24;
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(i) not to enter into any employment Contract with any director,
executive officer or Employee of the Company or make any loan to, or enter
into any material transaction of any other nature with, any director,
executive officer or Employee of the Company;
(j) not to acquire, lease or dispose or agree to acquire, lease or
dispose of any capital assets;
(k) not to change its authorized or issued capital stock; grant any
stock option or right to purchase shares of capital stock; issue any
security convertible into such capital stock; or make any Equity
Distribution;
(l) not to incur any Indebtedness other than working capital
borrowings in the Ordinary Course of Business;
(m) not to incur, or suffer to exist, any Lien on the assets of the
Company other than Permitted Liens;
(n) not to take any action that would cause any of the representations
and warranties made by the Seller in this Agreement not to remain true and
correct; and
(o) to inform the Purchaser of the occurrence of any event which could
reasonably be expected to result in a breach of any representation or
warranty contained in Article III.
Section 5.2. Information and Access. The Seller shall permit and cause the
Company to permit representatives of the Purchaser to have reasonable access
during normal business hours, and in a manner so as not to interfere with the
normal operations of the Company, to all premises, properties, personnel,
accountants, books, records, contracts and documents of the Company. The
Purchaser and each of its representatives shall treat and hold as confidential
such information in accordance with the terms and provisions of that certain
Non-disclosure and Confidentiality Agreement, dated as of May 14, 2003, between
the Purchaser and the Seller, which agreement shall remain in full force and
effect until the Closing Date, whereupon such agreement shall terminate without
further action.
Section 5.3. Confidentiality Agreements. At the Closing, the Seller shall
assign to the Purchaser the benefits of all confidentiality agreements, if any,
relating to the possible sale of the Company or any material portion of the
assets thereof to the extent such assignment is not expressly prohibited by the
terms of such agreements.
Section 5.4. Best Efforts. Upon the terms and subject to the conditions of
this Agreement, each of the parties hereto shall use reasonable best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable consistent with applicable law to
consummate and make effective in the most expeditious manner practicable the
transactions contemplated hereby; provided, however, that nothing in this
covenant or any other provision of this Agreement or any other Transaction
Document shall require the Purchaser to agree to any divestiture, hold-separate
or other similar agreement or requirement.
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Section 5.5. No Shop.
(a) The Seller shall not and shall cause the Company not to, directly
or indirectly, through any representative or otherwise, solicit or
entertain offers from, negotiate with or in any manner encourage, discuss,
accept, or consider any proposal of any other Person relating to the
acquisition of the Stock or the Company, its assets or business, in whole
or in part, whether directly or indirectly, through purchase, merger,
consolidation, or otherwise (other than sales of inventory in the ordinary
course); and
(b) The Seller shall immediately notify the Purchaser regarding any
contact between the Seller, the Company or their respective representatives
and any other Person regarding any such offer or proposal or any related
inquiry.
Section 5.6. Notices of Certain Events. The Seller shall promptly notify
the Purchaser of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement or any other Transaction
Document;
(b) any notice or other communication from any Governmental Agency in
connection with the transactions contemplated by this Agreement or any
other Transaction Document; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its Knowledge, threatened against, relating to or
involving or otherwise affecting the Seller or the Company if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Section 3.21 or that relate to the consummation of the
transactions contemplated by the this Agreement or any other Transaction
Document.
Section 5.7. No Duplicates. Neither the Seller nor any of its Affiliates
shall directly or indirectly retain, use or transfer any copies, duplicates or
derivative versions of any of the Company's databases or mailing lists (whether
in postal or e-mail form) from and after the Closing Date without the
Purchaser's prior express written consent; provided, however that the Seller may
continue to use the Seller's own databases and mailing lists which contain some
limited overlap of information with that contained in the Company's databases
and mailing lists, so long as the Seller does not take any action inconsistent
with the Purchaser's sole rights in the Company's databases and mailing lists.
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ARTICLE VI.
CERTAIN COVENANTS AND AGREEMENTS
Section 6.1. Transfer Taxes. All sales, recording, transfer, stamp,
registration, conveyance, value added, use, or other similar Taxes, duties,
excise, governmental charges or fees (including penalties and interest) imposed
as a result of the sale of the Stock to the Purchaser or the issuance of the
Stock Consideration to the Seller pursuant to this Agreement shall be borne by
the Seller. The Purchaser shall promptly remit any refunds of such items to the
Seller. The Seller and the Purchaser, to the extent required by Legal
Requirements, shall prepare and file all Tax Returns and other documentation on
a timely basis with respect to any such Taxes or fees.
Section 6.2. Obligation to File Tax Returns.
(a) The Seller shall cause to be prepared and filed all Tax Returns
with the appropriate federal, state, local and foreign Governmental
Agencies relating to the Company for periods ending on or prior to the
Closing Date and shall pay all Taxes due with respect to such Tax Returns.
The Purchaser shall prepare and file, or cause to be prepared and filed,
all Tax Returns required to be filed by the Company covering a Tax year
commencing prior to the Closing Date and ending after the Closing Date (a
"Straddle Tax Return") and shall cause the Company to pay the Taxes shown
to be due thereon, provided, however, that the Seller shall promptly
reimburse the Purchaser for the portion of such Tax that relates to a
Pre-Closing Tax Period (as defined below), except to the extent such Tax
was included in the determination of Adjusted Net Assets. The Seller will
furnish to the Purchaser all information and records reasonably requested
by the Purchaser for use in preparation of any Straddle Tax Returns. The
Purchaser shall allow the Seller to review, comment upon and reasonably
approve without undue delay any Straddle Tax Return at any time during the
forty-five (45) day period immediately preceding the filing of such Tax
Return. The Purchaser and the Seller agree to cause the Company to file all
Tax Returns for any Straddle Period (as defined below) on the basis that
the relevant taxable period ended as of the close of business on the
Closing Date, unless the relevant Governmental Agency will not accept a Tax
Return filed on that basis. For purposes of this Agreement "Pre-Closing Tax
Period" shall mean any taxable period ending on or before the Closing Date
and the portion ending on and including the Closing Date of any taxable
period that includes (but does not end on) the Closing Date ("Straddle
Period").
(b) In the case of any Straddle Period, (i) real, personal and
intangible property Taxes ("Property Taxes") of the Company for the
Pre-Closing Tax Period shall be equal to the amount of such Property Taxes
for the entire Straddle Period multiplied by a fraction, the numerator of
which is the number of days during the Straddle Period that are in the
Pre-Closing Tax Period and the denominator of which is the number of days
in the Straddle Period; and (ii) the Taxes of the Company (other than
Property Taxes) for the portion of the Straddle Period that constitutes a
Pre-Closing Tax Period shall be computed as if such taxable period ended as
of the close of business on the Closing Date
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Section 6.3. Certain Provisions Relating to Consents. The Seller shall use
commercially reasonable efforts prior to and after the Closing Date to obtain
all consents that are required in connection with the transactions contemplated
by this Agreement and the other Transaction Documents. The Seller shall not
obtain any consent that will affect the Purchaser or the Company to either of
their economic detriment, including any modification of any Contract, Lease or
Permit. The Purchaser shall cooperate as reasonably necessary or desirable to
secure the third party consents, including, without limitation, providing to
such third party information, including financial information; provided,
however, that neither the Purchaser nor the Company shall be required to incur
any liability or obligation in connection therewith, other than for the
underlying matter for which such consent was obtained as in effect immediately
prior to such consent.
Section 6.4. Nondisclosure; Noncompetition; Nonsolicitation.
(a) From and after the Closing Date, the Seller shall not use,
divulge, furnish or make accessible to anyone any proprietary, material
non-public, confidential or secret information to the extent relating to
the Company (including, without limitation, customer lists, supplier lists
and pricing and marketing arrangements with customers or suppliers) or the
Business, and the Seller shall cooperate reasonably with the Purchaser in
preserving such proprietary, confidential or secret aspects of the Company
and the Business. Notwithstanding the foregoing, nothing in this Agreement
shall prohibit the disclosure of the tax treatment and tax structure, each
as defined in Treasury Regulations Section 1.6011-4, of the transaction
(but no other details about the matters covered by this Agreement,
including, without limitation, the identities of the parties except as may
be required by legal rule, regulation or legal process).
(b) For a period of three (3) years after the Closing Date, the Seller
shall not, and it shall cause each of its controlled Affiliates, officers
and directors (so long as such officers and directors are serving as such)
not to, directly or indirectly, (i) engage in any Competitive Business
Activities anywhere in the world; (ii) own stock or otherwise have an
equity interest in or be affiliated with any person or entity engaged in
Competitive Business Activities (except as a stockholder holding less than
5% of the stock of a publicly held corporation); or (iii) utilize its
special knowledge of the Business or its relationships with customers,
suppliers or others to compete with the Company or the Purchaser in its
conduct of the Business after the Closing Date. The Seller shall not,
directly or indirectly, for a period of three (3) years from the Closing
Date, (i) solicit for hire or enter into any contractual arrangement with
any Employee without the prior written consent of the Purchaser unless such
Employee has not been employed by the Company or the Purchaser for a period
of one year; or (ii) call on or solicit any of the customers or suppliers
of the Business or make known the names and addresses of such customers or
suppliers or any information relating in any manner to the Business or the
Company's relationships with such customers or suppliers. The Seller agrees
that a violation of this Section will cause irreparable injury to the
Purchaser, and the Purchaser shall be entitled, in addition to any other
rights and remedies it may have at law or in equity, to an injunction
enjoining and restraining the Seller from doing or continuing to do any
such violation and any other violations or threatened violations of this
Section.
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(c) The Seller acknowledges and agrees that the covenants set forth in
this Section are reasonable and valid in scope and in all other respects.
If any of such covenants is found to be invalid or unenforceable by a final
determination of a court of competent jurisdiction (i) the remaining terms
and provisions hereof shall be unimpaired and (ii) the invalid or
unenforceable term or provision shall be deemed replaced by a term or
provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
In the event that, notwithstanding the first sentence of this paragraph
(c), any of the provisions of this Section relating to scope of the
covenants contained therein or the nature of the business restricted
thereby shall be declared by a court of competent jurisdiction to exceed
the maximum restrictiveness such court deems enforceable, such provision
shall be deemed to be replaced herein by the maximum restriction deemed
enforceable by such court.
Section 6.5. Ongoing Tax Cooperation. If the Closing occurs, the Seller and
the Purchaser shall cooperate fully with each other and make available or cause
to be made available to each other in a timely fashion such Tax data, prior Tax
Returns and filings and other information as may be reasonably required for the
preparation by the Purchaser or the Seller of any Tax Returns, elections,
consents or certificates required to be prepared and filed by the Purchaser or
the Seller and any audit or other examination by any Governmental Agency, or
judicial or administrative proceeding relating to liability for Taxes. Without
limiting the generality of the foregoing, each of the Purchaser and the Seller
shall retain copies of all Tax Returns, supporting work schedules and other
records relating to tax periods or portions thereof ending prior to or including
the Closing Date until the later of (i) the expiration of the statute of
limitations for the taxable periods to which such Tax Returns and other
documents relate, without regard to extensions except for extensions obtained by
that party or its Affiliates or extensions regarding which such party has
received written notice from another party, or (ii) six years following the due
date (without extensions) for such Tax Returns; provided, however, that no party
will dispose of its copies without first notifying the other parties and
providing such other parties with a reasonable period of time to assume
possession of such copies. In addition, without limiting the generality of the
foregoing, each party shall make its personnel and those of its Affiliates
reasonably available for deposition and testimony in any tax controversy or
proceeding. The Purchaser shall cooperate with the Seller to the extent
reasonably necessary for the Seller's preparation of its financial statements
and Tax Returns and in the sharing of financial and accounting information with
respect thereto or with respect to any audit, examination, or other proceeding
with respect thereto. No information or documentation provided pursuant to this
Section shall be disclosed by the recipient thereof to any Person except its
accountants and relevant tax authorities or as required by applicable law (in
which case the disclosing party shall consult in good faith with the other party
prior to making any such disclosure).
Section 6.6. Section 338(h)(10) Election.
(a) With respect to the sale of the Stock, if so requested by the
Purchaser upon notice to the Seller on or before the Closing Date, the
Seller and the Purchaser shall jointly make a Section 338(h)(10) Election
(as hereinafter defined) in accordance with applicable laws and under any
comparable provision of state, local or foreign law for which a separate
election is permissible and as set forth herein. The Purchaser and the
Seller shall take all necessary steps to properly make a Section 338(h)(10)
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Election in accordance with applicable laws and under any comparable
provision of state, local or foreign law for which a separate election is
permissible. The Purchaser and the Seller agree to cooperate in good faith
with each other in the preparation and timely filing of any Tax Returns
required to be filed in connection with the making of such an election,
including the exchange of information and the joint preparation and filing
of Form 8023 and related schedules. The Purchaser and the Seller agree to
report the transfers under this Agreement consistent with such elections
and shall take no position contrary thereto unless required to do so by
applicable tax law pursuant to a determination as defined in Section
1313(a) of the Code.
(b) The Purchaser shall be responsible for the preparation and filing
of all Section 388 Forms (as hereinafter defined) in accordance with
applicable tax laws and the terms of this Agreement and shall deliver such
Section 338 Forms to the Seller at least 30 days prior to the date such
Section 338 Forms are required to be filed. Seller shall execute and
deliver to the Purchaser such documents or forms (including executed
Section 338 Forms) as are requested and are required by any laws in order
to properly complete the Section 338 Forms at least 20 days prior to the
date such Section 338 Forms are required to be filed. The Seller shall
provide the Purchaser with such information as the Purchaser reasonably
requests in order to prepare the Section 338 Forms by the later of 30 days
after the Purchaser's request for such information or 30 days prior to the
date on which the Purchaser is required to deliver such forms to the
Seller.
(c) The Purchase Price, liabilities of the Company and other relevant
items shall be allocated in accordance with Section 338(b)(5) of the Code
and the Treasury Regulations thereunder. Purchaser shall, at its option,
determine the fair market value of the assets of the Company (the
"Valuation"). The Valuation shall be binding on the Purchaser and the
Seller unless the Seller shall, within 10 days of delivery to the Seller of
the Valuation, conclude in good faith that the Valuation is manifestly
unreasonable. The Purchaser shall be under no obligation to have such
Valuation prepared by an independent appraiser. All values contained in the
Valuation shall be used by each party in preparing the forms referred to in
Section 6.6(b) above and all other relevant Tax Returns.
(d) "Section 338 Forms" means all returns, documents, statements, and
other forms that are required to be submitted to any federal, state, county
or other local Tax authority in connection with a Section 338(h)(10)
Election. Section 338 Forms shall include, without limitation, any
"statement of section 338 election" and IRS Form 8023 (together with any
schedules or attachments thereto) that are required pursuant to Treas.
Regs. Section 1.338-1 or Treas. Regs. Section 1.338(h)(10)-1 or any
successor provisions.
(e) Notwithstanding any other provision of this Agreement to the
contrary, the Seller agrees that any income and gain recognized as a result
of, and in accordance with, the making of the Section 338(h)(10) Election
will be included in the consolidated federal income tax return of the
Seller's consolidated group and any resulting tax liability will be paid by
the Seller, as the common parent of the Seller's consolidated group. The
Purchaser agrees that it will pay and be responsible for, and will
indemnify and save the Seller harmless from, any reasonable costs incurred
by the Seller (including but not limited to costs incurred in connection
with the preparation or restatement of any Tax Return) or Taxes imposed on
the Seller by any federal, state or local Tax authority, in each case
resulting from the Purchaser's election to treat the purchase of the Stock
as an asset acquisition under the statutes of any such Tax authority.
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(f) "Section 338(h)(10) Election" means an election described in
Section 338(h)(10) of the Code with respect to Purchaser's acquisition of
Shares pursuant to this Agreement. Section 338(h)(10) Election shall
include any corresponding election under state or local law pursuant to
which a separate election is permissible with respect to Purchaser's
acquisition of Shares pursuant to this Agreement.
Section 6.7. Tax Related Covenants. Without the prior written consent of
the Purchaser, neither the Company nor any of its Subsidiaries shall make or
change any election, change an annual accounting period, adopt or change any
accounting method, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment relating to the Company or any of
its Subsidiaries, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company or any of its Subsidiaries, or take any other
similar action relating to the filing of any Tax Return or the payment of any
Tax, if such election, adoption, change, amendment, agreement, settlement,
surrender, consent or other action would have the effect of increasing the Tax
liability of the Company or any of its Subsidiaries for any period ending after
the Closing Date or decreasing any Tax attribute of the Company or any of its
Subsidiaries existing on the Closing Date.
Section 6.8. Further Assurances. Upon the request of the Purchaser at any
time after the Closing Date, the Seller shall forthwith execute and deliver such
further instruments of assignment, transfer, conveyance, endorsement, direction
or authorization and other documents as the Purchaser may reasonably request in
order to perfect title of the Purchaser and its successors and assigns to the
Stock or otherwise to effectuate the purposes of this Agreement, including
without limitation the filing of all certificates and documentation necessary to
effect the Pre-Closing Merger.
Section 6.9. Purchaser Conduct of Business. In order to give effect to the
intent of Section 2.4, the Purchaser covenants to continue the Business until
the termination of the Third Earn-Out Period subject to the Purchaser being
unable, or it being impracticable, to so continue the Business due to adverse
general economic conditions in the Company's target business market, an Act of
God or other force majeure event; provided, however, that nothing herein shall
prohibit or restrict the Purchaser in any way from making changes to the
Business, or discontinuing the Business, if such changes or discontinuation is a
direct result of the Business having suffered a Material Adverse Effect in the
Purchaser's reasonable discretion. The Purchaser further covenants that, in the
event it transfers any content currently available for download from the Company
as part of the Business to the Purchaser, any Affiliate of the Purchaser or any
URL, domain or web site, for purposes of calculating the Earn-Out Payments under
Section 2.4, the Purchaser shall, until the termination of the Third Earn-Out
Period, account for all transactions attributable to the Business as though such
portion of the Business were owned by the Company.
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ARTICLE VII.
CONDITIONS TO SELLER'S OBLIGATIONS
The obligation of the Seller to consummate the transactions contemplated by
this Agreement is subject to the satisfaction (unless waived in writing by the
Seller) of each of the following conditions on or prior to the Closing Date:
Section 7.1. Representations and Warranties. The representations and
warranties of the Purchaser contained in this Agreement which are qualified as
to materiality shall be true and correct on and as of the Closing Date as though
such representations and warranties were made anew on and as of the Closing
Date, and all other representations and warranties of the Purchaser contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date as though such representations and warranties were made anew on
and as of the Closing Date. The Purchaser shall have delivered to the Seller a
certificate of its President or a Vice President, dated the Closing Date, to the
foregoing effect.
Section 7.2. Compliance with Agreement. The Purchaser shall have performed
and complied with all covenants to be performed or complied with by it on or
prior to the Closing Date. The Purchaser shall have delivered to the Seller a
certificate of its President or a Vice President, dated the Closing Date, to the
foregoing effect.
Section 7.3. No Violation of Orders. No preliminary or permanent injunction
or other order issued by any court or Governmental Agency, nor any statute,
rule, regulation, decree or executive order promulgated or enacted by any
Governmental Agency that declares this Agreement or any other Transaction
Document invalid or unenforceable in any respect or which prevents the
consummation of the transactions contemplated hereby or thereby shall be in
effect; and no action or proceeding before any court or Governmental Agency,
shall have been instituted or threatened by any Governmental Agency or by any
other person or entity, which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or any other Transaction Document or
which challenges the validity or enforceability hereof or thereof.
Section 7.4. Corporate Documents. The Seller shall have received from the
Purchaser certified copies of the resolutions duly adopted by the board of
directors of the Purchaser approving the execution and delivery of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby, and such resolutions shall be in
full force and effect as of the Closing Date.
Section 7.5. Transaction Documents. The Purchaser shall have executed and
delivered to the Seller the Escrow Agreement, a Registration Rights Agreement in
substantially the form attached hereto as Exhibit B (the "Registration Rights
Agreement") and a trademark assignment in substantially the form attached hereto
as Exhibit F (the "Trademark Assignment")..
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ARTICLE VIII.
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to consummate the transactions contemplated
by this Agreement is subject to the satisfaction (unless waived in writing by
the Purchaser) of each of the following conditions on or prior to the Closing
Date:
Section 8.1. Representations and Warranties. The representations and
warranties of the Seller contained in this Agreement which are qualified as to
materiality or Material Adverse Effect shall be true and correct on and as of
the Closing Date as though such representations and warranties were made anew on
and as of the Closing Date (unless such representations are expressly made as of
some other date, in which case they shall be true and correct as of such date),
and all other representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as though such representations and warranties were made anew on and
as of the Closing Date (unless such representations are expressly made as of
some other date, in which case they shall be true and correct as of such date).
The Seller shall have delivered to the Purchaser a certificate of its President
or Vice President, dated the Closing Date, to the foregoing effect.
Section 8.2. Compliance with Agreement. The Seller shall have performed and
complied with all covenants to be performed or complied with by it on or prior
to the Closing Date. The Seller shall have delivered to the Purchaser a
certificate of its President or Vice President, dated the Closing Date, to the
foregoing effect.
Section 8.3. Consents. All consents, Permits, authorizations, approvals,
waivers and amendments which are listed on Schedule 8.3 hereto shall have been
obtained.
Section 8.4. Corporate Documents. The Purchaser shall have received from
the Seller certified copies of the resolutions duly adopted by the board of
directors of the Seller approving the execution and delivery of this Agreement
and the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby, and such resolutions shall be in full force and
effect as of the Closing Date.
Section 8.5. FIRPTA. The Seller shall have delivered an affidavit, dated
the Closing Date, pursuant to Section 1445 of the Code (Foreign Investment in
Real Property Tax Act of 1980) in substantially the form of Exhibit D (the
"FIRPTA Affidavit") stating that the Seller is not a "Foreign Person" as defined
in Section 1445 of the Code.
Section 8.6. Employees. At least 80% of the Company's employees shall have
accepted offers of employment with the Purchaser by June 27, 2003 containing
base and incentive cash compensation terms and conditions substantially similar
to such employees' respective base and incentive cash compensation terms and
conditions with respect to the Company in effect as of the date of this
Agreement.
Section 8.7. Material Adverse Effect. Since the date of this Agreement,
there shall not have occurred (i) a Material Adverse Effect or (ii) any event
which could reasonably be expected to result in a Material Adverse Effect.
Section 8.8. No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any Stock of, or any other voting,
equity, or ownership interest in, the Company, or (b) is entitled to all or any
portion of the Purchase Price payable for the Stock.
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Section 8.9. Opinion of Counsel. Purchaser shall have received an opinion
of Xxxxxx & Diamond LLP, counsel to the Seller, in the form of Exhibit C, with
such customary changes and modifications as the Seller shall reasonably request
in light of the nature of the transactions contemplated hereby ("Seller's
Opinion of Counsel").
Section 8.10. No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or Governmental Agency, nor any
statute, rule, regulation, decree or executive order promulgated or enacted by
any Governmental Agency that declares this Agreement or any other Transaction
Document invalid or unenforceable in any respect or which prevents the
consummation of the transactions contemplated hereby or thereby shall be in
effect; and no action or proceeding before any court or Governmental Agency,
shall have been instituted or threatened by any Governmental Agency or by any
other person or entity, which seeks to prevent or delay the consummation of the
transactions contemplated by this Agreement or any other Transaction Document or
which challenges the validity or enforceability hereof or thereof.
Section 8.11. Due Diligence. The Purchaser shall have received all
business, legal, accounting and other due diligence materials requested from the
Company and the Seller, shall have completed the review of said due diligence to
its satisfaction, and such due diligence shall be reasonably satisfactory to the
Purchaser in its sole discretion.
Section 8.12. Transaction Documents. The Seller shall have executed and
delivered to the Purchaser the Registration Rights Agreement, the Escrow
Agreement and the Trademark Assignment.
Section 8.13. Resignations. The Purchaser shall have received the
resignations, effective as of the Closing Date, of each of the officers and
directors of the Company.
Section 8.14. Options and Warrants. The Seller shall have caused any and
all outstanding options and warrants to purchase capital stock of the Company or
any of its subsidiaries to have been (i) cancelled in accordance with their
terms or (ii) exercised in accordance with their terms, and in the case of (ii)
the Seller shall have repurchased all shares of its capital stock underlying
such exercised options.
Section 8.15. DCDC Non-Competition Agreement. The Purchaser shall have
obtained a non-competition agreement with Digital Creative Development
Corporation, a Utah corporation, on terms substantially similar to the terms set
forth in Section 6.4(b).
Section 8.16. No Liens. There shall be no outstanding Liens on or in
respect of any assets of the Company or the Business, and the Seller shall have
provided evidence of such absence of Liens to the Purchaser in form acceptable
to the Purchaser in its sole discretion.
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Section 8.17. Tax Sharing Agreements. Any tax sharing agreements among the
Company or any Subsidiaries and any other Person shall have been terminated as
of the Closing Date with no further liability to the Purchaser, the Company or
any such Subsidiary.
Section 8.18. Pre-Closing Merger. The Pre-Closing Merger shall have been
declared effective and the Purchaser shall have received from the Seller a
certificate from the Secretary of State of the State of Arizona certifying the
same.
Section 8.19. Founder Certificates. The Purchaser shall have received from
Xxxxxxx Xxxxxxx and Xxxxx Xxxxxxx, the two principal founders of the Company,
duly executed certificates in the form attached hereto as Exhibit E.
ARTICLE IX.
THE CLOSING
Section 9.1. The Closing. The Closing of the transactions contemplated
hereby (the "Closing") shall be held two Business Days after each of the
conditions precedent set forth in Articles VII and VIII have been satisfied or
waived by the party entitled to the benefit thereof and in any event on or prior
to June 30, 2003 (the "Closing Date") or at such other time as the parties may
mutually agree. The Closing shall be held at the offices of Xxxxxx & Diamond
LLP, 00 Xxx Xxxxxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxxxxxxx, XX 00000 or at such
other place as the parties may mutually agree. At the Closing, all of the
transactions provided for in Article II hereof shall be consummated on a
substantially concurrent basis.
Section 9.2. Deliveries by the Seller at the Closing. At the Closing, the
Seller shall deliver, or cause to be delivered, to the Purchaser, the following
items:
(a) the duly executed officer's certificates and certified resolutions
referred to in Sections 8.1, 8.2, and 8.4;
(b) the consents listed on Schedule 8.3;
(c) Seller's Opinion of Counsel;
(d) the resignations referred to in Section 8.13.
(e) the Escrow Agreement and the Registration Rights Agreement duly
executed by the Seller;
(f) a certificate or certificates representing the Stock, duly
endorsed in blank for transfer or accompanied by appropriate powers duly
executed in blank; and
(g) all other previously undelivered documents that the Seller is
required to deliver to the Purchaser pursuant to this Agreement.
Section 9.3. Deliveries by the Purchaser at the Closing. At the Closing,
the Purchaser shall deliver, or cause to be delivered, to the Seller, the
following items:
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(a) the duly executed officer's certificates referred to in Sections
7.1, 7.2, and 7.4;
(b) duly executed and acknowledged transfer tax and other required tax
forms reasonably required by the Seller to consummate the transactions
contemplated hereby, all in the form required by applicable law;
(c) the Escrow Agreement and the Registration Rights Agreement duly
executed by the Purchaser;
(d) the Closing Date Cash Payment;
(e) evidence of receipt by the Escrow Agent of the Cash Escrow Amount;
and
(f) all other previously undelivered documents that the Purchaser is
required to deliver to the Seller pursuant to this Agreement;
ARTICLE X.
INDEMNIFICATION
Section 10.1. Survival. Except as otherwise set forth in Section 10.2(b),
all of the representations and warranties of the Seller contained in Article III
of this Agreement or in any certificate delivered by the Seller pursuant to this
Agreement shall survive the Closing and continue in full force and effect as
follows: (a) in the case of the representations and warranties of the Seller
contained in Section 3.23 (Tax Matters), until six months after the expiration
of the statute of limitations with respect to the matter to which the claim
relates (including any extension of the statute of limitation consented to by or
on behalf of the Company), (b) in the case of the representations and warranties
of the Seller contained in Section 3.22 (Environmental Matters), until the fifth
anniversary of the Closing Date, and (c) in the case of any other representation
or warranty of the Seller contained in this Agreement and any certificate
delivered by the Seller pursuant to this Agreement pertaining to any of the
Seller's representations and warranties, until the second anniversary of the
Closing Date. Notwithstanding the foregoing, any notice given in accordance with
Section 12.1 of this Agreement claiming an alleged breach of any representation
or warranty hereunder shall without further action extend the survival period
for the representation or warranty alleged to have been breached as applied to
the circumstances set forth in such notice until immediately after the final
resolution of the matter. All of the representations and warranties of the
Purchaser contained in Article IV of this Agreement or in any certificate
delivered by the Purchaser pursuant to this Agreement pertaining thereto shall
survive the Closing and continue in full force and effect until the second
anniversary of the Closing Date.
Section 10.2. Indemnification Provisions for Benefit of Purchaser.
(a) In the event that the Seller breaches any of its representations,
warranties or covenants contained in this Agreement, any other Transaction
Document or in any certificate delivered by the Seller pursuant hereto or
thereto and provided that, as to any claim for breach of representations or
warranties, the Purchaser makes a written claim for indemnification against
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the Seller within the applicable survival period, if applicable, then the
Seller agrees to indemnify the Purchaser and its Affiliates from and
against all Damages the Purchaser and its Affiliates suffer resulting from
or arising out of such event; provided, however, that the Seller shall not
have any obligation to indemnify the Purchaser from and against any Damages
resulting from the breach of any representation or warranty of the Seller
(as opposed to any covenant of the Seller) contained in Article III of this
Agreement until the Purchaser has suffered aggregate Damages, by reason of
all such breaches in excess of $87,500 (after which point the Seller will
be obligated to indemnify the Purchaser from the first dollar of Damages).
(b) Without limiting the generality or effect of the foregoing, the
Seller shall indemnify, defend and hold harmless the Company, the Purchaser
and any of their respective Affiliates from and against any and all Damages
resulting from or arising out of any of the following (which
indemnification, defense and hold harmless shall not be subject to any of
the limitations set forth in Section 10.2(a)):
(i) Any business or property formerly owned or operated by the
Company or any of its predecessors but not owned or operated by the
Company immediately after the Closing;
(ii) Any product shipped or manufactured by, or any services
provided by, the Company prior to the Closing Date to the extent that
the total Damages resulting therefrom exceed the amount of the reserve
for returns and allowances that is specifically allocated to products
shipped and/or manufactured by the Company as set forth in the Balance
Sheet;
(iii) Any claim of any creditor or beneficiary of the Seller or
any of its Affiliates (other than the Company), whether arising prior
to, on or after the Closing Date;
(iv) Except as set forth on the Closing Date Balance Sheet as a
current liability: (x) any liability to any Employee or Former
Employee of the Company or any of its predecessors as of the Closing
Date arising under any Plan or otherwise in connection with their
employment by the Company, including, without limitation,
post-retirement health benefits, to the extent not fully funded
immediately prior to the Closing, and (y) any severance or other
benefit payable to any Employee or Former Employee by reason of this
Agreement or the transactions contemplated hereby, including, without
limitation, any stay bonus, golden parachute or other
change-in-control payment or benefit;
(v) Pre-Closing Taxes. For purposes of this Agreement,
"Pre-Closing Taxes" shall mean, except to the extent included in the
determination of Adjusted Net Assets, (a) all liability for Taxes of
the Company for Pre-Closing Tax Periods; (b) all liability for Taxes
described in Section 6.1; (c) all liability attributable to any
misrepresentation or breach of warranty made by the Seller in Section
3.23 of this Agreement; (d) all liability for Taxes attributable to
any failure to comply with any of the covenants or agreements of the
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Seller or the Company under this Agreement; and (e) all liability for
Taxes of any other person pursuant to any contractual agreement
entered into on or before the Closing Date;
(vi) Any claim or liability resulting from or in connection with
the Seller's (or any of Seller's Affiliate's) breach, and not any
portion of such claim or liability which relates to a breach by the
Company, of that certain Settlement and Release Agreement, dated April
18, 2003, among Imageline, Inc., Xxxxxx Xxxxxxx, the Seller and the
Company;
(vii) Any claim or liability resulting from or in connection with
the Seller having failed to obtain, prior to the Closing Date, the
approval of its shareholders for any of the transactions contemplated
by this Agreement or any other Transaction Document;
(viii) For a period of six years after the Closing Date, any
claim or liability resulting from or in connection with (i) the
Pre-Closing Merger (including but not limited to any claim by an
actual or alleged holder, other than the Seller, of an equity interest
in NewCo or the Company) or (ii) a breach of any of the
representations contained in Section 3.3;
(ix) Any claim or liability resulting from or in connection with
the Seller's or the Company's breach, prior to the Closing Date, of
the terms of any Software license agreement or the Seller's or the
Company's failure to obtain a license for the Company's use of
Software prior to the Closing Date; or
(x) Seller's failure to pay when due and payable that certain
Promissory Note, dated April 18, 2003, made by the Seller and the
Company in principal amount of $178,250 held by Imageline, Inc. or its
assigns.
Section 10.3. Matters Involving Third Parties.
(a) If any third party notifies the Purchaser (the "Indemnified
Party") with respect to any matter which may give rise to a claim (other
than a Tax Claim) for indemnification against the Seller (the "Indemnifying
Party") under this Article X, then the Indemnified Party shall use
reasonable efforts to notify the Indemnifying Party thereof promptly and in
any event within ten days after receiving any written notice from a third
party; provided, however, that no delay on the part of the Indemnified
Party in notifying the Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless, and then solely to the extent
that, the Indemnifying Party is actually prejudiced thereby.
(b) Once the Indemnified Party has given notice of the matter to the
Indemnifying Party, the Indemnified Party may, subject to the Indemnifying
Party's rights to assume the defense of such matter pursuant to paragraph
(c) below, defend against the matter in any manner it deems appropriate.
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(c) The Indemnifying Party may at any point in time choose to assume
the defense of all of such matter, in which event:
(i) the Indemnifying Party shall defend the Indemnified Party
against the matter with counsel of its choice reasonably satisfactory
to the Indemnified Party,
(ii) the Indemnified Party may retain separate counsel at its
sole cost and expense (except that the Indemnifying Party shall be
responsible for the fees and expenses of one separate co-counsel for
all Indemnified Parties to the extent the Indemnified Party is
advised, in writing by its counsel, that either (x) the counsel the
Indemnifying Party has selected has a conflict of interest, or (y)
there are legal defenses available to the Indemnified Party that are
different from or additional to those available to the Indemnifying
Party), and
(iii) the Indemnifying Party shall reimburse the Indemnified
Party for the reasonable costs of defense or investigation for the
period prior to the assumption of the defense.
(d) Assumption of the defense of any matter by the Indemnifying Party
shall without further action constitute an irrevocable waiver by the
Indemnifying Party of its right to claim at a later date that such third
party action for which the defense was assumed is not a proper matter for
indemnification pursuant to this Article X.
(e) The Indemnified Party shall not consent to the entry of a judgment
or enter into any settlement with respect to any matter which may give rise
to a claim for indemnification without the written consent of the
Indemnifying Party, which consent may not be unreasonably withheld or
delayed; provided, however, that if the Indemnifying Party has failed to
provide indemnification required to be provided pursuant to this Article X
for fifteen days after a request therefor, then the Indemnified Party may
take any such action without the consent of the Indemnifying Party.
(f) The Indemnifying Party shall not consent to the entry of a
judgment with respect to any matter which may give rise to a claim for
indemnification or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the
written consent of the Indemnified Party (not to be unreasonably withheld
or delayed).
Section 10.4. Certain Additional Provisions Relating to Indemnification.
(a) Notwithstanding Section 12.12, after the Closing Date, the
indemnification provisions set forth in this Article X shall constitute the
sole and exclusive recourse and remedy available to the Purchaser with
respect to the breach of any representation or warranty contained in this
Agreement or in any certificate delivered pursuant to this Agreement except
for actual fraud.
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(b) Notwithstanding anything in this Agreement to the contrary, for
purposes of this Article X, in determining the existence of a breach of any
representation, warranty, covenant or agreement and the amount of Damages,
no effect shall be given to any qualification as to materiality or Material
Adverse Effect.
(c) All payments by an Indemnifying Party under Article X shall be
treated as an adjustment to the Purchase Price for all foreign, federal,
state and local income tax purposes.
(d) The Indemnification provided for in this Article X shall survive
any investigation at any time made by or on behalf of the Purchaser or any
knowledge or information that the Purchaser may have.
Section 10.5. Procedures Relating to Tax Claims. If a claim is made by any
Tax authority which, if successful, is likely to result in an indemnity payment
to the Purchaser or any of its Affiliates pursuant to this Article X, the
Purchaser shall notify the Seller of such claim (a "Tax Claim"), stating the
nature and basis of such claim and the amount thereof, to the extent known.
Failure to give such notice shall not relieve the Seller from any liability
which it may have on account of this indemnification or otherwise, except to the
extent that the Seller is materially prejudiced thereby. The Seller will have
the right, at its option, upon timely notice to the Purchaser, to assume control
of any defense of any Tax Claim (other than a Tax Claim relating solely to Taxes
of the Company for a Straddle Period) with its own counsel, provided, however,
such counsel is reasonable satisfactory to the Purchaser. The Seller's right to
control a Tax Claim will be limited to amounts in dispute which would be paid by
the Seller or for which the Seller would be liable pursuant to this Article X.
Costs of such Tax Claims are to be borne by the Seller unless the Tax Claim
relates to taxable periods ending after the Closing Date, in which event such
costs will be fairly apportioned. The Purchaser and the Company shall cooperate
with the Seller in contesting any Tax Claim, which cooperation shall include the
retention and, upon the Seller's request, the provision of records and
information which are reasonably relevant to such Tax Claim and making employees
available on a mutually convenient basis to provide additional information or
explanation of any material provided hereunder. Notwithstanding the foregoing,
the Seller shall neither consent nor agree (nor cause the Company to consent or
agree) to the settlement of any Tax Claim with respect to any liability for
Taxes that may affect the liability for any state or federal income tax of the
Company or any Affiliated Group of which the Company is a member for any taxable
period ending subsequent to the Closing Date without the prior written consent
of the Purchaser, and neither the Seller, nor any Seller Entity, shall file an
amended Tax Return that may affect the liability for Taxes of the Company
without the prior written consent of the Purchaser. The Purchaser and the Seller
shall jointly control all proceedings taken in connection with any claims for
Taxes relating solely to a Straddle Period of the Company.
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ARTICLE XI.
TERMINATION
Section 11.1. Termination. Anything in this Agreement to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby may be
terminated in any of the following ways at any time before the Closing and in no
other manner:
(a) By mutual written consent of the Purchaser and the Seller;
(b) By the Purchaser upon five (5) Business Days notice if, at or
before the Closing Date, satisfaction of any condition set forth in Article
VIII is or becomes impossible (other than through the breach by the
Purchaser of any of its representations or warranties or the failure of the
Purchaser to perform any of its obligations pursuant to this Agreement) and
the Purchaser shall not have waived such condition in writing at or before
the Closing Date;
(c) By the Seller upon five (5) Business Days notice if, at or before
the Closing Date, satisfaction of any condition set forth in Article VII is
or becomes impossible (other than through the breach by the Seller of any
of its representations or warranties or the failure of the Seller to
perform any of its obligations pursuant to this Agreement) and the Seller
shall not have waived such condition in writing at or before the Closing
Date;
(d) After July 31, 2003, by the Purchaser or the Seller (if such
terminating party is not then in default of any obligation hereunder), if
the Closing has not occurred on or before such date; provided, however,
that such date shall be extended for ten (10) Business Days after any
notice given pursuant to Section 11.1(b) on or prior to such date; or
(e) By the Purchaser if the Purchaser has reasonable grounds to
believe that the Seller has violated the terms of Section 5.5.
Section 11.2. Effect of Termination; Termination Fee.
(a) In the event this Agreement is terminated pursuant to Section
11.1, all further obligations of the parties hereunder shall terminate,
except for the obligations set forth in Article X and in Sections 11.2(b),
12.4, 12.5, and 12.9, and except that nothing in this Section 11.2 shall
relieve any party hereto of any liability for breach of any of the
covenants or any of the representations or warranties contained in this
Agreement prior to such termination.
(b) If (i) this Agreement is terminated pursuant to Section 11.1(e),
and (ii) a Business Combination shall occur within eighteen months after
the date this Agreement is terminated, then the Seller shall immediately,
upon consummation of such Business Combination, pay to the Purchaser in
same day funds the sum of $500,000 plus all reasonable, documented
attorneys', accountants', consultants' and other out-of-pocket expenses
incurred by Purchaser in connection with the transactions contemplated by
this Agreement. For purposes of this Agreement, the term "Business
Combination" means any of the following events: (i) the Company, directly
or indirectly, is acquired by merger or otherwise by any person or group,
including, without limitation, any officer or director or any group which
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includes such officer or director as a member (a "Third Party"); (ii) the
Company or the Seller enters into an agreement with a Third Party which
contemplates the acquisition, directly or indirectly, of 30% or more of the
total assets of the Company; (iii) the Company or the Seller enters into a
stock purchase, subscription, merger, consolidation, share exchange or
other agreement with a Third Party which contemplates the acquisition,
directly or indirectly, of 30% or more of the outstanding shares of the
Company's capital stock; (iv) a Third Party directly or indirectly acquires
30% or more of the total assets of the Company; (v) a Third Party directly
or indirectly acquires 30% or more of the outstanding shares of the
Company's capital stock; or (vi) the Company or the Seller adopts a plan of
liquidation relating to 30% or more of the total assets of the Company.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.1. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given (a) when delivered
personally to the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, (c) one Business Day
after the date when sent to the recipient by reputable express courier service
(charges prepaid), or (d) seven Business Days after the date when mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to the
Seller and to the Purchaser at the addresses indicated below:
If to the Seller: International Microcomputer Software, Inc.
00 Xxxxxxx Xxx
Xxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxxxxx, President
Fax: (000) 000-0000
With a copy to: Xxxxxx & Diamond LLP
(which shall not 00 Xxx Xxxxxxxxxx Xxxxxx
constitute notice) 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
If to the Purchaser: Jupitermedia Corporation
00 Xxx Xxxxx Xxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxx 00000
Attn: Xxxxxxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
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With a copy to: Xxxxxxx Xxxx & Xxxxxxxxx
(which shall not 000 Xxxxxxx Xxxxxx
constitute notice) Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
Facsimile No. (000) 000-0000
or to such other address as either party hereto may, from time to time,
designate in writing delivered pursuant to the terms of this Section.
Section 12.2. Amendments. The terms, provisions and conditions of this
Agreement may not be changed, modified or amended in any manner except by an
instrument in writing duly executed by both of the parties hereto.
Section 12.3. Assignment and Parties in Interest.
(a) Neither this Agreement nor any of the rights, duties, or
obligations of any party hereunder may be assigned or delegated (by
operation of law or otherwise) by either party hereto except with the prior
written consent of the other party hereto, provided, however, that (i)
prior to or after the Closing, the Purchaser may assign all of its rights
hereunder to any Affiliate of the Purchaser, provided that no such
assignment shall relieve the Purchaser of its obligations hereunder, (ii)
the Purchaser (or the assignee pursuant to clause (i)) has a one-time right
to assign all of its rights hereunder to any other Person which acquires
all or substantially all of the assets of, or equity interest in, the
Company and (iii) the Seller has a one-time right to assign all of its
rights hereunder to any other Person which acquires all or substantially
all of the assets of, or equity interest in, the Seller provided that (A)
such Person assumes the obligations of the Seller hereunder as if such
Person were a party hereto and (B) no such assignment shall relieve the
Seller of its obligations hereunder. Nothing contained in this Section
12.3(a) shall prohibit the Seller from granting a security interest in its
rights under this Agreement in connection with a bona fide debt financing.
(b) Except as provided in Article X, this Agreement shall not confer
any rights or remedies upon any person or entity other than the parties
hereto and their respective permitted successors and assigns.
Section 12.4. Announcements. All press releases, notices to customers and
suppliers and similar public announcements prior to or within five days after
the Closing Date with respect to this Agreement and the transactions
contemplated by this Agreement shall be approved by both the Purchaser and the
Seller prior to the issuance thereof; provided that either party may make any
public disclosure it believes in good faith is required by law, regulation or
rule of any stock exchange on which its securities are traded (in which case the
disclosing party shall use reasonable efforts to advise the other party prior to
making such disclosure and to provide the other party a reasonable opportunity
to review the proposed disclosure).
Section 12.5. Expenses. Except as expressly set forth in this Agreement,
each party to this Agreement shall bear all of its legal, accounting, investment
banking, and other expenses incurred by it or on its behalf in connection with
the transactions contemplated by this Agreement, whether or not such
transactions are consummated.
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Section 12.6. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof,
supersedes and is in full substitution for any and all prior agreements and
understandings among them relating to such subject matter, and no party shall be
liable or bound to the other party hereto in any manner with respect to such
subject matter by any warranties, representations, indemnities, covenants, or
agreements except as specifically set forth herein. The Exhibits and Schedules
to this Agreement are hereby incorporated and made a part hereof and are an
integral part of this Agreement.
Section 12.7. Descriptive Headings. The descriptive headings of the several
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 12.8. Counterparts. For the convenience of the parties, any number
of counterparts of this Agreement may be executed by any one or more parties
hereto, and each such executed counterpart shall be, and shall be deemed to be,
an original, but all of which shall constitute, and shall be deemed to
constitute, in the aggregate but one and the same instrument.
Section 12.9. Governing Law; Jurisdiction.
(a) This Agreement and the legal relations between the parties hereto
shall be governed by and construed in accordance with the laws of the State
of New York applicable to contracts made and performed therein without
regard to principles of conflicts of law.
(b) Any legal action or proceeding with respect to this Agreement
shall be brought in the courts of the State of New York or of the United
States of America for the Southern District of New York, and, by execution
and delivery of this Agreement, the parties hereto hereby accept for
themselves and in respect of their property, generally and unconditionally,
the jurisdiction of the aforesaid courts. The parties hereto hereby
irrevocably waive any objection, including any objection to the laying of
venue or based on the grounds of forum non conveniens, which any of them
may now or hereafter have to the bringing of any such action or proceeding
in such respective jurisdictions.
Section 12.10. Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party. Any
references to any federal, state, local or foreign statute or law will also
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless the context otherwise requires: (a) a term has the
meaning assigned to it by this Agreement; (b) including means "including but not
limited to"; (c) "or" is disjunctive but not exclusive; (d) words in the
singular include the plural, and in the plural include the singular; and (e) "$"
means the currency of the United States of America.
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Section 12.11. Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall
be added as a part of this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be possible and be valid and
enforceable.
Section 12.12. Specific Performance. Without limiting or waiving in any
respect any rights or remedies of Purchaser under this Agreement now or
hereinafter existing at law or in equity or by statute, each of the parties
hereto shall be entitled to seek specific performance of the obligations to be
performed by the other in accordance with the provisions of this Agreement.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the Seller and the Purchaser have executed and
delivered this Agreement as of the day and year first written above.
SELLER International Microcomputer Software, Inc.
By:
---------------------------------
Name:
Title:
PURCHASER Jupitermedia Corporation
By:
---------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxx
Title: President
TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS.................................................1
Section 1.1. Definitions..............................................1
Section 1.2. Accounting Terms and Determinations.....................12
ARTICLE II. SALE AND PURCHASE..........................................12
Section 2.1. Agreement to Sell and to Purchase.......................12
Section 2.2. Purchase Price..........................................12
Section 2.3. Purchase Price Adjustment...............................13
Section 2.4. Earn-Out Payments.......................................14
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER...............16
Section 3.1. Authority of the Seller.................................16
Section 3.2. Organization of XxxXxxxx.xxx, Inc.......................17
Section 3.3. Capitalization of XxxXxxxx.xxx, Inc.....................17
Section 3.4. No Conflict or Violation; Consents......................17
Section 3.5. Subsidiaries and Investments............................18
Section 3.6. Financial Statements....................................18
Section 3.7. Undisclosed Liabilities.................................19
Section 3.8. Material Adverse Effect.................................19
Section 3.9. Accounts Receivable.....................................19
Section 3.10. Inventory...............................................19
Section 3.11. Real Property...........................................20
Section 3.12. Condition and Compliance of Property....................21
Section 3.13. Compliance with Legal Requirements......................22
Section 3.14. Affiliate Agreements and Liabilities....................23
Section 3.15. Contracts...............................................23
Section 3.16. Intellectual Property...................................25
Section 3.17. Software................................................27
Section 3.18. Labor Relations.........................................27
Section 3.19. Employee Benefits.......................................27
Section 3.20. Insurance...............................................29
Section 3.21. Litigation..............................................30
Section 3.22. Environmental Matters...................................30
Section 3.23. Tax Matters.............................................31
Section 3.24. Interim Operations......................................32
Section 3.25. Brokers.................................................33
Section 3.26. Product Liability.......................................33
Section 3.27. Books and Records of the Company........................34
Section 3.28. Suppliers...............................................34
Section 3.29. Projections.............................................34
Section 3.30. Certain Payments........................................34
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TABLE OF CONTENTS
(continued)
Page
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Section 3.31. Accounts................................................34
Section 3.32. Disclosure..............................................35
Section 3.33. Investment Intent; Status...............................35
Section 3.34. Representations as to NewCo.............................35
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER................36
Section 4.1. Authority of Purchaser..................................36
Section 4.2. No Conflict or Violation................................36
Section 4.3. Litigation..............................................37
Section 4.4. Brokers.................................................37
Section 4.5. Stock Consideration.....................................37
Section 4.6. SEC Reports and Financial Statements....................37
Section 4.7. Investment Intent; Status...............................38
ARTICLE V. CERTAIN COVENANTS OF THE SELLER............................38
Section 5.1. Conduct of Business.....................................38
Section 5.2. Information and Access..................................39
Section 5.3. Confidentiality Agreements..............................39
Section 5.4. Best Efforts............................................39
Section 5.5. No Shop.................................................40
Section 5.6. Notices of Certain Events...............................40
Section 5.7. No Duplicates...........................................40
ARTICLE VI. CERTAIN COVENANTS AND AGREEMENTS...........................41
Section 6.1. Transfer Taxes..........................................41
Section 6.2. Obligation to File Tax Returns..........................41
Section 6.3. Certain Provisions Relating to Consents.................42
Section 6.4. Nondisclosure; Noncompetition; Nonsolicitation..........42
Section 6.5. Ongoing Tax Cooperation.................................43
Section 6.6. Section 338(h)(10) Election.............................43
Section 6.7. Tax Related Covenants...................................45
Section 6.8. Further Assurances......................................45
Section 6.9. Purchaser Conduct of Business...........................45
ARTICLE VII. CONDITIONS TO SELLER'S OBLIGATIONS.........................46
Section 7.1. Representations and Warranties..........................46
Section 7.2. Compliance with Agreement...............................46
Section 7.3. No Violation of Orders..................................46
Section 7.4. Corporate Documents.....................................46
Section 7.5. Transaction Documents...................................46
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TABLE OF CONTENTS
(continued)
Page
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ARTICLE VIII. CONDITIONS TO PURCHASER'S OBLIGATIONS......................46
Section 8.1. Representations and Warranties..........................47
Section 8.2. Compliance with Agreement...............................47
Section 8.3. Consents................................................47
Section 8.4. Corporate Documents.....................................47
Section 8.5. FIRPTA..................................................47
Section 8.6. Employees...............................................47
Section 8.7. Material Adverse Effect.................................47
Section 8.8. No Claim Regarding Stock Ownership or Sale Proceeds.....47
Section 8.9. Opinion of Counsel......................................48
Section 8.10. No Violation of Orders..................................48
Section 8.11. Due Diligence...........................................48
Section 8.12. Transaction Documents...................................48
Section 8.13. Resignations............................................48
Section 8.14. Options and Warrants....................................48
Section 8.15. DCDC Non-Competition Agreement..........................48
Section 8.16. No Liens................................................48
Section 8.17. Tax Sharing Agreements..................................49
Section 8.18. Pre-Closing Merger......................................49
Section 8.19. Founder Certificates....................................49
ARTICLE IX. THE CLOSING................................................49
Section 9.1. The Closing.............................................49
Section 9.2. Deliveries by the Seller at the Closing.................49
Section 9.3. Deliveries by the Purchaser at the Closing..............49
ARTICLE X. INDEMNIFICATION............................................50
Section 10.1. Survival................................................50
Section 10.2. Indemnification Provisions for Benefit of Purchaser.....50
Section 10.3. Matters Involving Third Parties.........................52
Section 10.4. Certain Additional Provisions Relating to
Indemnification.......................................53
Section 10.5. Procedures Relating to Tax Claims.......................54
ARTICLE XI. TERMINATION................................................54
Section 11.1. Termination.............................................55
Section 11.2. Effect of Termination; Termination Fee..................55
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TABLE OF CONTENTS
(continued)
Page
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ARTICLE XII. MISCELLANEOUS PROVISIONS...................................56
Section 12.1. Notices.................................................56
Section 12.2. Amendments..............................................57
Section 12.3. Assignment and Parties in Interest......................57
Section 12.4. Announcements...........................................57
Section 12.5. Expenses................................................57
Section 12.6. Entire Agreement........................................58
Section 12.7. Descriptive Headings....................................58
Section 12.8. Counterparts............................................58
Section 12.9. Governing Law; Jurisdiction.............................58
Section 12.10. Construction............................................58
Section 12.11. Severability............................................58
Section 12.12. Specific Performance....................................59
-iv-
SCHEDULE
NUMBER SCHEDULE NAME
1.1 Certain Officers
1.2 Permitted Liens
3.2 Certificate and Foreign Qualifications
3.3 Capitalization
3.4 Conflicts or Violations
3.5 Subsidiaries
3.6(a) Financial Statements
3.6(b) Interim Financial Statements
3.7 Undisclosed Liabilities
3.9 Accounts Receivable Aging
3.10 Material Adverse Effect
3.11(b) Lease Obligations
3.12(a) Personal Property; Liens
3.12(b) Leased Personal Property
3.13(a) Compliance with Laws
3.13(b) Permits
3.14 Affiliate Agreements
3.15 Contracts
3.16 Intellectual Property
3.17 Software
3.18 Collective Bargaining Agreements
3.19 Employee Benefit Plans
3.20 Insurance
3.21 Litigation
3.22 Environmental Matters
3.23 Tax Matters
3.24 Interim Operations
3.26 Products Liability
3.28 Major Customers and Major Suppliers
3.29 Projections
3.31 Accounts
8.3 Required Consents
EXHIBIT EXHIBIT NAME
A Form of Escrow Agreement
B Form of Registration Rights Agreement
C Form of Seller's Counsel Opinion
D Form of FIRPTA Affidavit
E Form of Founder Affidavit
F Form of Trademark Assignment
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