EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
by and among:
DIGITAL RIVER, INC.,
a Delaware corporation;
NETWORK COMMERCE INC.,
a Washington corporation;
and
FREEMERCHANT.COM, INC.,
a Delaware corporation.
---------------------------
Dated as of December 28, 2001
TABLE OF CONTENTS
PAGE
SECTION 1. DESCRIPTION OF TRANSACTION......................................................................1
1.1 Assets to be Transferred........................................................................1
1.2 Excluded Assets.................................................................................2
1.3 Liabilities to be Assumed.......................................................................2
1.4 Closing Payments................................................................................3
1.5 Post-Closing Payments...........................................................................3
1.6 Closing.........................................................................................4
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER........................................................5
2.1 Due Organization; Good Standing.................................................................5
2.2 Articles of Incorporation and Bylaws; Records...................................................6
2.3 Financial Information...........................................................................6
2.4 Absence of Changes..............................................................................6
2.5 Title to Assets.................................................................................7
2.6 Contracts.......................................................................................7
2.7 Compliance with Legal Requirements..............................................................9
2.8 Related Party Transactions......................................................................9
2.9 Legal Proceedings; Orders.......................................................................9
2.10 Sales Policies; Warranties......................................................................9
2.11 Proprietary Assets..............................................................................9
2.12 Liabilities....................................................................................11
2.13 Governmental Authorizations....................................................................11
2.14 Material Relationships.........................................................................11
2.15 Brokers and Finders............................................................................11
2.16 Authority; Binding Nature of Agreement.........................................................11
2.17 Non-Contravention; Consents....................................................................12
2.18 Taxes..........................................................................................12
2.19 Customer Information...........................................................................12
2.20 Full Disclosure................................................................................13
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER........................................................13
3.1 Organization; Authority; Binding Nature of Agreement...........................................13
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3.2 Non-Contravention; Consents....................................................................13
3.3 Brokers and Finders............................................................................13
3.4 Financial Information..........................................................................14
SECTION 4. ADDITIONAL COVENANTS OF THE PARTIES............................................................14
4.1 Filings and Consents...........................................................................14
4.2 Insolvency.....................................................................................14
4.3 Deferred Revenue...............................................................................14
4.4 Allocation of Purchase Price...................................................................14
4.5 Audit Rights...................................................................................14
4.6 Transfer Taxes.................................................................................15
4.7 Merchant of Record.............................................................................15
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...................................................15
5.1 Consents.......................................................................................15
5.2 Agreements and Documents.......................................................................15
5.3 No Restraints..................................................................................15
5.4 No Legal Proceedings...........................................................................16
5.5 Deferred Revenue Payment.......................................................................16
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER..................................................16
6.1 Documents......................................................................................16
6.2 No Restraints..................................................................................16
6.3 Closing Cash Payment...........................................................................16
SECTION 7. INDEMNIFICATION BY SELLER......................................................................16
7.1 Survival of Representations....................................................................16
7.2 Indemnification by Seller......................................................................17
7.3 Satisfaction of Buyer Indemnification Claim; Offset............................................17
7.4 Indemnification by Buyer.......................................................................18
7.5 Satisfaction of Seller's Indemnification Claim; Offset.........................................18
7.6 Arbitration....................................................................................18
7.7 Defense of Third Party Claims..................................................................19
7.8 Sole Recovery..................................................................................19
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SECTION 8. MISCELLANEOUS PROVISIONS.......................................................................19
8.1 Further Assurances.............................................................................19
8.2 Fees and Expenses..............................................................................20
8.3 Attorneys' Fees................................................................................20
8.4 Notices........................................................................................20
8.5 Confidentiality................................................................................21
8.6 Headings.......................................................................................21
8.7 Counterparts...................................................................................21
8.8 Governing Law..................................................................................21
8.9 Successors and Assigns.........................................................................21
8.10 Waiver.........................................................................................22
8.11 Amendments.....................................................................................22
8.12 Severability...................................................................................22
8.13 Entire Agreement...............................................................................22
8.14 Construction...................................................................................22
</Table>
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EXHIBITS
Exhibit A Certain Definitions
Exhibit B Noncompetition Agreement
Exhibit C Transfer List
Exhibit D Billing and Reporting Services Agreement
Exhibit E Bill of Sale
Exhibit F Assumption Agreement
Exhibit G Hosting Services Agreement
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of December
28, 2001, by and among DIGITAL RIVER, INC., a Delaware corporation ("Buyer"),
FREEMERCHANT.COM, INC., a Delaware corporation ("FreeMerchant") and NETWORK
COMMERCE INC., a Washington corporation ("Network Commerce" and, together with
FreeMerchant, "Seller"). Certain capitalized terms used but not defined in this
Agreement have that meaning set forth in Exhibit A.
RECITALS
A. Seller desires to transfer and sell, and Buyer desires to acquire,
certain assets of Seller on the terms and conditions further set forth herein
(referred to herein as the "Acquisition").
B. In connection with the transactions contemplated by this Agreement,
Buyer will simultaneously enter into a noncompetition agreement with Seller in
the form attached hereto as Exhibit B (the "Noncompetition Agreement").
AGREEMENT
The parties to this Agreement hereby agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION.
1.1 Assets to be Transferred. Subject to the terms and conditions of
this Agreement, on the Closing Date (as hereinafter defined) Seller sells,
transfers, conveys, and assigns, and shall deliver to Buyer at one or more
mutually agreed addresses, in electronic (and not physical) format wherever
possible, and Buyer shall purchase and accept all of the right, title and
interest of Seller in and to the following (collectively referred to herein as
the "Customer Assets"):
(a) The technology presently used to operate the web site (the
"FreeMerchant Site") presently located at http://www.FreeMerchant.com (the
"FreeMerchant Technology"), and to provide the services obtained on or through
the FreeMerchant Site by FreeMerchant Subscribers, as described in Section
1.1(a) of the transfer list attached hereto as Exhibit C (the "Transfer List");
(b) all software licenses presently required to operate and maintain
the FreeMerchant Technology, as the FreeMerchant Technology was being used by
Seller as of November 30, 2001, including, without limitation, licenses to
Seller's back-end client billing and reporting software pursuant to that certain
Billing and Reporting Licensing Agreement attached hereto as Exhibit D (the
"Billing Agreement") and those other software licenses listed in Section 1.1(b)
of the Transfer List;
(c) all Contracts of Seller by which Seller provides services for
FreeMerchant Subscribers by use of the FreeMerchant Technology, subject to the
Assumed Liabilities (as defined and to the extent set forth in Section 1.3), as
listed in Section 1.1(c) of the Transfer List; and
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(d) the servers, computer equipment and other hardware presently
required to operate and maintain the FreeMerchant Technology and the
FreeMerchant Site, as they were being used by Seller as of November 30, 2001, as
described in Section 1.1(d) of the Transfer List and all Contracts of Seller
related thereto.
1.2 Excluded Assets.
(a) Notwithstanding Section 1.1, the following are not included in the
"Customer Assets": (i) that certain Oracle Term License Lease Schedule between
Network Commerce Inc. and Oracle Corporation dated August 16, 2000 ("Oracle
License"), and all of Network Commerce's rights and obligations thereunder; (ii)
any interest in the "Licensed Products" (as that term is defined in the Billing
Agreement) beyond the interest in the Licensed Products granted to Buyer
pursuant to the Billing Agreement, (iii) Seller's domain registration business,
e-cart shopping cart technology, and hosting business accessible through
http://www.ehost.com as of November 30, 2001 (except that this subsection
(iii) does not include the assets used to provide the store builder services
accessible through the link between ehost.com and freemerchant.com), and
Seller's one-to-one marketing business, (iv) patents and patent applications
owned by Network Commerce Inc., and (v) Seller's rights to use FoxPro or Perl
software (collectively, the "Excluded Assets").
(b) Seller shall not sell, transfer, convey, assign or deliver to
Buyer, and Buyer will not purchase or accept any assets of Seller, other than
the Customer Assets.
(c) To the extent that any software license or other Contract for which
assignment to Buyer is provided herein is not assignable without the consent of
another party, this Agreement shall not constitute an assignment or an attempted
assignment thereof if such assignment or attempted assignment would constitute a
breach thereof. Seller and Buyer agree to use their reasonable efforts (without
any requirement on the part of Buyer to pay any money or agree to any change in
the terms of any such Contract) to obtain the consent of such other party to the
assignment of any such Contract to Buyer in all cases in which such consent is
required for such assignment.
1.3 Liabilities to be Assumed. Subject to the terms and conditions of
this Agreement, on the Closing Date (as hereinafter defined), Buyer assumes and
agrees to perform and discharge those specific debts, liabilities and
obligations of Seller arising from and after the Closing Date under and pursuant
to those software licenses and Contracts listed in Sections 1.1(b), 1.1(c) and
1.1(d) of the Transfer List. Except to the extent specifically set forth in this
Section 1.3 (the "Assumed Liabilities"), Buyer is not assuming any other debts,
liabilities, obligations or contracts of Seller and all such debts, liabilities,
obligations and contracts shall be and remain the responsibility of Seller.
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1.4 Closing Payments. As partial consideration for the sale of the
Customer Assets to Buyer:
(a) at the Closing (as hereinafter defined), Buyer shall pay to Seller
$475,000 (the "Closing Cash Payment"); and
(b) at the Closing, Seller shall pay to Buyer in cash all Deferred
Revenue (the "Deferred Revenue Payment");
1.5 Post-Closing Payments. As further consideration for the sale of the
Customer Assets to Buyer:
(a) upon the delivery to Buyer of a full production set of the assets
set forth on Section 1.1(d) of the Transfer List, and the installation of such
assets along with the software required to operate such assets (including all
application server, web server, and database software referenced in the Transfer
List and any other software currently in place to operate these assets) so that
the assets are operational in substantially the form, fit and function in which
they operated at Seller's facility as of November 30, 2001 (provided that such
delivery and installation, and corresponding payment, will occur within sixty
(60) days of the Closing), Buyer shall pay to Seller $400,000 by wire transfer
of immediately available funds to such bank account as Seller shall have
directed Buyer in writing; Buyer will pay reasonable shipping costs provided
that Buyer approves such costs in advance (Buyer's approval not to be
unreasonably withheld or delayed);
(b) Buyer will receive FreeMerchant Receipts as follows:
(i) for so long as Seller remains merchant of record to the
FreeMerchant Subscribers, Seller will pay to Buyer all FreeMerchant Receipts on
a weekly basis each Monday for the prior Wednesday through Tuesday week;
(ii) each payment of FreeMerchant Receipts pursuant to Section
1.5(b)(i) above (each, a "Free Merchant Receipts Payment") will be accompanied
by a report that is substantially similar to the reports produced by Seller
prior to Closing (as defined below) setting forth the calculation of the
FreeMerchant Subscription Receipts and FreeMerchant Non-Subscription Receipts
for the applicable period in reasonable detail (including the allocation of
FreeMerchant Non-Subscription Receipts earned by Seller prior to Closing); and
(iii) for so long as Buyer is the merchant of record to the
FreeMerchant Subscribers, Buyer will collect and retain all FreeMerchant
Receipts; within fifteen (15) days following the end of the applicable calendar
month Buyer will deliver to Seller a report that is substantially similar to the
reports produced by Seller prior to Closing setting forth the calculation of the
FreeMerchant Receipts for the applicable month in reasonable detail (including
the allocation of FreeMerchant Non-Subscription Receipts earned by Seller prior
to Closing).
(c) Seller will receive the Earnout Payment as follows:
(i) for each month from January 2002 through March 2002,
inclusive, Buyer will pay to Seller [*] (the "First Earnout Payment") by wire
transfer of immediately available funds to such bank account as Seller shall
have directed Buyer in writing, provided that [*];
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(ii) for each month from April 2002 through October 2002,
inclusive, Buyer will pay to Seller $[*] (the "Second Earnout Payment" and,
together with the First Earnout Payment, the "Earnout Payment") by wire transfer
of immediately available funds to such bank account as Seller shall have
directed Buyer in writing, provided [*];
(iii) Buyer will pay to Seller [*] of all FreeMerchant Revenue
in excess of $[*] recognized during a calendar month and Seller may withhold
such amount from the FreeMerchant Receipts Payment, if applicable;
(iv) If Buyer was the merchant of record during the entire
prior month, Buyer will deliver any amounts due under this Section 1.5(c) within
fifteen (15) days following the end of the applicable calendar month; if Seller
was the merchant of record during any part of the prior month, Buyer will have
no obligation to make any payment under this Section 1.5(c) until five (5)
business days after receiving:
(1) the FreeMerchant Receipts Payment from Seller in full for the
applicable month; and
(2) Seller's report calculating FreeMerchant Revenue and FreeMerchant
Receipts for the applicable month.
[*confidential treatment requested]
1.6 Closing.
(a) The closing of the sale of the Customer Assets to Buyer (the
"Closing") shall take place at the offices of Cooley Godward LLP in San
Francisco, California, at 10:00 a.m. on the date hereof, with or without the
physical presence of Buyer or Seller (the "Closing Date").
(b) At the Closing:
(i) Seller shall execute and deliver to Buyer such
endorsements, assignments and other documents and records as may (in the
reasonable judgment of Buyer or its counsel) be necessary or appropriate to
sell, transfer, convey, assign and deliver to Buyer good, valid and marketable
title to the Customer Assets free of any Encumbrances (other than the Assumed
Liabilities) including, without limitation, the Bill of Sale in the form
attached hereto as Exhibit E (the "Bill of Sale");
(ii) Seller's Chief Financial Officer shall provide a
certificate certifying the following: (1) net assets exceed net liabilities; (2)
shareholders' equity is greater than $1.00; and (3) all Deferred Revenue;
(iii) Buyer shall pay Seller the Closing Cash Payment by wire
transfer of immediately available funds to such bank account as Seller shall
have directed Buyer in writing;
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(iv) Buyer shall execute and deliver an Assumption Agreement
in the form attached hereto as Exhibit F (the "Assumption Agreement");
(v) Buyer shall execute and deliver the Hosting Services
Agreement in the form attached hereto as Exhibit G (the "Hosting Services
Agreement");
(vi) Buyer shall execute and deliver the Billing Agreement
(vii) Seller shall pay Buyer the Deferred Revenue Payment by
wire transfer of immediately available funds to such bank account as Buyer shall
have directed Seller in writing;
(viii) Seller shall execute and deliver the Noncompetition
Agreement;
(ix) Seller shall execute and deliver the Hosting Services
Agreement;
(x) Seller shall cause to be delivered to Purchaser an opinion
of Preston Gates & Ellis, counsel to Seller;
(xi) Seller shall execute and deliver the Billing Agreement
(xii) Each of the Consents required to be obtained by Seller
under this Agreement shall have been obtained by Seller, shall be in full force
and effect, and shall be delivered to Buyer; and
(xiii) Buyer and Seller shall deliver to the other party such
certificates and other documents required to be delivered pursuant to Sections 5
and 6 hereof.
Notwithstanding anything herein to the contrary, it is understood by
the parties that each document referenced above may be delivered by a party
hereto by facsimile and the same shall constitute delivery thereof, provided
that such party subsequently delivers an original of the applicable document.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Except as set forth in the Disclosure Schedule delivered to Buyer with
respect to specifically identified subsections of this Section 2, Seller
represents and warrants, to and for the benefit of the Indemnitees, as follows
(the disclosure of a document in any Part of the Disclosure Schedule shall
qualify the representation and warranty in the corresponding Section of this
Agreement only to the extent that such document's applicability to that Section
is readily apparent from a reading of such document):
2.1 Due Organization; Good Standing. Network Commerce is a corporation
duly organized and validly existing under the laws of the State of Washington
and has all necessary power and authority: (a) to conduct its business in the
manner in which its business is currently being conducted; and (b) to own and
use its assets in the manner in which its assets are currently owned and used.
FreeMerchant is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power and
authority: (a) to conduct its business in the manner in which its business is
currently being conducted; and (b) to own and use its assets in the manner in
which its assets are currently owned and used.
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2.2 Articles of Incorporation and Bylaws; Records. Seller has delivered
to Buyer accurate and complete copies of Seller's articles of incorporation and
bylaws, including all amendments thereto.
2.3 Financial Information.
(a) Seller has previously made available to Buyer copies of the
unaudited condensed consolidated balance sheets of Seller as of September 30,
2001 and related statements of operations, and cash flows for the fiscal quarter
ended September 30, 2001, as reported in the Seller's Quarterly Report on Form
10-Q for the nine months ended September 30, 2001 filed with the SEC under the
Exchange Act (the "Seller Financial Statements");
(b) the Seller Financial Statements are accurate and complete in all
material respects and present fairly the financial position of Seller as of the
respective dates thereof and the results of operations of Seller for the periods
covered thereby, and have been prepared in accordance with GAAP on a consistent
basis throughout the periods covered except as otherwise noted therein;
(c) Each of Network Commerce and FreeMerchant has assets sufficient to
discharge all of its current and due debts and at the time of Closing each will,
in its opinion, be capable of timely discharge of its debts as they come due.
2.4 Absence of Changes. Since September 30, 2001 (the "Balance Sheet
Date"):
(a) there has not been any material adverse change in Seller's
business, condition, assets, liabilities, operations, financial performance or
prospects of the business of Seller associated with the Customer Assets and, to
the knowledge of Seller, no event has occurred that will, or could reasonably be
expected to, have a Material Adverse Effect on the Customer Assets of Seller;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the Customer Assets (whether or
not covered by insurance);
(c) with respect to the Customer Assets, Seller has not (i) entered
into or permitted any of the Customer Assets to become bound by any Contract
that is or would constitute a Material Seller Contract (as defined in Section
2.6(a)), or (ii) amended or prematurely terminated, or waived any material right
or remedy under, any Material Seller Contract;
(d) Seller has not made any pledge of any of the Customer Assets or
otherwise permitted any of the Customer Assets to become subject to any
Encumbrance;
(e) Seller has not entered into any agreement relating to the
acquisition, sale or license of any of the Customer Assets;
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(f) Seller has not changed any of its methods of accounting or
accounting practices in any respect relating to the Customer Assets;
(g) Seller has not (i) acquired, leased or licensed any right or other
asset related to the Customer Assets from any other Person, (ii) sold or
otherwise disposed of, or leased or licensed, any right or other asset related
to the Customer Assets to any other Person, or (iii) waived or relinquished any
right related to the Customer Assets except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with Seller's past practices;
(h) Seller has not entered into any material transaction related to the
Customer Assets or taken any other material action related to the Customer
Assets outside the ordinary course of business or inconsistent with its past
practices; or
(i) Seller has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(h)" above.
2.5 Title to Assets.
(a) Seller owns, and has good, valid and marketable title to, all of
the Customer Assets, free and clear of any liens or other Encumbrances and
subject to terms and conditions set forth in licenses and other Contracts
described in Sections 1.1(b) and 1.1(c), except for (i) any lien for taxes not
yet due and payable, and (ii) minor liens that have arisen in the ordinary
course of business and that do not (in any case or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of Seller related to the Customer Assets.
(b) Part 2.5 of the Disclosure Schedule identifies all assets included
in the Customer Assets that are being leased or licensed to Seller.
2.6 Contracts.
(a) Part 2.6 of the Disclosure Schedule identifies:
(i) each Contract creating or providing for the creation of
any Encumbrance on the Customer Assets;
(ii) each Contract incorporating any guaranty, any pledge, any
performance or completion bond, any indemnity or any surety arrangement related
to the Customer Assets;
(iii) each material Contract related to the Customer Assets
that was entered into outside the ordinary course of business;
(iv) each Contract included in the Customer Assets that has a
term of more than 60 days and that may not be terminated by Seller (without
penalty) within 60 days after the delivery of a termination notice by Seller,
excluding the individual Subscriber Contracts;
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(v) the terms of service applicable to each of FreeMerchant's
customers;
(vi) each material Contract establishing or providing for the
establishment of proprietary rights of Seller or any Person in the Customer
Assets, whether by acquisition, transfer, use, development, or license;
excluding the Subscriber Contracts;
(vii) each Contract included in the Customer Assets imposing
any restriction on Seller's right or ability (or the right or ability of an
assignee thereof) to (A) compete with any other Person in any market or
geographic area with regard to the Customer Assets, (B) acquire any product or
other asset or any services from any other Person, (C) sell or license any
product or other asset to or perform any services for any other Person or (D)
develop or distribute any technology included in the Customer Assets;
(viii) each Contract creating or providing for the creation of
any agency relationship, distribution arrangement or franchise relationship with
respect to any of the Customer Assets;
(ix) each Contract included in the Customer Assets creating or
providing for the creation of any partnership or joint venture or any sharing of
revenues, profits, losses, or liabilities with respect to any of the Customer
Assets; and
(x) any Contract included in the Customer Assets that requires
(A) the payment or delivery of cash or other consideration in an amount or
having a value in excess of $10,000 in the aggregate or (B) the performance of
services having a value in excess of $10,000 in the aggregate.
Contracts in the respective categories described in clauses "(i)"
through "(ix)" above are referred to in this Agreement as "Material Seller
Contracts."
(b) Seller has delivered to Buyer accurate and complete copies of all
Material Seller Contracts. Part 2.6(b) of the Disclosure Schedule provides an
accurate description of the terms of each Contract relating to the Customer
Assets that is not in written form. Each Material Seller Contract is in full
force and effect and, to the knowledge of Seller, is enforceable by Seller in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.6 of the Disclosure Schedule:
(i) Seller has not materially violated or breached, or
committed any material default under, any Material Seller Contract and, to the
knowledge of Seller, no other Person has materially violated or breached, or
committed any material default under, any Material Seller Contract;
(ii) to the knowledge of Seller, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (A) result in a material violation or
8
breach of any of the provisions of any Material Seller Contract (B) give any
Person the right to declare a default or exercise any remedy therefor under any
Material Seller Contract, (C) give any Person the right to accelerate the
maturity or performance of any Material Seller Contract or (D) give any Person
the right to cancel, terminate or modify any Material Seller Contract; and
(iii) Seller has not waived any of its material rights under
any Material Seller Contract.
2.7 Compliance with Legal Requirements. With respect to the Customer
Assets, Seller is, and has at all times been, in material compliance with all
applicable Legal Requirements. Seller has not received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement related to
Seller's ownership, use and operation of the Customer Assets.
2.8 Related Party Transactions. No Related Party: (a) has at any time
had any direct or indirect interest in any material asset used in or otherwise
relating to the Customer Assets; (b) has entered into, or has had any direct or
indirect financial interest in, any material Contract, transaction or business
dealing involving the Customer Assets; (c) has at any time competed, directly or
indirectly, with the Customer Assets; and (d) has any claim or right against the
Customer Assets (other than rights to receive compensation for services
performed as an employee or independent contractor, which rights are not
included in the Assumed Liabilities).
2.9 Legal Proceedings; Orders.
(a) There is no pending Legal Proceeding and, to the knowledge of
Seller, no Person has threatened to commence any Legal Proceeding: (i) that
involves any of the Customer Assets; or (ii) that challenges, or that may have
the effect of preventing, delaying, making illegal or otherwise interfering with
any of the transactions contemplated by this Agreement. To the knowledge of
Seller, no event has occurred, and no claim, dispute or other circumstance
exists that could reasonably be expected to serve as a basis for the
commencement of any such Legal Proceeding.
(b) No Legal Proceeding related to the Customer Assets has ever been
commenced by or has ever been pending against Seller.
(c) There is no order, writ, injunction, judgment or decree to which
the Customer Assets is subject. No officer or other employee of Seller is
subject to any order, writ, injunction, judgment or decree that prohibits such
officer or other employee from engaging in or continuing any conduct, activity
or practice relating to the Customer Assets.
2.10 Sales Policies; Warranties. Part 2.10 of the Disclosure Schedule
lists all sales, product return, or warranty policies of Seller relating to the
Customer Assets (whether written or oral). No person or entity has asserted or,
to the knowledge of Seller, threatened to assert a claim for a breach of any
such policy listed in Part 2.10 of the Disclosure Schedule.
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2.11 Proprietary Assets.
(a) Part 2.11(a)(i) of the Disclosure Schedule sets forth, with respect
to each Acquired Proprietary Asset registered with any Governmental Body or for
which an application has been filed with any Governmental Body, (i) a brief
description of such Acquired Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Seller has
good, valid and marketable title to all of the Acquired Proprietary Assets
identified in Sections 1.1(a), 1.1(c) and 1.1(d), free and clear of all liens
and other Encumbrances, and has the right to use all of the Acquired Proprietary
Assets identified in Section 1.1(b) in accordance with the agreements listed in
Section 1.1(b) of the Transfer List. Part 2.11(a)(ii) of the Disclosure Schedule
identifies all Contracts that obligate Seller to make any payment to any Person
for the use of any Acquired Proprietary Asset. Seller has not developed jointly
with any other Person any Acquired Proprietary Asset with respect to which such
other Person has any rights (other than rights to receive compensation for
services performed as an employee or independent contractor of Seller, which
rights are not included in the Assumed Liabilities).
(b) Seller has taken measures and precautions reasonably necessary to
protect and maintain its rights in all the Acquired Proprietary Assets. Part
2.11(b) of the Disclosure Schedule identifies all Persons (other than employees
or independent contractors of Seller who, in each case, were bound in writing by
customary nondisclosure obligations) to whom Seller has disclosed or delivered
or permitted the disclosure or delivery (other than HTML code used on the
FreeMerchant Site) of the source code, or any portion of the source code, of any
Acquired Proprietary Asset, other than pursuant to license agreements identified
in Part 2.6 of the Disclosure Schedule.
(c) In connection with Seller's ownership, use and operation of the
Customer Assets: (i) Seller is not knowingly infringing, misappropriating or
making any unlawful use of, and Seller has not at any time knowingly infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual or alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset of any other Person. To the knowledge of Seller, no other Person is
infringing, misappropriating or making any unlawful use of, and no Proprietary
Asset of any other Person infringes upon or misappropriates any Acquired
Proprietary Asset.
(d) each Acquired Proprietary Asset conforms in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided with respect thereto by Seller; and (ii) Seller has
not received notice, nor does it have any knowledge of any claim by any customer
or other Person alleging that any Acquired Proprietary Asset (including each
version thereof that has been licensed or otherwise made available by Seller to
any Person since ownership thereof) does not conform in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided by Seller and, to the knowledge of Seller, there is
no basis for any such claim.
(e) Except for the Excluded Assets, the Acquired Proprietary Assets
constitute all the Proprietary Assets necessary to enable Seller to conduct its
business related to the Customer Assets in a manner substantially equivalent to
the manner in which such business was being conducted on the FreeMerchant Site
as of November 30, 2001, except for the Oracle License.
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(f) Seller owns no patents or patent applications reading on the
FreeMerchant Technology.
2.12 Liabilities. Seller has no accrued, contingent or other
liabilities of any nature, either matured or unmatured related to the Customer
Assets (whether or not required to be reflected in financial statements in
accordance with GAAP, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the Seller
Financial Statements; (b) accounts payable or accrued salaries that have been
incurred by Seller since the Balance Sheet Date in the ordinary course of
business and consistent with Seller's past practices; and (c) liabilities under
Contracts identified in the Transferred Assets List.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by Seller that is
related to the Customer Assets, and Seller has delivered to Buyer accurate and
complete copies of all such Governmental Authorizations. To the knowledge of
Seller, the Governmental Authorizations identified in Part 2.13 of the
Disclosure Schedule are valid and in full force and effect, and collectively
constitute all Governmental Authorizations necessary to enable Seller to conduct
its business related to the Customer Assets. Seller is, and has at all times
been, in substantial compliance with the terms and requirements of the
respective Governmental Authorizations identified in Part 2.13 of the Disclosure
Schedule. Seller has not received any notice or other communication from any
Governmental Body, nor does it have any knowledge of (a) any actual or claimed
violation by Seller of or failure by Seller to comply with any term or
requirement of any Governmental Authorization related to the Customer Assets or
(b) any actual or claimed revocation, withdrawal, suspension or modification of
any Governmental Authorization related to the Customer Assets.
2.14 Material Relationships. No supplier to, or distributor of or
customer of the Customer Assets has notified Seller of an intention to terminate
or substantially alter its existing business relationship with Seller and Seller
has no reason to believe that such termination or alteration of the relationship
with Seller is likely to occur.
2.15 Brokers and Finders. None of Seller or any of its officers,
directors, employees or agents nor any of its stockholders has had dealings with
any broker or finder in such a way as to incur, or has otherwise incurred, any
liability for which Seller may ever be in any way responsible with respect to
any brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
2.16 Authority; Binding Nature of Agreement. Seller has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
Seller of this Agreement and the transactions contemplated hereby has been duly
authorized by all necessary action on the part of Seller, including approval by
the Board of Directors thereof. Upon execution and delivery by Seller, each of
this Agreement, the Noncompetition Agreement, the Hosting Services Agreement,
the Billing Agreement and the Bill of Sale (collectively, the "Transaction
Agreements") will constitute the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, subject to (a) laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and (b) rules of law governing specific performance, injunctive relief and other
equitable remedies.
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2.17 Non-Contravention; Consents. Neither the execution, delivery or
performance of any of the Transaction Agreements, nor the consummation of the
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of Seller's articles of incorporation or bylaws or any resolution
adopted by Seller's board of directors or any committee of Seller's board of
directors;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or decree
to which Seller or any of the Customer Assets is subject;
(c) contravene or result in a violation of, or give any Governmental
Body the right to revoke, terminate or modify, any Governmental Authorization
that is held by Seller or that otherwise relates to the Customer Assets;
(d) contravene or result in a material violation or breach of, or
result in a default under, any provision of any material Contract related to the
Customer Assets, or give any Person the right to (i) declare a default or
exercise any remedy under any such Contract, (ii) accelerate the maturity or
performance of any such Contract or (iii) cancel, terminate or modify any such
Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any of the Customer Assets.
Seller is not and will not be required to make any filing with or give
any notice to, or to obtain any Consent from, any Person in connection with (A)
the execution, delivery or performance of any of the Transaction Agreements or
(B) the consummation of the transactions contemplated by this Agreement. The
consent of the stockholders of Network Commerce is not required for the
consummation of the transactions contemplated by this Agreement.
2.18 Taxes. All taxes, assessments, penalties, and interest that have
become due from Seller on or before the Closing Date with regard to the Customer
Assets have been paid. Seller has not executed any presently effective waiver or
extension of any statute of limitations against assessments and collection of
taxes, and there are no pending or, to Seller's knowledge, threatened claims,
assessments, notices, proposals to assess, deficiencies, or audits with respect
to any such taxes of which Seller is aware.
2.19 Customer Information. Seller has delivered to Buyer complete and
accurate copies of Seller's policy regarding collection and use of customer
information ("Privacy Policy"), along with all amendments thereto, describing
the date and manner in which amendment occurred. Such copies are attached to
Part 2.19 of the Disclosure Schedule. Seller has not collected, disclosed or
otherwise used any customer information in violation of the Privacy Policy in
effect at the time such information was collected.
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2.20 Full Disclosure. No representation or warranty by Seller contained
in this Agreement, and no statement contained in any letter, certificate,
schedule, exhibit, list or other writing furnished to Buyer by Seller in
connection with the transactions contemplated hereby contains any knowingly
untrue statement of material fact or knowingly omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading, in each case after reasonable investigation. All copies of all
writings furnished to Buyer by Seller hereunder or in connection with the
transactions contemplated hereby are true and complete.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
3.1 Organization; Authority; Binding Nature of Agreement. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Buyer has the absolute and unrestricted right, power
and authority to perform its obligations under this Agreement; and the
execution, delivery and performance by Buyer of this Agreement have been duly
authorized by all necessary action on the part of Buyer and its board of
directors. No vote of Buyer's stockholders is needed to approve the transactions
contemplated by this Agreement. Each of the Transaction Agreements constitutes
the legal, valid and binding obligation of Buyer, enforceable in accordance with
its terms, subject to (a) laws of general application relating to bankruptcy,
insolvency and the relief of debtors and (b) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.2 Non-Contravention; Consents. Neither (a) the execution, delivery or
performance of the Transaction Agreements nor (b) the consummation of the
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(i) contravene, conflict with or result in a violation of any
of the provisions of Buyer's certificate of incorporation or bylaws or any
resolution adopted by Buyer's board of directors or any committee of Buyer's
board of directors; or
(ii) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which Buyer is subject.
Except as may be required by the Securities Act or the Exchange Act,
Buyer is not and will not be required to make any filing with or give any notice
to, or to obtain any Consent from, any Person in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.3 Brokers and Finders. None of Buyer or any of its officers,
directors, employees or agents has had dealings with any broker or finder in
such a way as to incur, or has otherwise incurred, any liability for which
Seller may ever be in any way responsible with respect to any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
hereby.
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3.4 Financial Information. Buyer has assets sufficient to discharge all
of its current and due debts and at the time of Closing will, in its opinion, be
capable of timely discharge of its debts as they come due.
SECTION 4. ADDITIONAL COVENANTS OF THE PARTIES.
4.1 Filings and Consents. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings, if any, and give all notices, if any, required to be made and given by
such party in connection with the transactions contemplated by this Agreement
and (b) shall use reasonable best efforts to obtain all Consents, if any,
required to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such party under this Agreement or any of the
Transaction Agreements that have not yet been obtained. Each party shall
promptly deliver to the other party a copy of each such notice and Seller shall
promptly deliver to Buyer each such obtained Consent.
4.2 Insolvency. To the extent permitted by applicable law and
applicable director fiduciary obligations, Seller agrees that it will not during
the five (5) months following the Closing Date, make any general assignment for
the benefit of creditors, make or enter into any voluntary arrangement with its
creditors, file a petition under any chapter of Title 11 of the United States
Code, nor voluntarily become subject to any court or administration order
pursuant to any bankruptcy or insolvency law.
4.3 Deferred Revenue. To the extent that the total amount of Deferred
Revenue is greater than the Deferred Revenue Payment, Seller shall, promptly
following the Closing, pay Buyer an amount equal to the total Deferred Revenue
less the Deferred Revenue Payment.
4.4 Allocation of Purchase Price. Buyer and Seller shall have agreed
upon an allocation of the Purchase Price among the Customer Assets, which
allocation is being delivered herewith. Buyer and Seller shall prepare Internal
Revenue Service Form 8594 pursuant to Section 1060 of the Internal Revenue Code
of 1986, as amended (the "Code"), any Treasury Regulations promulgated
thereunder, any other similar provision of the Code and any other similar,
applicable foreign, state, local tax law or regulation, in a manner consistent
with the agreed upon allocation of the Purchase Price. Buyer and Seller shall
timely file all tax returns that may be required with respect to the
transactions contemplated by this Agreement, and Buyer shall include the Form
8594 with such tax returns as required under the Code.
4.5 Audit Rights. Each party shall have the right upon fourteen (14)
days prior written notice, at its sole cost and expense, to have an independent
certified public accountant conduct, during normal business hours and not more
frequently than once every five months, an audit of the appropriate records of
the other party or parties to verify the accuracy of the FreeMerchant Revenue
and the FreeMerchant Revenue Payments. If the amounts accrued are different than
those reported, the reporting party shall be invoiced or credited for the
difference, as applicable, along with any adjustment to the Earnout Payments (if
applicable) arising from the difference. Any additional amounts shall be payable
within five (5) days of such invoice. If the deficiency in the amount of
FreeMerchant Revenue is greater than five percent (5%) of the amounts reported
by the reporting party for any reporting period, the reporting party shall pay
the reasonable expenses associated with such audit, in addition to the
deficiency.
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4.6 Transfer Taxes. Buyer shall pay, and shall hold Seller harmless
from, all transfer taxes imposed on the sale of the assets to be transferred.
4.7 Merchant of Record. Buyer and Seller will take all necessary
actions so that (a) Buyer will be the merchant of record for all FreeMerchant
Revenue and (b) all FreeMerchant Receipts are paid directly to a bank account
under Buyer's sole control; in each case as soon as practicable following the
Closing (and in any event within thirty (30) days following the Closing).
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
The obligations of Buyer to effect the Acquisition and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
5.1 Consents. All Consents required to be obtained by Seller under this
Agreement and the other transactions contemplated hereby shall have been
obtained and shall be in full force and effect.
5.2 Agreements and Documents. Buyer shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) the Noncompetition Agreement, executed by Seller;
(b) the Hosting Services Agreement, executed by Seller;
(c) the Bill of Sale, executed by Seller;
(d) the certificate of Seller's Chief Financial Officer referenced in
Section 1.5(b)(ii);
(e) a legal opinion of Preston Gates & Ellis, counsel to Seller, dated
as of the Closing Date, in the form reasonably acceptable to Buyer;
(f) a Secretary's Certificate executed by the Secretary of Seller
certifying (i) the resolutions of the Board of Directors of Seller approving the
Agreement and the transactions contemplated by the Agreement and (ii) such other
matters as reasonably requested by Buyer; and
(g) the Billing Agreement, executed by Seller.
5.3 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable that makes such consummation illegal.
15
5.4 No Legal Proceedings. No Person shall have commenced or threatened
to commence any Legal Proceeding challenging or seeking the recovery of a
material amount of damages in connection with the transactions contemplated by
this Agreement or seeking to prohibit or limit the exercise by Buyer of any
material right pertaining to its ownership of the assets acquired hereby.
5.5 Deferred Revenue Payment. Buyer shall have received the Deferred
Revenue Payment.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
The obligations of Seller to effect the transactions contemplated by
this Agreement are subject to the satisfaction, at or prior to the Closing, of
the following conditions:
6.1 Documents. Seller shall have received the following documents:
(a) the Noncompetition Agreement, executed by Buyer;
(b) the Assumption Agreement, executed by Buyer;
(c) the Hosting Services Agreement, executed by Buyer; and
(d) the Billing Agreement, executed by Buyer.
6.2 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable that makes such consummation illegal.
6.3 Closing Cash Payment. Seller shall have received the Closing Cash
Payment.
SECTION 7. INDEMNIFICATION BY SELLER.
7.1 Survival of Representations.
(a) The representations and warranties made by Seller shall survive the
Closing and shall expire six months following the Closing Date (the
"Indemnification Period"); provided, however, that if, at any time prior to the
end of the Indemnification Period, any Indemnitee (acting in good faith)
delivers to Seller a written notice asserting a claim for recovery under Section
7.2 (and setting forth in reasonable detail the basis for such Indemnitee's
belief that such a claim may exist), then the claim asserted in such notice
shall survive the Indemnification Period until such time as such claim is fully
and finally resolved.
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(b) All representations and warranties made by Buyer shall survive the
Closing and shall expire six months following the Closing Date, and any
liability of Buyer with respect to such representations and warranties shall
thereupon cease.
(c) The representations, warranties, covenants and obligations of
Seller, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their Representatives.
(d) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule shall be deemed to be a
representation and warranty made by Seller in this Agreement.
7.2 Indemnification by Seller.
(a) From and after the date hereof (but subject to Section 7.1(a)),
Seller shall hold harmless and indemnify each of the Buyer Indemnitees from and
against, and shall compensate and reimburse each of the Buyer Indemnitees for,
any Damages which are directly or indirectly suffered or incurred by any of the
Buyer Indemnitees or to which any of the Buyer Indemnitees may otherwise become
subject (regardless of whether or not such Damages relate to any third party
claim) and which arise from or as a result of: (i) any inaccuracy in or breach
of any representation or warranty set forth in any of the Transaction
Agreements; (ii) any breach of any covenant or obligation of Seller to Buyer in
the Transaction Agreements; (iii) any liability or obligation arising from
events that occurred prior to Closing that are not assumed by Buyer pursuant to
Section 1.3 and that relate to the Customer Assets; (iv) any breach of Section
1.1(c); (v) any lease, rental or similar payments (and any associated penalties
and interest) owed on any of the hardware included among the Customer Assets or
(vi) any Legal Proceeding relating to any inaccuracy or breach of the type
referred to in clause "(i)", "(ii)," "(iii)," "(iv)" or "(v)" above (including
any Legal Proceeding commenced by any Buyer Indemnitee for the purpose of
enforcing any of its rights under this Section 7).
(b) Notwithstanding anything to the contrary contained herein, (i) the
maximum aggregate liability of Seller pursuant to Section 7 shall be equal to
$400,000 plus any amounts paid to Seller under Section 1.5; provided, however,
that such limit on Seller's liability shall be inapplicable with respect to
Damages that arise from or are as a result of Seller's intentional
misrepresentation or breach of the representation in Section 2.18.
(c) Buyer shall give Seller prompt notice of the commencement of any
Damages incurred as described in Section 7.2(a); provided, however, that any
failure on the part of Buyer to so notify Seller shall not limit any of the
obligations of Seller under this Section 7 (except to the extent such failure
materially prejudices Seller's rights under this Section 7).
7.3 Satisfaction of Buyer Indemnification Claim; Offset.
(a) In the event Seller has any liability (for indemnification or
otherwise) to any Buyer Indemnitee under this Section 7 or under Section 4.3,
Seller shall satisfy such liability. If Seller does not satisfy such liability
within thirty (30) days, Buyer may deduct the amounts owed from any payment
otherwise due under Sections 1.5(b) and 1.5(c).
17
(b) In addition to any rights of offset or other rights that Buyer or
any of the other Buyer Indemnitees may have at common law or otherwise, Buyer
shall have the right to offset any amount that may be owed to any Buyer
Indemnitee under this Section 7 or under Section 4.3 against any amount
otherwise payable by the Buyer.
7.4 Indemnification by Buyer.
(a) From and after the date hereof (but subject to Section 7.1(a)),
Buyer shall hold harmless and indemnify each of the Seller Indemnitees from and
against, and shall compensate and reimburse each of the Seller Indemnitees for,
any Damages which are directly or indirectly suffered or incurred by any of the
Seller Indemnitees and which arise from or as a result of: (i) any inaccuracy in
or breach of any representation or warranty set forth in any of the Transaction
Agreements; (ii) any breach of any covenant or obligation of Buyer to Seller in
the Transaction Agreements; (iii) any liability or obligation arising from
events that occurred after Closing and that relate to the Customer Assets; or
(iv) any Legal Proceeding relating to any inaccuracy or breach of the type
referred to in clause "(i)", "(ii)" or "(iii)" above.
Seller shall give Buyer prompt notice of the commencement of any
Damages incurred as described in Section 7.4(a); provided, however, that any
failure on the part of Seller to so notify Buyer shall not limit any of the
obligations of Buyer under this Section 7 (except to the extent such failure
materially prejudices Buyer's rights under this Section 7).
7.5 Satisfaction of Seller's Indemnification Claim; Offset.
(a) In the event Buyer has any liability (for indemnification or
otherwise) to any Seller Indemnitee under this Section 7, Buyer shall satisfy
such liability. If Buyer does not satisfy such liability within thirty (30)
days, Seller may deduct the amounts owed from any payment otherwise due under
Section 1.5.
(b) In addition to any rights of offset or other rights that Seller or
any of the other Seller Indemnitees may have at common law or otherwise, Seller
shall have the right to offset any amount that may be owed to any Seller
Indemnitee under this Section 7 against any amount otherwise payable by the
Seller.
7.6 Arbitration. To the extent that the parties disagree as to any
amounts owed by one party to another under this Section 7 and are unable to
resolve their dispute (a "Disputed Claim"), the Disputed Claim shall be
submitted to final and binding arbitration in San Francisco, California, which
arbitration shall, except as herein specifically stated, be conducted in
accordance with the American Arbitration Association Rules ("AAA Rules") then in
effect. The final decision of the arbitrator shall be a reasoned opinion based
on applicable law and furnished in writing to Buyer and Seller and will
constitute a conclusive determination of the issue in question, binding upon
Buyer and Seller. The arbitrator shall have the authority to grant any equitable
and legal remedies that would be available in any judicial proceeding instituted
to resolve a Disputed Claim. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof. Any such arbitration shall be conducted before a single
arbitrator, who will be compensated for his or her services by the losing party,
at a rate to be determined by the parties, but based upon reasonable hourly or
daily consulting rates for the arbitrator. The parties shall select the
arbitrator by mutual agreement promptly following initiation of arbitration in
accordance with the AAA Rules. Any arbitrator selected to serve shall be
qualified by training and experience for the matters for which such arbitrator
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is designated to serve. The prevailing party in any arbitration shall be
entitled to an award of attorneys' fees and costs, and all costs of arbitration,
including those provided for above, will be paid by the losing party, subject in
each case to a determination by the arbitrator as to which party is the
prevailing party and the amount of such fees and costs to be allocated to such
party. Arbitration shall be the sole and exclusive remedy of the parties for any
Disputed Claim that cannot be resolved among the parties arising out of this
Agreement.
7.7 Defense of Third Party Claims. In the event any Person asserts or
commences any claim or Legal Proceeding against any Buyer Indemnitee or Seller
Indemnitee with respect to which a party may become obligated to hold harmless,
indemnify, compensate or reimburse any Buyer Indemnitee or Seller Indemnitee
pursuant to this Section 7, the indemnifying party shall have the right, at its
election, to proceed with the defense of such claim or Legal Proceeding on its
own. If the indemnifying party so proceeds with the defense of any such claim or
Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively by the indemnifying party;
(b) the indemnified party shall make available to the indemnifying
party any documents and materials in its possession or control that may be
necessary to the defense of such claim or Legal Proceeding; and
(c) the indemnifying party shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of the indemnified
party; provided, however, that such consent shall not be unreasonably withheld.
The party seeking indemnification shall give the indemnifying party
prompt notice of the commencement of any such Legal Proceeding; provided,
however, that any failure on the part of the party seeking indemnification to so
notify the indemnifying party shall not limit any of the obligations of the
indemnifying party under this Section 7 (except to the extent such failure
materially prejudices the defense of such Legal Proceeding).
7.8 Sole Recovery. Each party's sole remedy for any Damages hereunder
shall be the indemnification claims described in this Section 7; provided,
however, that such limitation shall be inapplicable with respect to Damages that
arise from or as a result of Seller's intentional misrepresentation or breach of
the representation in Section 2.18.
SECTION 8. MISCELLANEOUS PROVISIONS.
8.1 Further Assurances. At any time and from time to time after the
Closing, at the request of the other party and without further consideration,
each party hereto shall execute and cause to be delivered to each other party
hereto such instruments and other documents, and shall take such other actions,
as such other party may reasonably request for the purpose of preparing or
completing the filing of tax returns or carrying out or evidencing any of the
transactions contemplated by this Agreement.
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8.2 Fees and Expenses. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement.
8.3 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
8.4 Notices. All notices and other communications required or permitted
under this Agreement and the transactions contemplated hereby shall be in
writing and shall be deemed to have been duly given, made and received on the
date when delivered by hand delivery with receipt acknowledged, or upon the next
"Business Day" (meaning a day other than a Saturday or a Sunday, or a federal
holiday upon which offices of the federal government are not open for business)
following receipt of facsimile transmission, or upon the fifth day after deposit
in the United States mail, registered or certified with postage prepaid, return
receipt requested, addressed as set forth below:
(a) If to Buyer:
DIGITAL RIVER, INC.
9625 West 76th Street, Suite 150
Eden Prairie, Minnesota 55344
Attention: Joel Ronning
Telephone: (952) 253-1234
Facsimile: (952) 253-8370
with a copy (not constituting notice) to:
COOLEY GODWARD LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111
Attention: Michael J. Sullivan, Esq.
Telephone: (415) 693-2000
Facsimile: (415) 951-3699
(b) If to Seller:
NETWORK COMMERCE INC.
411 First Avenue South
Seattle, WA 98104
Attention: Dwayne Walker and Scott Dickson
Telephone: (206) 223-1996
Facsimile: (206) 223-2324
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with a copy (not constituting notice) to:
PRESTON GATES & ELLIS
701 Fifth Avenue, Suite 5000
Seattle, WA 98104
Attention: Gary Kocher
Telephone: (206)623-7580
Facsimile: (206)623-7022
Any party may alter the address to which its communications are to be sent by
giving notice of such change in conformity with the provisions of this Section
8.4 for the giving of notice
8.5 Confidentiality. On and at all times after the Closing Date, Seller
and Buyer shall keep confidential, and shall not use or disclose to any other
Person, any non-public document or other non-public information in Seller's or
Buyer's possession that relates to the business of the other party or any
information concerning the transactions contemplated by this Agreement.
Subsequent to the Closing, Seller and Buyer shall make a mutually agreed, joint
public announcement regarding the transaction.
8.6 Headings. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
8.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
8.8 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
Delaware (without giving effect to principles of conflicts of laws).
8.9 Successors and Assigns. Buyer may freely assign any or all of its
rights under this Agreement (including its indemnification rights under Section
7), in whole or in part, to any other Person without obtaining the consent or
approval of any other party hereto or of any other Person, provided that Buyer
has met all obligations hereunder and has made all payments required hereunder
in full. Notwithstanding the foregoing, Buyer may assign its rights and
obligations without the prior written consent of Seller in connection with any
merger, consolidation, any sale of all or substantially all of Buyer's assets or
any other transaction in which more than fifty percent (50%) of Buyer's voting
securities or assets are transferred. Seller may not assign its rights and
obligations without the prior written consent of Buyer which consent shall not
be unreasonably withheld, provided, however, Seller may assign its rights and
obligations without the prior written consent of Buyer in connection with any
merger, consolidation, any sale of all or substantially all of Seller's assets
or any other transaction in which more than fifty percent (50%) of Seller's
voting securities or assets are transferred. Subject to the foregoing, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and assigns.
21
8.10 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
8.11 Amendments. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
8.12 Severability. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
8.13 Entire Agreement. This Agreement, the Schedules, Exhibits,
instruments and the other agreements referred to herein set forth the entire
understanding of the parties hereto relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof and thereof.
8.14 Construction.
(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" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
22
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be executed and delivered as of the date first set forth above.
DIGITAL RIVER, INC.,
a Delaware corporation
By:
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Name:
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Title:
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NETWORK COMMERCE INC.,
a Washington corporation
By:
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Name:
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Title:
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FREEMERCHANT.COM, INC.,
a Delaware corporation
By:
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Name:
---------------------------------------------
Title:
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SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
"Acquisition" has the meaning set forth in the first recital.
"Acquired Proprietary Asset" shall mean any Proprietary Asset included
in the Customer Assets purchased by the Buyer.
"Assumed Liabilities" has the meaning set forth in Section 1.3.
"Assumption Agreement" has the meaning set forth in Section 1.6(b)(iv).
"Balance Sheet Date" has the meaning set forth in Section 2.4.
"Bill of Sale" has the meaning set forth in Section 1.5(b).
"Billing Agreement" has the meaning set forth in Section 1.1(b).
"Buyer" has the meaning set forth in the preamble.
"Buyer Indemnitee" shall mean the following Persons: (a) Buyer; (b)
Buyer's stockholders, directors, officers, employees and agents; (c) Buyer's
current and future affiliates; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above.
"Closing Cash Payment" has the meaning set forth in Section 1.4(a).
"Closing Date" has the meaning set forth in Section 1.6(a).
"Code" has the meaning set forth in Section 4.4
"Consent" shall mean any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
"Contract" shall mean any written, oral or other agreement, contract,
subcontract, lease, instrument, note, warranty, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature.
"Customer Asset" has the meaning set forth in Section 1.1.
"Damages" shall include any loss, damage, injury, decline in value,
liability, claim, demand, bona fide settlement, judgment, award, fine, penalty,
tax, fee (including reasonable attorneys' fees), charge, cost (including
reasonable costs of investigation) or expense of any nature.
Exhibit A-1
<Page>
"Deferred Revenue" shall mean, with respect to any customer (excluding
Surefire Commerce Inc.) that has prepaid Seller for services in connection with
the Customer Assets, the pro rated portion of any revenue received that is
recognizable following the Closing Date, excluding revenue under that certain
Strategic Partner Agreement, dated July 6, 2001 between Surefire Commerce Inc.
and Network Commerce Inc.
"Deferred Revenue Payment" has the meaning set forth in Section 1.4(b).
"Disclosure Schedule" shall mean the schedule (dated as of the date of
the Agreement) delivered to Buyer on behalf of Seller.
"Disputed Claim" has the meaning set forth in Section 7.3(c).
"Earnout Payment" has the meaning set forth in Section 1.5(c)(ii).
"Encumbrance" shall mean any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, claim, interference, option, right of
first refusal, preemptive right, community property interest or restriction of
any nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived from any asset, any restriction on the use of
any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" has the meaning set forth in Section 1.2(a).
"FreeMerchant Non-Subscription Receipts" shall mean all cash received
following the Closing pursuant to advertising, professional service and any
other agreements or relationships (other than FreeMerchant Subscription
Receipts) from third party service providers, including under third party
contracts set forth in the Transfer List, in connection with the FreeMerchant
Subscribers and from current and future FreeMerchant Subscribers, regardless of
whether Seller or Buyer is the merchant of record; provided, however, that
FreeMerchant Non-Subscription Receipts does not include cash received following
the Closing that was earned by Seller prior to the Closing (in accordance with
generally accepted accounting principles and consistent with Seller's past
practices).
"FreeMerchant Non-Subscription Revenue" shall mean all advertising
revenue, professional service revenue and revenue under third party contracts
set forth in the Transfer List, and any other revenue (other than FreeMerchant
Subscription Revenue) recognized following the Closing in accordance with
generally accepted accounting principles in a manner consistent with Seller's
past practices from third party service providers in connection with the
FreeMerchant Subscribers and from current and future FreeMerchant Subscribers.
"FreeMerchant Receipts" shall mean FreeMerchant Non-Subscription
Receipts and FreeMerchant Subscription Receipts, collectively, regardless of
whether Seller or Buyer is the merchant of record.
Exhibit A-2
<Page>
"FreeMerchant Revenue" shall mean FreeMerchant Non-Subscription Revenue
and FreeMerchant Subscription Revenue, collectively.
"FreeMerchant Receipts Payment" has the meaning set forth in Section
1.5(b)(ii).
"FreeMerchant Subscription Receipts" shall mean all cash received
following the Closing from subscriptions from current and future FreeMerchant
Subscribers, regardless of whether Seller or Buyer is the merchant of record.
"FreeMerchant Subscription Revenue" shall mean all subscription
revenues recognized following the Closing in accordance with generally accepted
accounting principles in a manner consistent with Seller's past practices from
current and future FreeMerchant Subscribers, regardless of whether Seller or
Buyer is the merchant of record.
"FreeMerchant Site" has the meaning set forth in Section 1.1(a).
"FreeMerchant Subscriber" shall mean an end-user e-commerce web site
that uses the FreeMerchant Technology, and that is a paying customer of Seller
pursuant to a valid Contract as of immediately prior to the Closing, whether
payments are made monthly, quarterly, or annually.
"FreeMerchant Technology" has the meaning set forth in Section 1.1(a).
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authorization" shall mean any: (a) permit, license,
certificate, franchise, permission, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or (b)
right under any Contract with any Governmental Body.
"Governmental Body" shall mean any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other governmental
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or entity and any court or
other tribunal).
"Hosting Services Agreement" has the meaning set forth in Section
1.6(b)(v).
"Knowledge" (whether capitalized or not) shall mean actual conscious
awareness of any of the applicable party's present officers, or general counsel,
unless expressly stated otherwise.
"Legal Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or before, or otherwise
involving, any court or other Governmental Body or any arbitrator or arbitration
panel.
Exhibit A-3
<Page>
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body, including, but
not limited to, any bulk transfer laws.
"Material Adverse Effect" means any violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the Agreement or in the other
Transaction Agreements), which could have a material adverse effect on Seller's
business, condition, assets, liabilities, operations, financial performance or
prospects.
"Noncompetition Agreement" has the meaning set forth in the first
recital.
"Oracle License" has the meaning set forth in Section 1.1.
"Person" shall mean any individual, entity or Governmental Body.
"Proprietary Asset" shall mean any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service mark (whether registered or
unregistered), service mark application, copyright (whether registered or
unregistered), copyright application, trade secret, know-how, franchise,
computer software, computer program, invention, or other intellectual property
right or intangible asset; or (b) right to use or exploit any of the foregoing.
"Related Party" shall mean: (a) each individual who is an officer of
Seller; (b) each member of the immediate family of each of the individuals
referred to in clauses "(a)"; and (c) any trust or other entity (other than
Seller) in which any one of the individuals referred to in clauses "(a)" and
"(b)" above holds (or in which more than one of such individuals collectively
hold), beneficially or otherwise, a material voting, proprietary or equity
interest).
"Representatives" shall mean officers, directors, employees, agents,
attorneys, accountants, advisors and representatives.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" has the meaning set forth in the preamble.
"Seller Indemnitee" shall mean the following Persons: (a) Seller; (b)
Seller's stockholders, directors, officers, employees and agents; (c) Seller's
current and future affiliates; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above.
"Transfer List" has the meaning set forth in Section 1.1(a).
Exhibit A-4
<Page>
EXHIBIT B
NONCOMPETITION AGREEMENT
EXHIBIT C
TRANSFER LIST
to that certain
Asset Purchase Agreement dated December 28, 2001,
by and between Digital River, Inc., FreeMerchant.com,
Inc., and Network Commerce, Inc.
All initially capitalized terms shall have the meanings assigned to them in
Exhibit A of the Asset Purchase Agreement.
1.1
(a) "FreeMerchant.com Technology"
i) HTML code used to operate FreeMerchant.com and InternetMall.com as
of November 30, 2001
ii) Core Commerce Application - Code developed using FoxPro and Perl,
used to operate FreeMerchant.com and InternetMall.com as of November 30, 2001
iii) InternetMall Application System - FreeMerchant Mall application,
which is known as "InternetMall.com"
(b) Software Licenses
i) Software used to operate servers and hardware, subject to license
terms imposed on Seller regarding transfer of the same
(c) Contracts
i) Website Agreement dated April 23, 2001 between Network Commerce Inc.
and Webloyalty.com, Inc., and as amended by Website Amendment dated August 9,
2001.
ii) Strategic Partner Agreement dated July 6, 2001 between SureFire
Commerce, Inc. and Network Commerce Inc. and as amended by Amendment To
Strategic Partner Agreement to dated December 1, 2001
iii) Agreement dated May 20, 2001, between GotCompany.com, Inc. D/B/A
GotMarketing and Network Commerce Inc.
iv) Storebusters, Inc. Partner Agreement dated March 13, 2001 between
Infopia, Inc. (formerly, Storebusters, Inc.) and as amended by Addendum A dated
November 12, 2001.
v) License Agreement between Independent Systems & Programming, Inc.
and Berkeley Integration Group. (Note: Berkeley Integration Group was an owner
of Card Secure Inc., a company that Network Commerce acquired in June 1999.)
Exhibit C-1
Note: The inclusion of Contracts above does not expressly or implicitly
include, or convey any rights to Buyer related to, any Network Commerce websites
other than the FreeMerchant.com Site, even if such other web sites are among the
subjects of such Contracts.
(d) Server Computer Equipment and Software
i) FreeMerchant.com hardware assets - Production Environment
ii) FreeMerchant.com hardware assets - Staging and Development
Environment
(e) The following trademarks and all rights therein and all goodwill
associated therewith are also part of the "Customer Assets":
i) FreeMerchant.com Class 42 76/086525
ii) Internet Mall Class 35 Reg. No. 2,153,259
Exhibit C-2
EXHIBIT D
BILLING AND REPORTING SERVICES AGREEMENT
EXHIBIT E
BILL OF SALE
EXHIBIT F
ASSUMPTION AGREEMENT
EXHIBIT G
HOSTING SERVICES AGREEMENT