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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 15, 1999
NATIONAL INFORMATION CONSORTIUM, INC.
(Exact Name of Registrant as Specified in Charter)
Colorado 000-26621 52-2077581
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
12 Corporate Woods, 10975 Benson Street, Suite 390, Overland Park, Kansas 66210
(Address of Principal Executive Offices) (Zip Code)
(877) 234-EGOV
(Registrant's telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 15, 1999, the Registrant completed the acquisition of the
business of eFed, a provider of Internet-based procurement solutions for the
government. eFed is a division of privately held Reston, Virginia-based
Electric Press, Inc. The purchase price for the business was $15 million in
cash, from the proceeds of Registrant's initial public offering, and 606,000
shares of the Registrant's common stock. Additional consideration is payable
depending upon the revenue and earnings performance of eFed through the end
of calendar year 2003. The transaction will be accounted for as a purchase.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The Registrant expects to file the financial statements of eFed by
amendment for the periods required by Rule 3-05(b) of Regulation S-X on or
before November 15, 1999.
(b) Pro Forma Financial Information.
The Registrant expects to file pro forma financial information by
amendment for the periods required by Article 11 of Regulation S-X on or before
November 15, 1999.
(c) Exhibits.
1.1 Press Release of National Information Consortium dated September
13, 1999.
2.1 Asset Purchase Agreement dated as of September 10, 1999 by and
between the Registrant and Electric Press, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL INFORMATION CONSORTIUM, INC.
By: /s/ KEVIN C. CHILDRESS
------------------------
Kevin C. Childress
Chief Financial Officer
Date: September 30, 1999
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Press Release of National Information Consortium, Inc. dated
September 13, 1999.
2.1 Asset Purchase Agreement dated as of September 10, 1999 by and
between the Registrant and Electric Press, Inc.
<PAGE>
Exhibit 1.1 Press Release of National Information Consortium, Inc.
OVERLAND PARK, Kan.--(BUSINESS WIRE)--Sept. 13, 1999--National Information
Consortium, Inc.("NIC") (NASDAQ: EGOV), a leading provider of Internet-based
electronic government services, today announced that it has entered into a
definitive agreement to acquire eFed, a market leader in Internet-based
procurement solutions for the government. eFed is a division of privately held
Reston, Virginia-based Electric Press, Inc.
Total consideration is anticipated to include $15 million in cash and 606,000
shares of NIC common stock, valuing the acquisition at $29.6 million based on
the closing price of NIC's common stock on Friday, September 10, 1999.
Additional consideration is payable depending upon the revenue and earnings
performance of eFed through the end of calendar year 2003. The transaction is
expected to close by the end of September and will be accounted for as a
purchase.
eFed designs, develops and manages online procurement software and services for
federal and state markets. eFed's procurement solution allows buyers to search,
compare and buy products and services across multiple contracts using the
Internet. It also allows senior government procurement officials to manage
better and reduce expenses associated with the procurement process. eFed's
proprietary solution provides four major offerings not previously available in
the procurement market. eFed's solution:
- Creates an "e-mall" portal, allowing procurement officers to browse and
compare both contract and open market vendors' products and services,
instantly and efficiently.
- Aggregates information on those vendors wherever their catalogues
exist, regardless of format.
- Allows for the on-line creation of purchase orders and requisitions
together with their required approvals.
- Affords purchase cardholders the ability to complete their purchases
electronically (paperless) and to reconcile their purchases to card
statements.
In addition to existing contracts with nine federal agencies, eFed is also
active in developing solutions for the procurement needs of state governments.
The two senior executives of eFed, Robert Main and Ronald Linehan, are former
directors at the National Academy of Sciences in Washington, D.C. Mr. Main and
Mr. Linehan will retain their current positions as president and chief operating
officer, respectively, within NIC's eFed operating unit and will be joined by
their current senior management team. eFed will continue to be headquartered in
Reston, Virginia.
"eFed is the leader in procurement solutions to the government and a perfect fit
with NIC's current business model, which accelerates e-commerce in government,"
said Jeff Fraser, chairman and chief executive officer, NIC. "With this
transaction, NIC takes a major step in our strategy of becoming the dominant
provider of web-centric transaction-based solutions for state, federal and local
governments. Rob and Ron have built a company, which, like NIC's, partners with
government and is uniquely equipped to address its specialized needs surrounding
statutory processes, privacy and security. And, they accomplish all of this
within the context of a proven business model."
"Both Rob and Ron are accomplished Internet professionals, and we're pleased to
add their depth of knowledge and experience to NIC's management team," added Jim
Dodd, president and chief operating officer, NIC. "We are impressed with eFed's
growth and believe the rapid evolution of the procurement market into a
transaction-based model is well under way."
In addition to its existing portfolio of federal contracts, eFed is currently
working with major banks to provide comprehensive procurement solutions to
state, local and federal governments.
"The federal and state governments are serious about using the Internet to
streamline their procurement of goods and services, and equally serious about
partnering with industry to provide software, content and outsourcing
infrastructure," said Rob Main, president, eFed. "eFed's strong market position,
which provides the federal government an end-to-end e-commerce outsourcing
solution, and NIC's nine years of experience providing transaction-based
government portals makes us the preferred e-commerce provider to the state and
federal sector.
"For eFed this combination provides access to significant resources to invest in
enhancing our products and services. More importantly, it adds a strong partner
with a proven track record of streamlining government through a partnership
model," continued Mr. Main.
About eFed
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eFed is a Web-based federal and state procurement system that enables government
buyers to order products and services from multiple contracts and commercial
sources, based on value, product information, contract terms and conditions, and
price. eFed currently offers a wide range of features, including: easy
searching, quick ordering, custom contract searching, flexible payment and
configuration checks, and requests for quotes. The system, which was launched in
November 1997, was designed in partnership with NASA and the U.S. Army.
About NIC
National Information Consortium ("NIC") (Nasdaq: EGOV) is a provider of
Internet-based, electronic government services. NIC helps governments use the
Internet to reduce costs and provide a higher level of service by building Web
sites and applications that allow businesses and citizens to access government
information and to complete government-based transactions online. Some examples
of applications include: driver's license record searches, professional license
renewals, Internet tax filings, automated UCC files searches and automobile
registration renewals. NIC contracts with state and municipal governments to
design, build and operate Internet-based portals on their behalf. As of July
1999, NIC had signed contracts with Arkansas, Georgia, Indiana, Indianapolis and
Marion County (Indiana), Iowa, Kansas, Maine, Nebraska, Utah and Virginia.
Special Note: Statements in this release regarding eFed developing procurement
solutions for state governments, NIC's expanded role in the
government-to-business market, and the development of a transaction-based
procurement model are forward-looking statements. There are a number of
important factors that could cause actual results to differ materially from
those suggested or indicated by these forward-looking statement. These factors
include, among others, the success of eFed developing state government
procurement solutions; government agencies continued acceptance of e-commerce
and transaction-based solutions; existing states and agencies adopting new NIC
services and applications; acceptance of e-government solutions by businesses
and citizens; competition; and general economic conditions and the other
important cautionary statements and risk factors described in NIC's Registration
Statement declared effective July 15, 1999 with the Securities and Exchange
Commission.
Contact:
National Information Consortium
Kevin Childress, 913/498-3468
or
Abernathy MacGregor Frank
Jason Thompson or Susan Stillings
212/371-5999
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 10th day of
September, 1999, by and between National Information Consortium, Inc., a
Colorado corporation ("BUYER"), and Electric Press, Inc., a Virginia corporation
("SELLER").
R E C I T A L S:
A. Buyer desires to purchase, and Seller desires to sell,
substantially all of Seller's assets, properties and rights in the business
conducted by Seller's eFed division (the "BUSINESS").
B. Buyer is to acquire only specified liabilities in connection with
its purchase of the Business, as herein described.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, agreements, representations, warranties and covenants herein
contained, the parties hereby agree as follows:
SECTION 1
PURCHASE AND SALE OF ASSETS
1.1. CLOSING DATE. The closing (the "CLOSING") of the transactions
contemplated hereby shall be held at the offices of counsel to Buyer, Morrison &
Foerster LLP, 2000 Pennsylvania Avenue, NW, Washington, D.C. 20006-1888 on the
second Business Day following the satisfaction or waiver of all of the
conditions specified in Sections 4.3, 4.4 and 4.5 or on such other date as may
be mutually agreed upon by the parties (the "CLOSING DATE").
1.2. SALE OF ASSETS.
At the Closing, Seller shall sell, transfer, convey, assign and deliver
to the Subsidiary, free and clear of all liens, security interests, other
encumbrances, restrictions on transfer and adverse claims ("ENCUMBRANCES"), and
Buyer shall purchase from Seller, all of Seller's right, title and interest in
the assets, properties, goodwill and rights of Seller set forth on
SCHEDULE 1.2(a) (the "Assets").
(a) Without limiting the generality of the foregoing or the
description of "Assets" set forth on Schedule 1.2(a), the Assets shall include
the following:
(i) Seller's entire right, title and interest in and to
all current and archived code, articles, reviews, ratings, commentary and
other content, including all web site pages, used exclusively in
connection with the Business, including media on which only such content
is stored, and further including all inventory of such materials, whether
in printed form or on film, microfilm, microfiche or other negative;
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(ii) all of the software and scripting, in all formats
(including object and source formats), relating to or used exclusively in
connection with the Business, including all web site design and
operational software set forth on Schedule 1.2(a), and including with
respect thereto: (1) all inventories of computer program code (in all
media) for said software and scripting; (2) any related documentation and
user materials; and (3) Seller's rights under all related warranties; the
source and object code for the procurement management software used by
Seller to conduct the Business;
(iii) the web sites and the domain names described in
SCHEDULE 1.2(a)(iii);
(iv) the tangible personal property used to conduct the
Business to the extent listed in SCHEDULE 1.2(a)(iv), together with all
related documentation and user materials, and all related warranties;
(v) Seller's entire right, title and interest to the
third-party software licensed by Seller used exclusively in connection
with the Business, including any related documentation and user
materials, and Seller's rights under all related warranties;
(vi) all of the technical data and know-how, including
research, product plans, marketing materials, developments, inventions,
discoveries, processes, formulas, algorithms, technology, designs,
drawings, and business strategies, presently used exclusively in and
material to, the Business;
(vii) all of the trademarks, service marks, and trade
names (including registrations, licenses, and applications to register
pertaining thereto) used to identify the Business and/or its goods or
services (including any trademarks registered, or for which registration
is applied, after the date hereof), as set forth on SCHEDULE 1.2(a)(vii)
(the "TRADEMARKS");
(viii) all patents and copyrights (including registrations,
licenses, and applications to register pertaining thereto), and all other
intellectual property rights, trade secrets, and other proprietary
information, processes, and formulas used exclusively in the Business;
(ix) all accounts receivable of Seller relating to the
Business (the "ACCOUNTS RECEIVABLE") as specified in a schedule to be
prepared by Seller in accordance with an accounting procedure to be
agreed upon by Buyer and Seller and provided to Buyer by Seller two days
prior to the Closing Date (the "ACCOUNTS RECEIVABLE SCHEDULE");
(x) all goodwill of the Business as a going concern; all
goodwill associated with the Trademarks;
(xi) Seller's entire right, title and interest in, to and
under all contracts, agreements, licenses, permits, arrangements,
permissions and other commitments and
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arrangements, oral or written, with any person or entity (including
legal authorities) with respect solely to the Business, including,
subject to the consent of the applicable government agency, all
contracts with governmental bodies or agencies under which Seller
provides services in connection with the Business; PROVIDED that Buyer
acknowledges that certain government contracts, specified on SCHEDULE
1.2(a)(xi), require the prior consent of the other parties to the
assignment of such contracts;
(xii) all rights of Seller under express or implied
warranties from suppliers or contractors with respect to the Assets;
(xiii) all claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind arising out of the
Assets or the Business;
(xiv) all existing business and marketing records of the
Business, including accounting and operating records, asset ledgers,
inventory records, budgets, databases, customer lists, employment and
consulting agreements, supplier lists, information and data respecting
leased or owned equipment, files, books, correspondence and mailing
lists, creative, promotional and advertising materials and brochures, and
other business records; and
(xv) all media, including disks, tapes and CDs, and other
tangible property necessary for the transfer of the Assets from Seller to
Buyer pursuant to the terms and conditions of this Agreement.
1.3. BILL OF SALE. The sale and delivery of the Assets shall be
effected by a Bill of Sale, Assignment and Assumption Agreement in the form of
EXHIBIT A attached hereto (the "BILL OF SALE") and such endorsements,
assignments, licenses, drafts, checks and other instruments of transfer and
conveyance, agreements, and documents in form described herein or reasonably
acceptable to Buyer; PROVIDED that the consent to the assignment of contracts
relating to the Business between Seller and the United States government shall
be accomplished by a separate agreement among Buyer, Seller and the United
States government (the "Novation").
1.4. ASSUMED LIABILITIES.
(a) At the Closing, Buyer shall assume:
(i) the trade accounts payable of the Seller relating to
the Business that were incurred in the ordinary course of the Business
and are set forth on SCHEDULE 1.4(a) (the "Assumed Liabilities Schedule")
prepared by Seller in accordance with an accounting procedure to be
agreed upon by Buyer and Seller and provided to Buyer by Seller two days
prior to the Closing;
(ii) the duties and obligations required to be performed
after the Closing under the contracts, leases and other agreements
included in the Assets; and
(iii) the employment related payables of Seller to the
extent specifically
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related to the operation of the Business arising subsequent to the
Closing and set forth on SCHEDULE 1.4(a).
(b) Seller shall, when due, satisfy all of its liabilities or
obligations, except for the liabilities listed on the Assumed Liabilities
Schedule.
1.5. BASE PURCHASE PRICE. As consideration for the sale and transfer
of the Assets, Buyer shall pay or deliver to Seller at the Closing:
(a) $15 million in cash and
(b) 606,000 shares of Buyer's common stock ("BUYER COMMON
STOCK");
PROVIDED that the 606,000 shares of Buyer Common Stock delivered under in this
Section 1.5 shall be issued pursuant to the terms and restrictions contained in
Section 1.9; and PROVIDED FURTHER that all shares of Buyer Common Stock
delivered pursuant to this Section 1.5 and any other provision of this Agreement
shall be valued at $16.50165 per share, unless the terms of such other provision
specifically calculate the per share valuation of Buyer Common Stock on a
different basis.
1.6. ADDITIONAL PURCHASE PRICE. Buyer shall make additional payments
to Seller as follows:
(a) On or before March 31 of 2000, 2001, 2002, 2003 and 2004
(each, a "REVENUE PAYMENT DATE") Buyer shall at its option either (i) issue to
Seller a number of shares of Buyer Common Stock or (ii) pay the cash equivalent
of the prior clause (i) determined as of such date (the "REVENUE PAYMENT")
determined by the following formula:
( (X-Y) ) * 606,000
-----------
($200,000,000)
where (X) means Cumulative Business Revenues and (Y) means Cumulative Previous
Business Revenues on which a Revenue Payment has been made.
The Revenue Payment shall be payable on the first Revenue Payment Date on
which the Cumulative Business Revenues is equal to or exceeds $10,000,000.
Buyer shall not be obligated to issue more than 606,000 shares of Buyer Common
Stock.
(b) On or before March 31 of 2000, 2001, 2002, 2003 and 2004
(each, an "EBITDA PAYMENT DATE"), Buyer shall issue to Seller a number of shares
of Buyer Common Stock (the "EBITDA PAYMENT") determined by the following
formula:
( (X-Y) ) * Potential EBITDA Shares
-----------
($110,000,000)
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where (X) means Cumulative Business EBITDA and (Y) means Cumulative Previous
EBITDA on which an EBITDA payment has been made.
The EBITDA Payment shall be payable on the first EBITDA Payment Date on
which the Cumulative EBITDA is equal to or exceeds $10,000,000. Buyer shall not
be obligated to issue more than the number of Potential EBITDA Shares to Seller.
(c) For purposes of this Agreement, terms used in subsections
(a) and (b) above shall be defined as follows:
(i) "CURRENT YEAR BUSINESS REVENUES" means revenues
reflected on Buyer's financial statements for the calendar year
immediately preceding the Revenue Payment Date which were derived by
Buyer from the operation of the Business, determined in accordance with
generally accepted accounting principles applied on a consistent basis,
based upon audited financial statements of Buyer performed by its
independent accounting firm.
(ii) "CUMULATIVE BUSINESS REVENUES" means the total of
all Current Year Business Revenues for the calendar years ending prior to
the Revenue Payment Date.
(iii) "CUMULATIVE PREVIOUS BUSINESS REVENUES" means the
total of all Current Year Business Revenues for calendar years ending
more than one year prior to a particular Revenue Payment Date.
(iv) "CURRENT YEAR BUSINESS EBITDA" means earnings
before interest, taxes and depreciation reflected on Buyer's financial
statements for the calendar year immediately preceding the EBITDA Payment
Date which were derived by Buyer from the operation of the Business,
determined in accordance with generally accepted accounting principles
applied on a consistent basis, based upon audited financial statements of
Buyer performed by its independent accounting firm, subject to the
limitations of Section 1.6(c)(viii) below.
(v) "CUMULATIVE EBITDA" means the total of all Current
Year EBITDA for the calendar years ending prior to the EBITDA Payment
Date.
(vi) "CUMULATIVE PREVIOUS EBITDA" means the total of all
Current Year EBITDA for calendar years ending more than one year prior to
a particular EBITDA Payment Date.
(vii) "POTENTIAL EBITDA SHARES" means $10,000,000 divided
by the average of the closing sale price of Buyer Common Stock on the
Nasdaq National Market on each of the five (5) trading days immediately
preceding (but not including) the first EBITDA Payment Date on which
Buyer is obligated to issue Buyer Common Stock to Seller with respect to
an EBITDA Payment.
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(viii) For the purposes of determining Current Year
Business EBITDA, Buyer shall not allocate to the Business any corporate
financial overhead, accounting or legal expenses that are not incurred in
the operation of the Business.
(ix) Buyer shall manage and operate the Business and the
Assets as a separate business unit after the Closing, and shall maintain
a financial reporting system that will separately account for the revenue
and expenses of the Business and the Assets, through December 31, 2003
(the "Earn Out Period"). Moreover, neither Buyer (through operating
divisions or units other than the Business) nor its subsidiaries or
other entities contracted by it shall, during the Earn Out Period,(x)
compete with the Business; (y) transfer personnel from the Business
without Seller's consent, which shall not be unreasonably withheld; or
(z) cause or permit assets of the Business to be sold or transferred
without Seller's consent, which consent shall not be unreasonably
withheld. For the purposes of calculating the Revenue Payment, Buyer
shall not allocate to the Business expenses or costs that are not
incurred in the operation of the Business.
1.7. ALLOCATION. Within 90 days after the Closing Date, Buyer shall
prepare and finalize a schedule setting forth an allocation of the Purchase
Price among the Assets (the "ALLOCATION SCHEDULE"), subject to the approval of
Seller which shall not be unreasonably withheld. Each party agrees to report
the transactions contemplated hereby for federal income tax and all other tax
purposes (including for purposes of Section 1060 of the Internal Revenue Code of
1986, as amended (the "CODE")) in a manner consistent with the Allocation
Schedule, and in accordance with all applicable rules and regulations, and to
take no position inconsistent with the allocation set forth therein in any
administrative or judicial examination or other proceeding. Each of Buyer and
Seller shall timely file the appropriate forms in accordance with the
requirements of Section 1060 of the Code and this Section.
1.8. METHOD OF PAYMENT.
(a) Except as otherwise expressly provided herein, all cash
payments from one party to another under this Agreement shall be made by wire
transfer in United States dollars to an account designated in writing by the
party to receive such payment. With respect to all payments made pursuant to
this Section 1, the parties agree that such designation has been already been
provided in advance of the scheduled date of payment and need not be provided
two Business Days before the Closing Date.
(b) Buyer shall not be required to deliver or issue fractional
shares, and instead may deliver an equivalent cash amount in lieu of any
fractional share.
(c) Any payment or delivery hereunder due on a day which is not
a Business Day shall be postponed, without interest, until the next Business
Day.
(d) Buyer shall have no obligation to register under the
Securities Act of 1933, as amended (the "Securities Act"), any shares of Buyer
Common Stock delivered to Seller pursuant to this Agreement except as provided
in Section 6 herein.
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(e) Buyer shall be entitled to deduct and withhold from any
payment or delivery of Buyer Common Stock to Seller or Shareholders hereunder
such amount as Buyer is legally required to deduct and withhold with respect to
the making of such payment or delivery under the Code or any provision of state,
local or foreign tax laws.
1.9. REPURCHASE RIGHT; CANCELLATION RIGHT; ESCROW.
(a) With respect to 151,500 shares (the "Indemnity Shares") of
the Buyer Common Stock to be delivered to the Seller at the Closing pursuant to
Section 1.5(b):
(i) The Indemnity Shares shall be divided equally
between and issued to each of Walter L. Mazan II, Robert Main and Ronald
Linehan (each a "Shareholder"). The certificates representing the
Indemnity Shares shall each be stamped or otherwise imprinted with a
legend in the form set forth on EXHIBIT B attached hereto, which, inter
alia, shall have the effect of prohibiting each of the Shareholders from
offering to sell, contracting to sell or otherwise selling, disposing of,
loaning, pledging or granting any rights with respect to any such shares
of Buyer, any options or warrants to purchase any such shares of Buyer
Common Stock, or any securities convertible into or exchangeable for such
shares of Buyer Common Stock until up to the second anniversary of the
Closing Date and subject to cancellation in whole or in part, subject to
Section 1.9(a)(ii)(2), in order to satisfy Seller's obligations under
Section 5.2(c).
(ii) Pursuant to the terms of this Agreement and Section
5.2(c), under certain circumstances Buyer may have a claim against the
Indemnity Shares (a "CLAIM") from the period following the Closing Date
until up to the second anniversary of the Closing Date. Subject to the
provisions of Section 1.9(a)(ii)(4) and the procedures set forth in
Section 5.2(c):
(1) From time to time, on or before the first anniversary of the
Closing Date, Buyer may give a notice (the "NOTICE") to Seller
specifying in reasonable detail the nature and dollar amount (to
the extent ascertainable at the time) of any Claim it may have
under this Agreement and Section 5.2(c). Buyer may make more than
one Claim with respect to any underlying state of facts. If
Seller gives a notice to Buyer disputing any Claim (a "COUNTER
NOTICE") within 30 days following receipt by Seller of Buyer's
Notice, both Buyer and Seller agree to comply fully with the
provisions set forth under Section 1.9(a)(ii)(4) below. If Buyer
does not receive a Counter Notice within the period ending 30 days
after the receipt by Seller of such Notice, then the dollar amount
claimed by Buyer as set forth in the Notice shall be deemed
established for purposes of this Agreement and Section 5.2(c), and
Buyer has the immediately exerciseable right to repurchase up to
the number of
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Indemnity Shares (the "CLAIMED SHARES") equal to the quotient
achieved by dividing the dollar value of such Claim by $16.50165.
At the end of such 30-day period, Seller shall cause Shareholders
to deliver to Buyer's transfer agent the certificates
representing the Indemnity Shares, and Buyer shall instruct its
transfer agent to cancel that portion of Claimed Shares
represented by the certificate and to reissue three certificates
representing the balance of uncancelled Indemnity Shares, each
bearing a legend in the form set forth on Exhibit B, in the names
of the Shareholders.
(2) Immediately after the first anniversary of the Closing Date,
Seller shall cause Shareholders to deliver to Buyer's transfer
agent the certificates representing the remaining Indemnity
Shares, and Buyer shall instruct its transfer agent to cancel such
certificates and reissue (A) three certificates in equal amounts
representing in the aggregate 15,150 shares of Buyer Common Stock,
each in the name of a Shareholder and each stamped or otherwise
printed with a legend in the form set forth on Exhibit B; and (B)
three certificates in equal amounts representing in the aggregate
the balance of the Indemnity Shares held by Shareholder on the
first anniversary of the Closing Date, each to be issued in the
name of a Shareholder and without bearing restrictive legends and
not subject to Claims presented on or before such date.
(3) From time to time, on or before the second anniversary of the
Closing Date, Buyer may give a Notice to Seller specifying in
reasonable detail the nature and dollar amount (to the extent
ascertainable at the time) of any Claim it may have arising under
the matter described in SCHEDULE 5.2(c). If Seller gives a
Counter Notice to Buyer, within 30 days following receipt by
Seller of Buyer's Notice, both Buyer and Seller agree to comply
fully with the provisions set forth under Section 1.9(a)(ii)(4)
below. If Buyer does not receive a Counter Notice within the
period ending 30 days after the receipt by Seller of Buyer's
Notice, then the dollar amount claimed by Buyer as set forth in
the Notice shall be deemed established for purposes of this
Agreement and Section 5.2(c), and Buyer has the immediately
exerciseable right to repurchase up to 15,150 Indemnity Shares.
At the end of such 30-day period, Seller shall cause Shareholders
to deliver to Buyer's transfer agent the certificates
<PAGE>
representing the Indemnity Shares, and Buyer shall instruct its
transfer agent to cancel that portion of Claimed Shares
represented by the certificate and to reissue three certificates,
each bearing a legend in the form set forth on Exhibit B, in the
names of the Shareholders.
(4) If a Counter Notice is given with respect to a Claim, Seller and
Buyer may apportion the Indemnity Shares only in accordance with
(A) joint written instructions of Buyer and the Seller or (B) a
final non-appealable order from binding arbitration (an "ORDER").
Both Buyer and Seller shall act on such Order without further
question.
(b) With respect to 363,600 shares of the Buyer Common Stock
(the "RETENTION HOLDBACK") to be delivered pursuant to Sections 1.5(b):
(i) The Retention Holdback shall be divided equally
between and issued to each of the Shareholders. The certificates
representing the Retention Holdback shall each be stamped or otherwise
imprinted with a legend in the form set forth on EXHIBIT C attached
hereto.
(ii) If, on or prior to the first anniversary of the
Closing Date, either or both of Ronald Linehan or Robert Main are no
longer employed by Buyer for any reason except death or Buyer's
termination of employment without Cause (as defined in Section 7.9),
Buyer shall, subject to the provisions of Section 1.9(b)(iv), on or after
the first anniversary of the Closing Date, notify Seller in writing (the
"RETENTION CLAIM") that, within 30 days from the date of the Retention
Claim, Buyer shall repurchase the Retention Holdback and instruct its
transfer agent to cancel all of the certificates held by Seller that
represent the Retention Holdback. If Seller does not dispute in a
written notice given to Buyer (the "COUNTER RETENTION NOTICE") within 30
days from the date of the Retention Notice, Buyer may at any time
thereafter repurchase the Retention Holdback at a price equal to the
greater of (1) $0.001 per share or (2) Seller's obligation incurred in
protecting the price of such Buyer Common Stock, if any, and instruct its
transfer agent to cancel all of the certificates held by Seller that
represent the Retention Holdback. In the event Seller should receive any
payments from third parties as a result of any agreement protecting the
price of such Buyer Common Stock repurchased by Buyer, Seller shall
promptly remit the premiums paid to Buyer.
(iii) If, on or prior to the first anniversary of the
Closing Date, either or both of Ronald Linehan or Robert Main remain
employed by Buyer or are no longer employed by Buyer due to death or
Buyer's termination of employment without Cause (as defined in Section
7.9), Buyer shall provide written instruction to its transfer agent to
cancel the certificates representing the Retention Holdback and issue to
the Shareholders replacement certificates that no longer bear restrictive
legends.
<PAGE>
(iv) If a Counter Notice is given with respect to a
Retention Claim, only in accordance with (i) joint written instructions
of Buyer and the Seller, or (ii) a final non-appealable Order, may the
restrictions from transfer be lifted from the certificates. Both Buyer
and Seller shall act on such Order and legal opinion without further
question.
(c) Subject to the terms of Section 1.9(c)(iv) below, with
respect to 90,900 shares of the Buyer Common Stock (the "GOVERNMENT CONTRACTS
HOLDBACK") to be delivered pursuant to Section 1.5(b):
(i) The Government Contracts Holdback shall be divided
equally between and issued to each of the Shareholders and delivered to
Morrison & Foerster LLP (the "ESCROW AGENt"), 2000 Pennsylvania Avenue,
NW, Washington, D.C. 20006-1888. The certificates representing the
Government Contracts Holdback shall each be stamped or otherwise
imprinted with a legend in the form set forth on Exhibit C attached
hereto. The parties agree that the Government Contracts Holdback shall
be held in escrow, pursuant to reasonable terms to be established by
Escrow Agent, until the earlier of (1) Seller's obtaining the consent of
the parties listed on Schedule 1.2(a)(xi) to the assignment to Buyer of
the agreements between Seller and such parties, (2) Seller's securing
alternate agreements that replace those listed on Schedule 1.2(a)(xi) by
providing the same services to the same governmental agencies as those
provided by the agreements listed on Schedule 1.2(a)(xi) or (3) 120 days
after the Closing Date.
(ii) If, before 120 days following the Closing Date, the
events described in either Sections 1.9(c)(i)(1) or 1.9(c)(i)(2) occur,
Buyer shall instruct Escrow Agent to deliver the Government Contracts
Holdback to Seller. If the events described in either Sections
1.9(c)(i)(1) or 1.9(c)(i)(2) do not occur before 120 days following the
Closing Date, Buyer shall promptly give to Seller and to Escrow Agent a
notice (the "HOLDBACK NOTICE") that Buyer intents to instruct Escrow
Agent to deliver the Government Contracts Holdback to Buyer. If Seller
gives a notice to Buyer disputing the Holdback Notice, (a "COUNTER
HOLDBACK NOTICE") within 30 days following receipt by Buyer of such
Counter Notice, both Buyer and Seller agree to comply fully with the
provisions set forth under Section 1.9(c)(iii) below. If Buyer does not
receive a Counter Notice within the period ending 30 days after the
receipt by Buyer of such Counter Notice, then the dollar amount claimed
by Buyer as set forth in the Notice shall be deemed established for
purposes of this Agreement, and Buyer has the immediately exerciseable
right to instruct Escrow Agent to deliver the Government Contracts
Holdback to Buyer equal to the quotient achieved by dividing the dollar
value of such Claim by $16.50165.
(iii) If a Counter Holdback Notice is given with respect
to a Claim, Buyer may instruct its transfer agent to deliver the
Government Contracts Holdback to Buyer, only in accordance with (A) joint
written instructions of Buyer and the Seller or (B) an Order. Any such
Order shall be accompanied by a legal opinion of counsel for the
presenting party satisfactory to the other party to the effect that the
Order is final and non-
<PAGE>
appealable. Both Buyer and Seller shall act on such Order and legal
opinion without further question.
1.10. ACCOUNTS RECEIVABLES. Any amounts paid to Seller with respect to
any Account Receivable after the Closing Date will be delivered by Buyer to
Seller as soon as reasonably practicable. Any revenues or compensation received
in connection with the Business that are paid to Seller prior to the Closing
Date for services to be provided after the Closing Date will be held until the
Closing Date and then delivered by Seller to Buyer.
1.11. EXCLUDED ASSETS. The following items are not included in the
Assets or the Business (the "EXCLUDED ASSETS"): (i) all assets, tangible or
intangible, used by Seller in its publishing business; (ii) all trademarks,
trade names and intellectual property used by Seller in its business operations
for both the business and the publishing business, except to the extent
specifically listed in Schedules 1.2(a), 1.2(a)(iii), 1.2(a)(iv), 1.2(a)(vii)
and the Accounts Receivables Schedule.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and as of
the Closing Date as follows, except for disclosure contained on the Schedules
hereto numbered to correspond to the sections below (the "DISCLOSURE
SCHEDULES"):
2.1. DUE ORGANIZATION, POWER AND AUTHORITY. Seller is a corporation
duly and validly incorporated under the laws of the Commonwealth of Virginia and
is qualified to conduct business in every jurisdiction where such qualification
is required. Seller has the full corporate power and authority to conduct its
business as presently conducted and to enter into this Agreement and the other
Transaction Documents and to consummate the transactions contemplated herein and
therein.
2.2. POWER; AUTHORIZATION AND ENFORCEABILITY. All action on the part
of Seller necessary for the authorization, execution, delivery and performance
of this Agreement and the other Transaction Documents to which it is a party has
been taken and remains in full force and effect. Seller has all requisite power
and capacity to execute and deliver this Agreement and to carry out and perform
its obligations under the terms of this Agreement and each of the Transaction
Documents to which it is a party. All action on the part of Seller necessary
for the authorization, execution, delivery and performance of this Agreement and
the other Transaction Documents to which it is a party has been taken and
remains in full force and effect. Delivery of the Bill of Sale and other
instruments of transfer contemplated by Section 1.3 will transfer to Buyer good
and marketable title to all of the Assets, free and clear of any Encumbrance.
This Agreement constitutes, and the other Transaction Documents will each
constitute, the valid and binding obligations of Seller, enforceable in
accordance with its terms, except as such
<PAGE>
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws and by general
principles of equity.
2.3. NO CONFLICT. Seller is not in violation in any material respect
of any term or provision of any agreement to which it is a party. The
execution, delivery and performance of this Agreement and each of the other
Transaction Documents by Seller have not resulted and will not result in, nor
will consummation of the transactions contemplated hereby or thereby result in,
any violation of or conflict with, or constitute a default under, any agreement,
or result in the creation of any Encumbrance upon any of the Assets or any of
the other assets of Seller or the acceleration of maturity of or other change in
any obligation of Seller or right of any third-party; and there exists no such
violation, conflict or default that does or could reasonably be expected to
materially adversely affect the condition or prospects of the Business or the
Assets or the ability of Seller to consummate its obligations hereunder and
under the Transaction Documents.
2.4. GOVERNMENTAL CONSENTS, ETC. To the best of Seller's knowledge, no
consent, approval or authorization of or designation, declaration, or filing
with any governmental, regulatory or administrative body, agency or authority,
or any court or judicial authority (each, an "AUTHORITY") on the part of Seller
is required in connection with the valid execution and delivery of this
Agreement or any other Transaction Document or the consummation of the
transactions contemplated hereby or thereby. The execution, delivery, and
performance of this Agreement and each Transaction Document, and the
consummation of the transactions contemplated hereby or thereby, do not require
consent, approval, or authorization under any agreement to which Seller is a
party or by which the Assets or Business is bound or affected.
2.5. FINANCIAL STATEMENTS AND CONDITION.
(a) Seller has delivered to Buyer financial statements for the
periods January 1, 1997 through December 31, 1997, January 1, 1998 through
December 31, 1998 (the "Financial Statements"), and for the period January 1,
1999 through June 30, 1999 (the "Interim Statements"). The Financial Statements
are audited and prepared in accordance with United States generally accepted
accounting principles consistently applied throughout the period covered by the
Financial Statements. Seller's independent auditors have provided a review
report covering the Interim Statements. The Financial Statements and the
Interim Statements constitute true and complete financial statements for the
periods specified and are in accordance with the books and records of the
Seller. Such statements present fairly the position of the Business as of the
respective dates thereof and the results of operations and cash flows of the
Business for the periods covered thereby.
(b) Seller has no direct or indirect indebtedness, liabilities,
claims, losses, damages, deficiencies, obligations or responsibilities,
liquidated or unliquidated, accrued, absolute, contingent, or otherwise
("LIABILITIES") which in any way encumber the Assets and no Liabilities
otherwise exist that encumber the Assets.
(c) Since June 30, 1999, Seller has not:
<PAGE>
(i) suffered any change, event or condition that, in any
case or in the aggregate, has had or could reasonably be expected to have
a material adverse effect upon the Business or the Assets or Seller's
ability to consummate the transactions contemplated herein and in the
other Transaction Documents;
(ii) entered into any material transaction, contract or
commitment relating to the Business in any manner; and
(iii) incurred or paid any liability or obligation not in
the ordinary course of business, consistent with past custom and practice
including as to quantity and frequency with respect to the Business.
2.6. TAX MATTERS. Seller has, within the times and in the manner
prescribed by law, filed all required tax returns, including sales and use tax
returns, has paid or provided for all taxes, including sales and use tax owed by
Seller, with respect to the Business (whether or not shown on any tax return to
be due and owing by him), has paid or provided for all deficiencies or other
assessments of taxes, interest or penalties owed by it, and, to the best of
Seller's Knowledge (as defined), all such tax returns were correct and complete.
No taxing authority has asserted, or, to the best of Seller's Knowledge, will
successfully assert, any claim for the assessment of any additional taxes of any
nature with respect to any periods covered by any such tax returns; and all
taxes or other charges required to be withheld or collected by Seller, with
respect to the Business, have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing Authority or properly segregated
or deposited as required by law.
2.7. COMPLIANCE AND LAWS. Seller has in all respects complied with,
and is now in all respects in compliance with, all laws, rules, regulations,
orders, judgments and decrees of all Authorities applicable to the Business with
which failure to comply would result in a Material Adverse Effect (as defined)
on Seller, and the Business is otherwise in compliance with all such laws,
regulations, orders, judgments and decrees. Seller possesses each franchise,
license, permit, authorization, certification, consent, variance, permission,
order or approval of or from any Authority, and has filed all filings, notices
or recordings with any Authority (collectively, "LICENSES") with which the
failure to comply would result in a Material Adverse Effect on the Seller and is
now, and has at all times in the past been, in compliance with each thereof.
Each such License is identified on SCHEDULE 2.7. No proceeding or other action
is pending or, to the best of Seller's Knowledge, threatened, to revoke, amend,
or limit any License, and Seller has no basis to believe that any such
proceeding or action would result from the consummation of the transactions
contemplated hereby or by the other Transaction Documents, or that any such
License would not be renewed in the ordinary course.
2.8. LITIGATION. There is no pending or, to the best of Seller's
Knowledge, threatened adverse claim, dispute, governmental investigation, suit,
action, arbitration, legal, administrative or other proceeding of any nature,
domestic or foreign, criminal or civil, at law or in equity, by or against or
otherwise affecting Seller, the Business or the Assets.
2.9. TANGIBLE PROPERTY. Seller has good and marketable title to each
item of tangible personal property that is an Asset, free and clear of all
Encumbrances, and each such item of
<PAGE>
tangible personal property is in good operating condition and repair, useable
in the ordinary course of business. SCHEDULE 1.2(a)(iv) contains a complete
and accurate list setting forth a description of each item of tangible
property that is an Asset.
2.10. AGREEMENTS.
(a) SCHEDULE 2.10(a) sets forth a true and complete list of all
Material agreements, written or oral, express or implied, including all
commitments, guarantees of indebtedness and other instruments, binding Seller
with respect to the Business or the Assets or that otherwise bind or affect the
Business or Assets, and all powers of attorney. True and complete copies of
each such written agreement have been delivered to Buyer.
(b) With respect to such agreements:
(i) Each such agreement is the valid and binding
obligation of the other contracting party, enforceable in accordance with
its terms against the other contracting party, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws and by
general principles of equity, and is in full force and effect;
(ii) Seller has fulfilled all material obligations
required to have been performed by him prior to the Closing Date, and
there is no reason to believe that the other contracting party will not
be able to fulfill all of its or its obligations when due in respect
thereof; and
(iii) to the best of Seller's Knowledge, no other
contracting party to any such agreement is in breach thereof, and there
are not, nor have there been in the twelve (12) month period prior to the
date hereof, any material disputes between Seller and any other
contracting party.
(c) Seller is not a party to, nor is Seller otherwise bound by,
any agreement or commitment that (i) restricts the conduct of the Business
anywhere in the world; (ii) contains any unusual or burdensome provisions that
could reasonably be expected to have an adverse effect upon the condition
(financial or otherwise) of the Business or the Assets; or (iii) grants
exclusive rights to sell advertising on the Web Sites or any other exclusive
rights.
(d) All representations and warranties that have been provided
by Seller and which are contained in any agreement with any federal, state or
local governmental authority listed on Schedule 2.10(a) are true and complete.
2.11. EMPLOYEES AND CONSULTANTS.
(a) SCHEDULE 2.11(a) is a true and complete list of each
employee of Seller and each consultant with whom Seller has done business within
twelve months prior to the date hereof involving the Business. The schedule
sets forth for each employee the current rate of compensation for such employee
and the employee's hire date.
<PAGE>
(b) Seller has provided to Buyer true and complete copies of
all employee benefits plans and other related materials of Seller.
(c) Schedule 2.11(c) lists (i) all "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), (ii) all employment agreements, including,
but not limited to, any individual benefit arrangement, policy or practice with
respect to any current or former employee or director of Seller or of any trade
or business, whether or not incorporated, which would be treated as a single
employer with Seller under Section 4001 of ERISA or Section 414(b), (c), (m)
or (o) of the Internal Revenue Code of 1986, as amended (the "CODE") (each such
trade or business, a "MEMBER OF THE CONTROLLED GROUP"), and (iii) all other
employee benefit, bonus or other incentive compensation, stock option, stock
purchase, stock appreciation, severance pay, lay-off or reduction in force,
change in control, sick pay, vacation pay, salary continuation, retainer, leave
of absence, educational assistance, service award, employee discount, fringe
benefit plans, arrangements, policies or practices, whether legally binding or
not, which Seller or any Member of the Controlled Group maintains, to which any
of them contributes, or for which any of them has any obligation or liability
(collectively, the "EMPLOYEE PLANS" and each an "EMPLOYEE PLAN").
(d) None of the Employee Plans is a plan described in Section
3(35) of ERISA or a plan subject to the minimum funding standards set forth in
Section 302 of ERISA and Section 412 of the Code (a "DEFINED BENEFIT PLAN"), and
neither Seller nor any Member of the Controlled Group has ever sponsored,
maintained or contributed to, or ever been obligated to contribute to, a Defined
Benefit Plan.
(e) None of the Employee Plans is a plan described in Section
3(37) of ERISA (a "MULTIEMPLOYER PLAN," and neither Seller nor any Member of the
Controlled Group has ever contributed to, or ever been obligated to contribute
to, a Multiemployer Plan.
(f) Seller does not maintain or contribute to any plan that
provides health benefits to an employee after the employee's termination of
employment or retirement except as required under Section 4980B of the Code and
Sections 601 through 608 of ERISA.
(g) Each Employee Plan which is an "employee benefit plan," as
defined in Section 3(3) of ERISA, complies by its terms and in operation with
the requirements provided by any and all statutes, orders or governmental rules
and regulations currently in effect and applicable to the Employee Plan,
including but not limited to ERISA and the Code.
(h) All reports, forms and other documents required to be filed
with any government entity or furnished to employees, former employees or
beneficiaries with respect to any Employee Plan (including without limitation,
summary plan descriptions, Forms 5500 and summary annual reports) have been
timely filed and furnished and are accurate.
(i) Each of the Employee Plans that is intended to qualify
under Section 401(a) of the Code has been determined by the Internal Revenue
Service so to qualify after January 1, 1989, and each trust maintained pursuant
thereto has been determined by the Internal Revenue Service to be exempt from
taxation under Section 501 of the Code. Nothing has occurred since
<PAGE>
the date of the Internal Revenue Service's favorable determination letter
that could adversely affect the qualification of the Employee Plan and its
related trust. Seller and each Member of the Controlled Group have timely
amended and operated each of the Employee Plans to comply with the Small
Business and Job Protection Act of 1996 and subsequent legislation enacted
through the date hereof, and Section 501 of the Code.
(j) All contributions for all periods ending prior to the
Closing Date (including periods from the first day of the current plan year to
the Closing Date) have been made [or will have been made prior to the Closing
Date] by Seller or by a Member of the Controlled Group.
(k) All insurance premiums have been paid in full, subject only
to normal retrospective adjustments in the ordinary course, with regard to the
Employee Plans for plan years ending on or before the Closing Date.
(l) With respect to each Employee Plan:
(i) no prohibited transactions (as defined in
Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred
for which a statutory exemption is not available;
(ii) no action or claims (other than routine claims for
benefits made in the ordinary course of plan administration for which
plan administrative review procedures have not been exhausted) are
pending or threatened or imminent against or with respect to the Employee
Plan, any employer who is participating (or who has participated) in any
Employee Plan or any fiduciary (as defined in Section 3(21) of ERISA), of
the Employee Plan;
(iii) neither Seller, nor any fiduciary has any Knowledge
of any facts that could give rise to any such action or claim; and
(iv) each Employee Plan provides that it may be amended
or terminated at any time and, except for benefits protected under
Section 411(d) of the Code, all benefits payable to current, terminated
employees or any beneficiary may be amended or terminated by Seller at
any time without liability.
(m) Neither Seller nor any Member of the Controlled Group has
any liability or is threatened with any liability (whether joint or several)
(i) for any excise tax imposed by Sections 4971, 4975, 4976, 4977 or 4979 of the
Code, or (ii) to a fine under Section 502 of ERISA.
(n) All of the Employee Plans, to the extent applicable, are in
compliance with the continuation of group health coverage provisions contained
in Section 4980B of the Code and Sections 601 through 608 of ERISA.
(o) True, correct and complete copies of all documents creating
or evidencing any Employee Plan have been delivered to Buyer, and true, correct
and complete copies of all
<PAGE>
reports, forms and other documents required to be filed with any governmental
entity or furnished to employees, former employees or beneficiaries
(including, without limitation, summary plan descriptions, Forms 5500 and
summary annual reports for all plans subject to ERISA, but excluding
individual account statements and tax forms) have been delivered to Buyer.
There are no negotiations, demands or proposals which are pending or have
been made which concern matters now covered, or that would be covered, by the
type of agreements required to be listed in Schedule 2.11(c).
(p) All expenses and liabilities relating to all of the
Employee Plans have been, and will on the Closing Date be fully and properly
accrued on Seller's books and records and disclosed in accordance with generally
accepted accounting principles and in plan financial statements.
(q) To the best knowledge of Seller, Seller is not engaged, and
has never been engaged, in any unfair labor practice of any nature. There has
never been any slowdown, work stoppage, labor dispute or union organizing
activity, or any similar activity or dispute, affecting Seller or any of its
employees. There is not now pending, and to the best knowledge of Seller no
person has threatened to commence, any such slowdown, work stoppage, labor
dispute or union organizing activity or any similar activity or dispute, nor has
any event occurred, nor does any condition or circumstance exist, that likely
would directly or indirectly give rise to or provide a basis for the
commencement of any such slowdown, work stoppage, labor dispute or union
organizing activity or similar activity or dispute.
2.12. BROKERS OR FINDERS. Seller has not incurred, nor will incur,
directly or indirectly, any liability, for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Seller shall indemnify and hold Buyer harmless
with respect to any claim by any broker, agent, or finder claiming to have acted
on behalf of Seller, respecting the subject matter hereof.
2.13. INTELLECTUAL PROPERTY.
(a) Seller owns, Buyer shall receive at Closing, and Seller's
intellectual property includes, all trademarks, service marks, trade names, and
copyrights (including registrations, licenses, and applications pertaining
thereto) and all other intellectual property rights, software (in object and
source code formats), trade secrets, and other proprietary information,
processes, and formulas used in the Business and set forth on Schedule 1.2(a).
At the date hereof, Seller has no registered trademarks, service marks, trade
names or copyrights. Buyer acknowledges that the Assets do not include
intellectual property used by Seller in its other businesses, including, but not
limited to the name "Electric Press" and the domain registration
www.elpress.com.
(b) Each employee and consultant of Seller has executed a
proprietary rights and information agreement in a form provided to Buyer.
(c) No intellectual property right or other claims have been
asserted by any person or entity to the use of any Asset and there is no valid
basis for any such claim. The use of any
<PAGE>
Asset by Seller, and the operation of the Business as currently conducted,
does not infringe on the intellectual property or other rights of any person
arising out of the laws of the United States.
(d) Seller has good and marketable title to each item of
intellectual property used in the Business as more fully described in Sections
1.2(a)(v), 1.2(a)(vi), 1.2(a)(vii) and 1.2(a)(viii), free and clear of all
Encumbrances. Seller is the sole and rightful owner of all right, title and
interest in and to each of such items of intellectual property, and has the
unrestricted right to market, license and otherwise exploit each intangible
Asset.
2.14. THIRD-PARTY COMPONENTS, RIGHTS, ETC.
(a) To the best of Seller's knowledge, Seller has validly and
effectively obtained the right and license to use the third-party programs and
other intellectual property included in the Assets and used to operate the
Business as it is currently operated or has been conducted in the last year,
including intellectual property rights and licenses as provided for under the
agreements set forth in SCHEDULE 1.2(a), except for any open source software and
derivatives thereof developed by Seller which Seller has and at all times has
had the right to use in the Business without obtaining a license and which Buyer
similarly will be entitled to so use following the Closing Date. Seller has the
right to assign and transfer to Buyer the foregoing rights and licenses, and, to
the best of Seller's Knowledge, the Assets contain no other programming or
materials in which any third-party may claim superior, joint, or common
ownership, including any right or license other than licenses granted in the
ordinary course of business. The Assets do not contain derivative works of any
programming or materials not owned in their entirety by Seller and included in
the Assets.
(b) Seller has not granted, transferred or assigned any of
Seller's right, title or interest in or to any Asset to any person or entity
other than in the ordinary course of business. There are no contracts,
agreements, licenses, and other commitments and arrangements in effect with
respect to the marketing, distribution, licensing or promotion of any Asset by
any independent salesperson, distributor, sublicensor or other remarketer or
sales organization, except as set forth on SCHEDULE 1.2(a).
2.15. GENERAL.
(a) No representation or warranty made by Seller herein or in
any other Transaction Document, or any schedule or exhibit attached hereto or
thereto, contains any material misstatement of any fact or omits to state
anything necessary to make any material statement made herein or therein not
misleading. The information to be provided to Buyer by Seller or any of its
representatives for inclusion in the Registration Statement will not contain any
material misstatement of any fact or omit to state anything necessary to make
any material fact contained therein not misleading.
(b) Other than the facts or other information disclosed in the
Disclosure Schedules, there is no fact within the Knowledge of Seller (other
than publicly known facts relating exclusively to political or economic matters
of general applicability that will adversely affect all comparable businesses)
that:
<PAGE>
(i) may have a Material Adverse Effect on the Business
or its condition, assets, liabilities, operations, financial performance,
net income or prospects, or the ability of Seller to comply with or
perform any covenant or obligation under this Agreement or any of the
other Transaction Documents; or
(ii) may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the transactions
contemplated hereby or by any of the other Transaction Documents.
2.16. INVESTMENT REPRESENTATIONS.
(a) Seller is an "accredited investor," as defined in
Rule 501(a) under the Securities Act. Seller, by reason of its business and
financial experience has such knowledge, sophistication and experience in
financial and business matters and in making investment decisions of this type
that it is capable of (i) evaluating the merits and risks of an investment in
Buyer Common Stock and making an informed investment decision, (ii) protecting
its own interest and (iii) bearing the economic risk of such investment.
(b) Seller is acquiring the Buyer Common Stock to be issued
pursuant to Section 1.5(b) and 1.6 for investment for Seller's own account, not
as a nominee or agent and not with the view to, or any intention of, a resale or
distribution thereof, in whole or in part, or the grant of any participation
therein, except distributions to its shareholders pro rata, from time to time.
Seller understands that such shares have not been, and will not be, registered
under the Securities Act or state securities laws. Seller will comply with the
Securities Act in connection with any offer, sale, pledge, transfer or other
disposition of such shares.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as of
the Closing Date as follows:
3.1. REQUISITE POWER. Buyer has all requisite corporate power to
execute and deliver this Agreement and to carry out and perform its obligations
under the terms of this Agreement and the other Transaction Documents to which
it is a party.
3.2. AUTHORIZATION. All action on the part of Buyer necessary for the
authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents to which it is a party has been taken and remains in
full force and effect. This Agreement constitutes, and the other Transaction
Documents to which Buyer is a party will each constitute, the valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws and by
general principles of equity.
<PAGE>
3.3. NO CONFLICT. The execution, delivery, and performance of this
Agreement and any of the other Transaction Documents to which it is a party by
Buyer has not resulted and will not result in, nor will consummation of the
transactions contemplated hereby or thereby result in, any material violation
of, or conflict with, or constitute a default under, any of its charter
documents or material agreements; and there exists no such violation or default
that does or could materially and adversely affect the ability of Buyer to
consummate its obligations hereunder.
3.4. GOVERNMENTAL CONSENTS, ETC. To the best of Buyer's knowledge, no
consent, approval or authorization of or designation, declaration, or filing
with any Authority on the part of Buyer is required in connection with the valid
execution and delivery of this Agreement or any Transaction Document to which
Buyer is a party or the consummation of the transactions contemplated thereby or
thereby.
3.5. BROKERS OR FINDERS. Buyer has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Buyer shall indemnify and hold Seller harmless
with respect to any claim by any broker, agent or finder claiming to have acted
on behalf of Buyer respecting the subject matter hereof.
3.6. BUYER'S COMMON STOCK. The issuance and delivery by Buyer of
shares of Buyer's Common Stock in connection with the Base Purchase Price and
the Additional Purchase Price will be, at the Closing, or at the Revenue Payment
Date, as applicable, duly and validly authorized by all necessary corporate
action on the part of Buyer. The shares of Buyer's Common Stock to be issued
will, when issued and delivered to Seller in accordance with this Agreement, be
validly issued, fully paid and non-assessable, and free and clear of all liens,
claims and Encumbrances.
3.7. GENERAL.
(a) No representation or warranty made by Buyer herein or in
any other Transaction Document contains any material misstatement of any fact or
omits to state anything necessary to make any material statement made herein or
therein not misleading.
(b) There is no fact within the Knowledge of Buyer (other than
publicly known facts relating exclusively to political or economic matters of
general applicability that will adversely affect all comparable businesses)
that:
(i) may have a material adverse effect on the ability of
Buyer to comply with or perform any covenant or obligation under this
Agreement or any of the other Transaction Documents; or
(ii) may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the transactions
contemplated hereby or by any of the other Transaction Documents.
<PAGE>
SECTION 4
CLOSING CONDITIONS/CLOSING DOCUMENTS/TERMINATION
4.1. SELLER DELIVERIES. At the Closing, Seller shall execute and
deliver to Buyer the following documents:
(a) a noncompetition agreement (the "NONCOMPETITION AGREEMENT")
in the form of EXHIBIT D with Seller;
(b) the Bill of Sale, and such other instruments of assignment
as Buyer and its counsel reasonably request to evidence or effect the sale,
transfer and conveyance and assignment of the Assets to the Subsidiary;
(c) a certificate, signed by the chief executive officer of
Seller and dated as of the Closing Date, to the effect that (i) all of the
representations and warranties of Seller in this Agreement are true and correct
as of the Closing Date, as if made on the Closing Date; and (ii) Seller has
fully performed each covenant required to be performed prior to the Closing
Date;
(d) a certificate, dated the Closing Date, of an officer of
Seller attaching resolutions of the Board of Directors of Seller in connection
with the authorization and execution, delivery and performance by Buyer of this
Agreement and the other Transaction Documents to which Buyer is a party,
certified as being in full force and effect as of the Closing Date;
(e) disks, tapes and/or CDs containing the intangible Assets
set forth in Section 1.2 and SCHEDULE 1.2(a); all records and other materials
and documentation set forth in Section 1.2 and SCHEDULE 1.2(a);
(f) all passwords and communications information used solely to
operate the Business;
(g) all other records of the Business not previously provided
to Buyer as reasonably requested by Buyer;
(h) an opinion of Seller's counsel in form and substance
satisfactory to Buyer and its counsel;
(i) all consents necessary to transfer agreements, domain names
and other tangibles and intangibles included in the Assets; and
(j) a receipt, executed by the Shareholders, acknowledging
issuance to them of the Buyer Common Stock and providing certain investment
representations and representations acknowledging the restrictions placed on the
shares pursuant to this Agreement.
4.2. BUYER DELIVERIES. At the Closing, Buyer shall execute and deliver
to Seller:
<PAGE>
(a) the Bill of Sale;
(b) a certificate, signed on behalf of Buyer and dated as of
the Closing Date, to the effect that (i) all of the representations and
warranties of Buyer in this Agreement are true and correct as of the Closing
Date, as if made on the Closing Date; and (ii) Buyer has fully performed each
covenant required to be performed prior to the Closing Date;
(c) a certificate, dated the Closing Date, of an officer of
Buyer attaching resolutions of the Board of Directors of Buyer in connection
with the authorization and execution, delivery and performance by Buyer of this
Agreement and the other Transaction Documents to which Buyer is a party,
certified as being in full force and effect as of the Closing Date;
(d) the cash portion of the Purchase Price;
(e) certificates representing an aggregate amount of 151,500
shares of Buyer Common Stock, issued pursuant to the terms and restrictions
contained in Section 1.9(a);
(f) certificates representing an aggregate amount of 363,000
shares of Buyer Common Stock issued pursuant to the terms and restrictions
contained in Section 1.9(b); and
(g) certificates representing an aggregate amount of 90,900
shares of Buyer Common Stock issued pursuant to the terms and restrictions
contained in Section 1.9(c).
4.3. BUYER'S CLOSING CONDITIONS. Buyer's obligation to consummate the
transactions contemplated hereby at the Closing is conditioned on the following:
(a) the representations and warranties of Seller contained in
this Agreement or in any other Transaction Document are true and correct on the
date hereof and on the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date;
(b) Seller shall have delivered all of the documents and
materials required under Section 4.1;
(c) all material registrations, filings, applications, notices,
consents, approvals, orders, qualifications and waivers required in respect of
the transactions contemplated hereby and by the other Transaction Documents
other than the Novations ("CONSENTS") shall have been filed, made or obtained
and remain effective;
(d) Seller's satisfaction of and compliance with all covenants
to be performed by Seller under this Agreement and the other Transaction
Documents prior to the Closing;
(e) each of the employees of Seller specified in SCHEDULE
4.3(e) (the "KEY EMPLOYEES") shall have accepted employment with Buyer effective
as of the Closing and shall have executed a Buyer Employment Agreement. Each
of Ronald Linehan and Robert Main
<PAGE>
shall have entered into a Buyer Employment Agreement and a key employee
agreement in the form set forth on EXHIBIT E attached hereto;
(f) the parties to each of the contracts listed in SCHEDULE
4.3(f) shall have consented to the assignment of such contracts to Buyer without
requiring any change to the terms of such contracts that diminishes their value
or is otherwise adverse to Buyer other than the Novations;
(g) the positive difference between the Accounts Receivable and
the Accounts Payable as stated on the Accounts Receivable Schedule and the
Accounts Payable Schedule, shall be no less than $300,000; and
(h) no event shall have occurred or be existing which has had,
or is reasonably likely to have, a material adverse effect on the condition or
prospects of the Business.
4.4. SELLER'S CLOSING CONDITIONS.
Seller's obligation to consummate the transactions contemplated hereby at
the Closing is conditioned on the following:
(a) the representations and warranties of Buyer contained in
this Agreement or in any other Transaction Document are true and correct on the
date hereof and on the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date;
(b) Buyer shall have delivered all of the documents required
under Section 4.2; and
(c) Buyer's satisfaction of and compliance with all covenants
to be performed by Buyer under this Agreement and the other Transaction
Documents prior to the Closing.
4.5. CONDITIONS TO EACH PARTY'S OBLIGATIONS. Each party's obligation
to consummate the transactions contemplated hereby at the Closing is further
subject to the conditions that:
(a) any applicable waiting period under the HSR Act (as defined
below) shall have expired or been terminated;
(b) there be no suit, action or other proceeding before any
Authority in which it is sought to prohibit the consummation of such
transactions or to restrict the transfer or use of any Assets; and
(c) no temporary restraining order or injunction or court order
preventing the consummation of such transactions or the transfer or use of any
Assets shall be in effect.
<PAGE>
4.6. TERMINATION.
(a) Each party shall have the right to terminate this Agreement
on the signed written agreement of the other party.
(b) Buyer shall have the right to terminate this Agreement upon
notice to Seller if Buyer during the course of its due diligence review
discovers information that was not previously provided by Seller and such
information would have a material adverse effect on the Business.
(c) Each party shall have the right to terminate this Agreement
if the closing conditions for the terminating party have not been satisfied
within 90 days of date of this Agreement; PROVIDED that neither party shall have
a right to so terminate if the failure to satisfy that party's closing
conditions is caused by or results from the failure of that party to satisfy its
obligations under this Agreement or any of the other Transaction Documents or if
such party is otherwise in default of any of its representations, warranties or
covenants under this Agreement.
SECTION 5
COVENANTS
5.1. PRE-CLOSING COVENANTS.
(a) Each of Seller and Buyer shall use its reasonable efforts
to conduct the Closing within 5 days following the date hereof.
(b) Each of Seller and Buyer shall at its own expense file with
the United States Department of Justice and the Federal Trade Commission, any
required regulatory submissions under the Hart-Scott-Rodino Antitrust
Improvements Act of 1968 (the "HSR ACT") and shall use its commercially
reasonable efforts to obtain any necessary approvals of such agencies to the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents.
(c) Seller will take all commercially reasonable steps as may
be necessary to put Buyer in actual possession and operating control of the
Assets and Business as of the Closing Date, including obtaining all Consents.
(d) Until the earlier of termination of this Agreement or the
Closing Date: (i) neither Seller nor any of its representatives shall engage in
any discussions or negotiations with a third-party for the acquisition of all or
any portion of the Business or the Assets or solicit or otherwise facilitate or
encourage (through the provision of information or otherwise) an offer for the
acquisition of all or any portion of the Business or the Assets, and (ii) in the
event that Seller is approached by a third-party with respect to an acquisition
of all or any portion of the Business or the Assets, Seller shall immediately
notify Buyer in writing of the identity of such third-party.
<PAGE>
(e) Until the earlier of the termination of this Agreement or
the Closing, Seller shall, except with the prior written consent of Buyer:
(i) operate the Business exclusively in the ordinary
course consistent with past practices and in a manner which neither
increases nor decreases web site Traffic in a manner inconsistent with
commercially reasonable past practices;
(ii) maintain the Assets in good repair and condition,
ordinary wear and tear excepted, and continue to preserve and protect the
Assets;
(iii) comply with all applicable laws, regulations, rules,
ordinances and court orders;
(iv) maintain the books and records of the Business on a
basis consistent with prior periods;
(v) perform in all respects under all obligations and
agreements of the Business, including paying when due all accounts
payable, rents, taxes and other obligations of Seller or otherwise
affecting the Business;
(vi) cause the positive difference between its Accounts
Receivable and Accounts Payable, determined immediately prior to the
Closing Date, to be less than $300,000; and
(vii) use all commercially reasonable efforts to preserve
the Business and preserve the goodwill of licensors, suppliers,
consultants, contributors, customers and others having business relations
with the Business.
(f) Until the earlier termination of this Agreement or the
Closing, Seller shall not, except with the prior written consent of Buyer,
except in the ordinary course of business:
(i) sell, lease, license or otherwise dispose of any
Assets other than in the ordinary course of business consistent with past
practices, grant any right or interest in any Asset to any person or
create or permit the imposition of any Encumbrance on any Asset, and with
respect to intellectual property licensed from third parties and included
in the Assets, sell, lease, license, or otherwise dispose of, or enter
into any other agreement with respect to, such intellectual property in a
manner which would prevent or interfere with the grant of the license;
(ii) make any assignment, license or sub-license of any
of the intangible Assets;
(iii) enter into any contract or agreement with respect to
the Business;
(iv) incur, assume, guarantee or otherwise become liable
for any indebtedness for borrowed money with respect to the Business or
the Assets;
<PAGE>
(v) waive any confidentiality rights pertaining to the
Assets or the Business;
(vi) enter into any joint venture, partnership or other
similar arrangement or form any other new material arrangement for the
conduct of the Business or with respect to the Assets; or
(vii) adopt or amend, or permit any Member of the
Controlled Group to adopt or amend, any Employee Plan, except to the
extent necessary to comply with changes in applicable law.
(g) Seller will afford, or cause to be afforded, to Buyer and
its representatives access to all personnel, facilities, properties, books, tax
returns, accounts, data, records, agreements and documents pertaining to or
included in the Assets or the Business. Seller will promptly advise Buyer in
writing of any event occurring subsequent to the date of this Agreement which
would render any representation or warranty of Seller contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect or which is reasonably likely to
have a material adverse effect on the condition or prospects of the Business. ;
PROVIDED that Seller shall not be obligated to deliver to Buyer information the
delivery of which is prohibited by applicable law. Buyer will maintain the
confidentiality of all information (to the extent it is otherwise non-public and
not independently developed by Buyer) provided pursuant to this Section 5.1(g)
pending the Closing Date.
(h) Seller will provide Buyer with the Services pursuant to the
terms set forth on Schedule 1.2(a)(xvi). Seller will provide the employees
working for the Business with medical insurance coverage for approximately
thirty (30) days or until any applicable waiting period expires under Buyer's
plan, for which coverage Buyer will pay Seller.
(i) Buyer shall offer employment to each Key Employee,
including a grant of options to purchase Buyer Common Stock in an amount
specified on SCHEDULE 5.1(i).
(j) Buyer understands that its consent to the execution of a
counter party agreement by Seller's shareholders may be required, and that such
consent shall not be unreasonably withheld or unduly delayed.
5.2. POST-CLOSING COVENANTS.
(a) For a period of one year from and after the Closing, Seller
shall, at Buyer's expense, execute all such instruments or documents and take
all such other actions as Buyer may reasonably request to effectuate the
transactions contemplated hereby and by the other Transaction Documents,
including (i) obtaining of any necessary or advisable consents not required by
Buyer prior to Closing (including consents to assignment of contract rights and
obligations as Buyer may reasonably request); (ii) filing of tax returns,
including the filing of sales and use tax returns and notices as any party
hereto may reasonably require; and (iii) cooperating with Buyer to facilitate
the transition of Business customers, developers, content contributors and
advertisers to Buyer (such cooperation does not include going on joint sales
<PAGE>
calls, preparation of marketing materials or presentations, or traveling to any
site outside of the northern Virginia area).
(b) Seller shall make available to Buyer the services specified
in SCHEDULE 5.2(b) AND Buyer shall pay Seller for such services pursuant to a
separate Services Agreement in the form set forth on Exhibit F (the "SERVICES
AGREEMENT").
(c) Subject to the limitations below, Seller shall indemnify,
defend and hold harmless Buyer, its officers, directors, employees, partners,
members, shareholders, affiliates and agents (and their officers, directors,
employees, members, partners and shareholders) (collectively, the "INDEMNIFIED
PARTIES") from and against any action, loss, liability, damage, claim, fine,
penalty, lien or expense, including legal costs, reasonable attorneys' fees and
expenses (collectively, "LOSSES") to the extent the same arises out of or is
related to (i) any breach by Seller of any representation, warranty, agreement
or covenant made by Seller herein or in any other Transaction Document;
(ii) Seller's failure to comply with any bulk sales or similar law; (iii) any
tax, including use or sales tax, in respect of the conduct of the Business prior
to the Closing Date; (iv) any claim arising out of or in connection with the
conduct of the Business on or prior to the Closing Date alleging that all, or
any portion of, the Business infringes any intellectual property right or other
interest of any person or entity; and (v) any claim, cause of action or other
obligation of Seller or of the Business relating to the period prior to the
Closing Date, whether the claim relating to such obligation arises before or
after the Closing Date, including any obligations with respect to Assumed
Liabilities to the extent that any such obligation or Assumed Liability arose
from or was the result of any facts or circumstances, the existence of which
constitutes a breach of a representation or warranty made by Seller hereunder.
Each Indemnified Party will give prompt notice to Seller upon actual knowledge
thereof of any claim or condition to which the foregoing indemnification
covenant relates; PROVIDED that failure to give such notice shall not preclude
any indemnity hereunder unless and to the extent that such failure has actually
and materially prejudiced Seller. With respect to claims arising from the
matter asserted on SCHEDULE 5.2(c), Buyer must inform Seller of such claims
within 24 months following the Closing Date. With respect to claims arising
from other breaches of representations and warranties, Buyer must inform Seller
of any such claims within 12 months following the Closing Date except for
breaches of representations and warranties set forth in Section 2.6, which must
be asserted within 30 days after the expiration of the applicable statute of
limitations governing the assertion of liabilities which are the subject
thereof, and Sections 2.1 and 2.2, as to which there is no limitation as to the
date of assertion. The liability of Seller under this Section 5.2(c) shall not
exceed $2,500,000 and shall be paid by each Shareholder, pro rata, from the
aggregate 151,500 shares of Buyer Common Stock issued to and held by each
Shareholder pursuant to Section 1.9(a).
(d) Subject to the limitations below, Buyer shall indemnify,
defend and hold harmless Seller, its officers, directors, employees, partners,
members, shareholders, affiliates and agents (and their officers, directors,
employees, members partners and shareholders) (collectively, the "SELLER'S
INDEMNIFIED PARTIES") from and against any Losses to the extent the same arises
out of or is related to (i) any breach by Buyer of any representation, warranty,
agreement, or covenant made by Buyer herein or in any other Transaction
Document, (ii) any
<PAGE>
claim, cause of action or other obligation of Buyer or of the Business
relating to the Assumed Liabilities, except to the extent arising from
circumstances constituting a breach of any representation, warranty or
covenant of Seller (without regard to any limit on the survival of such
representations, warranties or covenants); and (iii) any debt, liability or
obligation arising out of the Assets or the operation of the Business after
the Closing. Seller will give prompt notice to Buyer upon actual knowledge
thereof of any claim or condition to which the foregoing indemnification
covenant relates; PROVIDED that failure to give such notice shall not
preclude any indemnity hereunder unless and to the extent that such failure
has actually and materially prejudiced Buyer. Seller must inform Buyer of any
claims for breaches of representations and warranties within 12 months
following the Closing Date except for breaches of representations and
warranties set forth in Section 3.1 and 3.2, as to which there is no
limitation as to the date of assertion.
(e) Subject to the provisions of Section 5.2(h), Buyer shall
have the right to setoff any amount it is obligated to pay to Seller pursuant to
this Agreement or the other Transaction Documents against any amount owed by
Seller for any reason pursuant to this Agreement or the other Transaction
Documents; PROVIDED that where Buyer desires to exercise such setoff right in
respect of shares of Buyer Common Stock otherwise deliverable by Seller, Seller
may, at its option, elect to pay to Buyer in cash the amount to be setoff, which
payment must be made by Seller within five business days of Buyer's notice of
claim or Buyer shall again be entitled to exercise such right of setoff.
(f) From and after the Closing, if Seller becomes aware of any
Asset in its possession that was not delivered to Buyer at Closing, Seller shall
promptly notify Buyer of any such Asset, and deliver any such Asset to Buyer in
accordance with Buyer's reasonable instructions.
(g) From and after the date which is sixty days after the
Closing Date, Seller shall, upon the written request of Buyer, immediately
destroy or erase all of Seller's copies of the Assets set forth in
SCHEDULE 1.2(a) and, upon Buyer's request, promptly confirm destruction of same
by signing and returning to Buyer an "affidavit of destruction" acceptable to
Buyer.
(h) Except with respect to claims arising from the matter
described in Schedule 5.2(c), as to which Seller shall be liable for all amounts
up to but not in excess of $250,000, Seller shall not be liable to any
Indemnified Party unless an until the aggregate amount of Losses exceed the
amount of $100,000, and thereafter Indemnified Party shall be entitled to
indemnification only for the aggregate amount of such Losses in excess of
$100,000. The aggregate liability, including expenditures for legal fees and
disbursements, to which Seller shall be subject pursuant to the provisions of
Section 5.2(c) shall not exceed that number of shares of Buyer Common Stock
which equals $2,500,000, based upon the Closing Share Price. Any liability
directly to Buyer may be paid by the delivery of shares of Buyer's Common Stock
held in escrow pursuant to Section 1.9(a) or may be discharged at the election
of the Seller in cash. All damages to which the Indemnified Party may be
entitled pursuant to the provisions of Section 5.2(c) shall be net insurance
coverage in which Indemnified Party receives the benefits with respect thereto.
<PAGE>
(i) With respect to disputes arising under Sections 1.9(a),
1.9(b) and 1.9(c), notwithstanding anything to the contrary contained in this
Agreement, all disputes shall be settled by arbitration administered by the
American Arbitration Association in accordance with the Commercial Arbitration
Rules then in effect. The arbitration shall be held in either Virginia or
Kansas; the location to be chosen by the respondent within 5 days after receipt
of claimant's demand for arbitration. The arbitration shall be conducted in by
a panel of three arbitrators to be selected within 15 days after respondent's
receipt of claimant's demand for arbitration and in the following manner: Buyer
shall select one arbitrator; Seller shall select one arbitrator; and a third
arbitrator, chose by the selected party arbitrators, to serve as a neutral
chairperson. If one or both of the parties fail to nominate an arbitrator
within the time limits specified herein, the American Arbitration Association
shall select an arbitrator on the party's behalf. The hearing shall be held no
later than 60 days following the appointment of the third arbitrator.
SECTION 6
REGISTRATION RIGHTS
6.1. PIGGYBACK REGISTRATION RIGHTS. If at any time Buyer proposes to
register for public offering any of its common stock under the Securities Act
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose such as a dividend
reinvestment plan, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another entity),
whether or not for its own account, Buyer shall furnish prompt (but in no event
later than thirty (30) days prior to the filing of the applicable registration
statement) written notice to each Shareholder of its intention to effect such
registration and the intended method of distribution in connection therewith.
Upon the written request of a Shareholder made to Buyer within 15 days after the
mailing of such notice by Buyer, Buyer shall include in such registration the
number of shares requested for inclusion by such Shareholder (the "Registrable
Securities"), subject to the provisions hereof and other customary terms,
conditions, limitations and cut-backs relating to the registration of securities
generally; PROVIDED, HOWEVER, that all rights granted pursuant to this Section 6
to any Shareholder shall terminate with respect to any Registrable Securities
held by such Shareholder upon the earlier to occur of (i) the time as all such
Registrable Securities of such Shareholder may immediately be sold pursuant to
Rule 144 and/or Rule 145 under the Securities Act within any ninety (90) day
period, or (ii) upon the sale of all such Registrable Securities pursuant to a
registration statement or Rule 144 and/or Rule 145 under the Securities Act.
6.2. In addition to the obligations set forth under Section 6.3, in
order to include any Registrable Securities of a Shareholder in a registration
statement pursuant to this Section 6 that the Shareholder shall furnish to Buyer
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities held by such Shareholder.
Any such information, or any comments on any such information included in a
draft of a registration
<PAGE>
statement provided to such Shareholder for its comment, shall be provided to
Buyer within any reasonable time period requested by Buyer.
6.3. Each Shareholder shall notify Buyer, at any time when a prospectus
is required to be delivered under applicable law, of the happening of any event
as a result of which the prospectus included in the applicable registration
statement, as then in effect, with respect to information provided or confirmed
by such Shareholder, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
Such Shareholder shall immediately upon the happening of any such event cease
using such prospectus.
6.4. In connection with any underwritten offering of a Shareholder's
Registrable Securities, Buyer shall not be required under this Section 6 to
register any of such Registrable Securities in connection with such underwritten
offering unless such Shareholder accepts the underwriters selected by Buyer and
executes an underwriting agreement with such underwriters containing such
provisions as are customary in an underwritten offering that includes shares
held by selling shareholders. Registrable Securities shall be sold in such
offering only in such quantity as the lead managing underwriter determines, in
its sole discretion, will not jeopardize the success of the offering by Buyer.
To the extent that the lead managing underwriter will not permit the
registration of all of the securities sought to be registered, in the case of a
registration pursuant to this Section 6, the securities to be included shall be
apportioned as follows: (i) first, Buyer and any holders of securities of Buyer
exercising any demand registration rights granted to such holders shall be
entitled to register all securities that Buyer or such other holders propose to
sell for their own account, in such proportion as they shall agree upon;
(ii) second, any holders of Buyer securities exercising piggyback registration
rights as and to the extent that such registration rights were granted prior to
the date hereof and have priority over the registration rights granted to
Shareholders hereunder; and (iii) lastly, any Shareholder, together with any
holders of other Buyer securities exercising piggyback registration rights as
and to the extent that such registration rights rank PARI PASSU with the
piggyback registration rights hereunder, shall be entitled to register, on a pro
rata basis (based on the number of Registrable Securities which a Shareholder
would be entitled, absent any apportionment pursuant to this Section 6.4 to have
Buyer register), up to that number of Registrable Securities and other shares of
common stock that is equal to the remaining shares of common stock that the lead
managing underwriter will permit to be registered after giving effect to the
apportionment set forth in clauses (i) and (ii) above, in connection with such
offering.
6.5. If requested by Buyer or a representative of the underwriters of
the offering, each Shareholder shall not sell or otherwise transfer or dispose
of any securities held by such Shareholder (other than those included in the
registration) for a period specified by the representative of the underwriters,
not to exceed one hundred eighty (180) days following the effective date of a
registration statement of Buyer filed under the Securities Act.
6.6. Nothing in this Section 6 shall create any liability on the part
of Buyer or any other person to any Shareholder if Buyer or any other person
should, for any reason, decide not
<PAGE>
to file a registration statement proposed to be filed or to withdraw such
registration statement subsequent to its filing, regardless of any action
whatsoever that any Shareholder may have taken, whether as a result of the
issuance by Buyer of any notice under this Section 6 or otherwise.
6.7. Unless otherwise required by law, rule or regulation, if
Registrable Securities owned by Shareholders who have made the election provided
in Section 6.1 are included in such registration statement, the Buyer shall bear
and pay all fees, costs, and expenses incident to such inclusion, including,
without limitation, registration fees, blue sky qualification fees, exchange
listing fees and expenses, legal fees and disbursements of Buyer's counsel
(including blue sky counsel), reasonable legal fees and disbursements of one
counsel to the Shareholders, printing costs, costs of any special audits and
accounting fees. Each selling Shareholder shall pay all underwriting discounts
and commissions with respect to such Shareholder's Registrable Securities, as
well as fees and disbursements of counsel (other than the one counsel to the
Shareholders) and other advisors for such selling Shareholder and all internal,
overhead and other expenses of such selling Shareholder.
6.8. The Buyer, before filing a registration statement, amendment or
supplement thereto, will furnish copies of such documents to legal counsel
selected by the Shareholders. In addition, the Buyer will make available for
inspection by any selling Shareholder or by any attorney or other agent of any
selling Shareholder all information reasonably requested by such persons which
relates to such registration. All non-publicly available information provided
to any selling Shareholder, or any attorney or agent of any selling Shareholder
shall be kept strictly confidential by such selling Shareholder, or attorney or
agent of such selling Shareholder so long as such information remains nonpublic.
6.9. The Buyer will promptly notify each selling Shareholder of the
occurrence of any event which renders any prospectus then being circulated among
prospective purchasers misleading because such prospectus contains an untrue
statement of a material fact or omits to state a material fact necessary to make
the statements made, in light of the circumstances in which they were made, not
misleading, and the Buyer will amend the prospectus so that it does not contain
any material misstatements or omissions and deliver the number of copies of such
amendments to each selling Shareholder as each selling Shareholder may require.
6.10. In connection with any registration of Registrable Securities
pursuant to this Agreement, the Buyer shall, at its expense, keep effective and
maintain such registration and any related qualification of Registrable
Securities under state securities laws for such period not exceeding 120 days as
may be necessary for the selling Shareholders, underwriters and selling agents
to dispose of such Registrable Securities, from time to time to amend or
supplement the Prospectus used in connection therewith to the extent necessary
to comply with applicable laws, and to furnish to such selling Shareholders such
number of copies of the registration statement, the prospectus constituting a
part thereof, and any amendment or supplement thereto as such selling
Shareholders may reasonably request in order to facilitate the disposition of
the registered Registrable Securities.
<PAGE>
6.11. Subject to the requirements of the applicable securities laws,
nothing in this agreement to the contrary shall prevent Shareholders from
participating in any tender offer for outstanding Buyer Common Stock, which
tender offer is not in violation of the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder; PROVIDED that $16.50165 for
every share of Buyer Common Stock finally tendered by each Shareholder is set
aside, to the reasonable satisfaction of Buyer, secured and made available to
Buyer to cover claims that may arise from time to time against such shares under
the terms of this Agreement.
SECTION 7
MISCELLANEOUS
7.1. GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of Kansas, without giving effect to any choice or
conflict of law provision or rule (whether of the State of Kansas or any other
jurisdiction that would cause the application of the laws of any jurisdiction
other that the State of Kansas).
7.2. SURVIVAL. The representations and warranties made herein shall
survive any investigation made by the parties and the Closing for a period of 12
months following the Closing Date, except for the representations and
warranties set forth in Sections 2.1, 2.2, 2.6, 3.2 and 3.6 which shall survive
until the expiration of the applicable statute of limitations governing the
assertion of liabilities which are the subject thereof. Except as expressly
provided otherwise herein, the covenants and agreements made herein shall
survive the Closing.
7.3. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof and of the other Transactional Documents shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto. No party may assign any of its rights or
obligations hereunder or thereunder without the express written consent of the
other party hereto, which consent may not be unreasonably withheld; PROVIDED
that any party may assign any and all of its rights and interests hereunder of
thereunder to one or more of its affiliates and designate one or more of its
affiliates to perform its obligations hereunder; PROVIDED that such party
remains liable for full and total performance of its obligations hereunder and
thereunder.
7.4. NOTICES. Any notices authorized to be given hereunder or under
any of the other Transactional Documents shall be in writing and deemed given,
if delivered personally or by overnight courier, on the date of delivery, if a
Business Day, or if not a Business Day, on the first Business Day following
delivery, or if mailed, three days after mailing by registered or certified
mail, return receipt requested, and in each case, addressed, as follows:
<PAGE>
If to Buyer:
National Information Consortium, Inc.
Attention: President
12 Corporate Woods
10975 Benson Street, Suite 390
Overland Park, KS 66210
Facsimile: ___________
and a copy to:
John W. Campbell, Esq.
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Facsimile: (415) 268-7522
If to Seller:
Duffy Mazan,
Chief Executive Officer
Electric Press, Inc.
1140 Isaac Newton Square
Reston, VA 22090
Facsimile: (703) 742-4648
and a copy to
Jocelyn West Brittin, Esq.
McGwire, Woods, Battle & Boothe LLP
1750 Tyson's Boulevard
McLean, VA 22102
Facsimile: (703) 712-5050
or if delivered by telecopier, on a Business Day before 4:00 PM local time of
addressee, on transmission confirmed electronically, or if at any other time or
day on the first Business Day succeeding transmission confirmed electronically,
to the facsimile numbers provided above, or to such other address or telecopy
number as any party shall specify to the other, pursuant to the foregoing notice
provisions.
7.5. WAIVER; AMENDMENTS. This Agreement and the other Transaction
Documents (i) set forth the entire agreement of the parties respecting the
subject matter hereof; (ii) supersede any prior and contemporaneous
understandings, agreements, or representations by or among the parties, written
or oral, to the extent they related in any way to the subject matter hereof; and
<PAGE>
(iii) may not be amended orally, and no right or obligation of any party may be
altered, except as expressly set forth in a writing signed by such party.
7.6. COUNTERPARTS. This Agreement may be signed in several
counterparts.
7.7. EXPENSES. Each party shall bear its own expenses incurred with
respect to the preparation of this Agreement and the other Transaction Documents
and the consummation of the transactions contemplated hereby and thereby.
7.8. POST-CLOSING CONFIDENTIALITY AND PUBLICITY. On and at all times
after the date of this Agreement:
(a) except to the extent required by law, and until Buyer has
made its public announcement regarding this transaction, Seller shall not make
any disclosure of any nature (to any of their suppliers, customers, landlords,
creditors or employees or to any other person) concerning any of the
transactions contemplated by this Agreement or any of the other Transactional
Documents except as contemplated by the Transactional Documents agreed to by
Buyer, and Seller shall keep the existence and terms of this Agreement and the
other Transaction Documents strictly confidential; and
(b) Seller shall keep strictly confidential, and shall not use,
or disclose to any other person, any non-public document or other information
that relates directly or indirectly to the Business or the Assets, including
personnel information, secret processes, proprietary know-how, customer lists
and other technical or business information included in the Assets and not
generally known in similar businesses.
7.9. CERTAIN DEFINITIONS.
(a) When used in this Agreement, "TRANSACTION DOCUMENTS" shall
mean this Agreement, the Seller Services Agreement and the Bill of Sale.
(b) When used in this Agreement, "BUSINESS DAY" shall mean a
day other than a Saturday, Sunday or a day on which commercial banks in Kansas
City, Kansas are generally closed for business.
(c) When used in this Agreement, "PERSON" shall mean and
include any individual, entity or Authority.
(d) When used in this Agreement, "CAUSE" shall mean an
employee's conviction of a felony or the willful and deliberate failure of an
employee to perform his customary duties, in a manner consistent with the manner
reasonably prescribed by the Board of Directors or President of Buyer (other
than any failure resulting from his incapacity due to physical or mental
illness, disability or death) after not less than thirty (30) days prior written
notice from Buyer.
(e) When used in this Agreement, "KNOWLEDGE" of a particular
fact or other matter shall mean, with respect to an individual, that:
<PAGE>
(i) such individual is actually aware of such fact or
other matter; or
(ii) a reasonable individual could be expected to
discover or otherwise become aware of such fact or other matter in the
course of conducting a reasonably diligent investigation concerning the
truth or existence of such fact or other matter.
Seller shall be deemed to have "Knowledge" of a particular fact or other
matter if any officer or key employee of Seller has Knowledge of such fact or
other matter.
(f) When used in this Agreement, "MATERIAL" means, with respect
to the representations, warranties and covenants provided herein, a contract,
obligation, liability, transaction, breach, Encumbrance, proceeding or other
matter or event, if the aggregate amount or value involved with respect to each
such contract, obligation, liability, transaction, breach, Encumbrance,
proceeding or other matter or event exceeds $10,000.
(g) When used in this Agreement, "MATERIAL ADVERSE EFFECT"
means, with respect to Seller, (i) any material adverse effect on Seller's
business, financial condition, assets, liabilities, operations, financial
performance, net income or prospects or (ii) any material adverse effect on
Seller's ability to comply with or perform any material covenant or obligation
under this Agreement and the other Transactional Documents.
7.10. SEVERABILITY. In the event any of the provisions of this
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be unenforceable, the other provisions of this Agreement shall remain in full
force and effect.
7.11. INTERPRETATION.
(a) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(b) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(c) Except as otherwise indicated, all references in this
Agreement to "Sections," "Exhibits" and "Schedules" refer to Sections of this
Agreement and Exhibits and Schedules to this Agreement.
(d) A person shall be deemed to have "knowledge" of a
particular fact or matter if (i) such person is actually aware of such fact or
other matter or (ii) a reasonable person would be expected to become aware of
such fact or other matter in the course of performing such person's ordinary
duties and responsibilities in a reasonable and prudent manner consistent with
such person's position.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase
Agreement as of the date first written above.
NATIONAL INFORMATION CONSORTIUM, INC.
By:
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Name:
Title:
ELECTRIC PRESS, INC.
By:
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Name:
Title:
