Exhibit 10.5
TAX LIABILITY LETTER AGREEMENT
This Tax Liability Letter Agreement ("Tax Agreement"), effective
October 19, 2001 (the "Agreement Date"), is entered into by eDiets.com.
Inc., a Delaware corporation ("eDiets"), TAMARA L. TOTAH ("Totah") and
CARLOS M. LOPEZ-ONA ("Lopez-Ona") (Totah and Lopez-Ona are collectively the
"Principal Stockholders"). The parties hereby agree as follows:
Relationship to the Agreement and Plan of Merger. All capitalized terms
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used herein but not defined shall have the meaning set forth in the
AGREEMENT AND PLAN OF MERGER dated as of October 1, 2001 (the "Agreement")
among EDIETS.COM, INC., a Delaware corporation ("eDiets"), DIETSMART
ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of
eDiets ("Newco"), DAVID R. HUMBLE ("Humble"), DIETSMART, INC., a Delaware
corporation ("DietSmart") TAMARA L. TOTAH ("Totah"), ANDREW G. SMITH
("Smith") and CARLOS M. LOPEZ-ONA ("Lopez-Ona").
1. Tax Liability Loan; Stock Pledge.
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(a) If for any reason or no reason, the Merger is determined not
to be a tax-free reorganization within the meaning of the Code, and Totah
and Lopez-Ona recognize gain or income with respect to the receipt of the
Share Consideration paid in exchange for their DietSmart securities, and
the Cash Consideration has not been paid to the DietSmart Stockholders,
Certain Option Holders and/or the Escrow Agent in accordance with Section
1.6 (c) (i)-(v) of the Agreement, then eDiets will loan to each of Totah
and Lopez-Ona, individually, sufficient monies to satisfy their respective
tax liabilities resulting from the receipt of the Share Consideration. Any
loan received by either or both of Totah and Lopez-Ona shall be secured by
the foregoing individuals through the pledge to eDiets of a fixed number of
eDiets securities equal to the cash value of the loan when made. Any loan
made will accrue interest at a rate of 6% per annum compounded quarterly
and will be due on the earlier of the third anniversary of the date loan
was made or the sale of any additional eDiets shares held by either or both
of Totah and Lopez-Ona or the exercise of any options held by Totah (with
respect to the loan made to her) or Lopez-Ona (with respect to the loan
made to him). There will be no penalty for prepayment. In no event shall
eDiets make a loan to Totah and Lopez-Ona after the last installment of the
Cash Consideration has been paid to the DietSmart Stockholders, Certain
Option Holders and/or Escrow Agent.
(b) The per share value of eDiets securities for purposes of
determining the number of shares to be pledged in exchange for a loan shall
be determined as follows: (i) if eDiets Common Stock is publicly traded,
then the per share value shall be the closing price in the eDiets stock
trading market on the date that the Internal Revenue Service has assessed a
tax liability that is the subject of the loan; or (ii) if eDiets Common
Stock ceases to trade on the over-the-counter Bulletin Board or any other
nationally recognized stock exchange, the per share value of eDiets
securities shall be determined as follows: (a) by negotiation between
eDiets and Totah and Lopez-Ona of a mutually acceptable per share value; or
(b) by an appraisal of the securities made by an
independent appraiser of Totah and Lopez-Ona's choosing, at their expense,
provided, however, that the appraiser shall be a person or firm
knowledgeable and experienced in valuations of this type and eDiets will
not unreasonably withhold its consent to the appointment of the appraiser
chosen by the both of Totah and Lopez-Ona. In the event that eDiets does
not consent to the appointment of the appraiser chosen by the both of Totah
and Lopez-Ona, the parties agree to submit the dispute to arbitration in
accordance with the provision of Section 17.8 of the Agreement, and the
arbitrator will select the appraiser.
(c) If at the time a loan is made pursuant to this Tax Agreement
there has not been a final disposition of the Turner Litigation, then any
amounts payable by Totah and/or Lopez-Ona pursuant to the last sentence of
Section 9.5(a) of the Agreement (the "Turner Personal Liability
Obligation") may at the option of Totah and/or Lopez-Ona, be satisfied, by
(i) the return to eDiets of a proportionate number of shares of eDiets
Common Stock equal in value to the amount to each of Totah and Lopez-Ona's
pro-rata share of the Turner Personal Liability Obligation; or (ii) in
cash. For purposes of this Section 1 (c) should either or both of Totah and
Lopez-Ona elect to satisfy the Turner Personal Liability Obligation through
the surrender of a proportionate share of his or her eDiets Common Stock or
the exercise of his or her eDiets options, the value of eDiets Common Stock
shall be determined as of the date the Turner Personal Liability Obligation
arises and in the same manner as provided in Section 1(b) above.
(d) In the event that Totah and/or Lopez-Ona have pledged all of
the Share Consideration received by each of them to secure the loan
advanced pursuant to Section 1(a), then Totah and/or Lopez-Ona shall have
no further Turner Personal Liability Obligation pursuant to Section 9.5(a)
of the Agreement. In addition, in the event that the aggregate value of the
shares returned to eDiets, pursuant to Section 1(a), is less than the
amount of the Turner Personal Liability Obligation of Totah and/or Lopez-
Ona, she and/or he shall have no further Turner Personal Liability
Obligation. In the event, however, that the aggregate value of Totah's
and/or Lopez-Ona's shares are insufficient to pay her and/or his Turner
Personal Liability Obligation because she or he have sold or transferred
eDiets shares, then any excess amounts of the Turner Personal Liability
Obligation over the value of the shares returned shall be paid by Totah
and/or Lopez-Ona in cash.
(e) If either or both of Totah and Lopez-Ona shall have sold
shares of eDiets Common Stock, which when received represented Share
Consideration in the Merger, prior to the time that either or both incur a
tax liability as described in Section 1(a) above, then any loan made
hereunder shall be reduced dollar for dollar by the amount of the net
after-tax proceeds realized by either or both of them on the sale(s) of
such eDiets Common Stock.
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IN WITNESS WHEREOF, the parties have caused this Tax Agreement to be executed by
their duly authorized representatives on the dates indicated below.
EDIETS.COM, INC. TAMARA L. TOTAH
By: /s/ David R Humble Sign: /s/ Tamara L. Totah
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Name:______________________ Name:___________________________
(Please print) (Please print)
Title:_____________________ Date:___________________________
Date:______________________
CARLOS M. LOPEZ-ONA
Sign: /s/ Carlos M. Lopez-Ona
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Name:___________________________
(Please print)
Date:___________________________
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