ASSET PURCHASE AGREEMENT

Exhibit 2.1

 

ASSET PURCHASE AGREEMENT

 

BETWEEN

 

CRYSTALTECH WEB HOSTING, INC.

 

AND

 

NEWTEK BUSINESS SERVICES, INC.

 

April      , 2004

TABLE OF CONTENTS

 

 

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ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (this “Agreement”) is entered into on this      day of April, 2004, by and between Newtek Business Services, Inc., a New York corporation (the “Buyer”), and CrystalTech Web Hosting, Inc., an Arizona corporation (the “Seller”). The Buyer and Seller are referred to collectively herein as the “Parties.”

 

This Agreement contemplates a transaction in which the Buyer will purchase all of the assets (and assume certain of the liabilities) of the Seller in return for cash and the Buyer Stock. The sole stockholder of Seller is Tim Uzzanti, an individual residing in Maricopa County, Arizona (the “Seller Stockholder”).

 

Now, therefore , in consideration of the premises and the mutual promises herein made and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows.

 

1. Definitions.

 

(a) “ Accredited Investor ” has the meaning set forth in Regulation D promulgated under the Securities Act.

 

(b) “ Acquired Assets ” means all right, title and interest in and to all of the assets of the Seller, including the following (but excluding the Excluded Assets):

 

(i) real property, leaseholds and subleaseholds therein, improvements, fixtures and fittings thereon and easements, rights-of-way and other appurtenants thereto (such as appurtenant rights in and to public streets) listed on Schedule 1(b)(i) attached hereto;

 

(ii) tangible personal property (such as machinery, equipment, supplies, purchased parts, furniture, and automobiles) listed on Schedule 1(b)(ii) attached hereto (collectively, the “Personal Property”);

 

(iii) all rights of the Seller in and to the Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto and rights there under, remedies against infringements thereof and rights to protection of interests therein under the laws of all jurisdictions;

 

(iv) leases and subleases of Personal Property listed on Schedule 1(b)(iv) attached hereto and the rights thereunder;

(v) agreements, contracts, indentures, mortgages, instruments, Security Interests, guaranties, other similar arrangements and rights thereunder listed on Schedule 1(b)(v) attached hereto;

 

(vi) accounts, notes and other receivables listed on Schedule 1(b)(vi) attached hereto;

 

(vii) claims, deposits, warranty claims against any supplier or other provider of goods or services to the Seller, prepayments, refunds, causes of action, choses in action, claims in bankruptcy, rights of recovery, indemnification rights from third parties, rights of set off and rights of recoupment (excluding any such item relating to the payment of taxes);

 

(viii) insurance policies with respect to which the Seller is a party listed on Schedule 1(b)(viii) attached hereto;

 

(ix) all rights to insurance and condemnation proceeds relating to the damage, destruction or impairment of the Acquired Assets, which damage, destruction or impairment occurs on or after the date of this Agreement;

 

(x) franchises, approvals, permits, licenses orders, registrations, certificates, variances and similar rights obtained from governments and Governmental Agencies listed on Schedule 1(b)(x) attached hereto; and

 

(xi) books, records, ledgers, files, documents, correspondence, lists (including the Customer List and any other customer lists), files related to Transferred Employees, plats, architectural plans, drawings and specifications, creative materials, advertising and promotional materials, equipment warranty information, studies, reports and other printed or written materials;

 

(c) “ Adjustment Amount ” means that dollar amount determined by mutual agreement of the Parties at the Closing, (which may be a positive or negative number) which shall equal the sum of (A) plus (B), less the sum of (C) plus (D), as follows:

 

The sum of:

 

(A) all monthly fees (excluding set up fees or any one time fees) paid to and received by the Seller prior to the Settlement Date from its customers for base services to be rendered after the Settlement Date,

 

plus:

 

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(B) the face amount of all Assumed Liabilities,

 

less the sum of:

 

(C) all unbilled and/or unpaid accounts receivable for overage services provided by the Seller for the month immediately prior to the Closing,

 

plus:

 

(D) the amount of any prepaid expenses.

 

(d) “ Adjustment Amount Shortfall ” shall have the meaning set forth in Section 2(d).

 

(e) “ Affiliate ” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

 

(f) “ Applicable Rate ” means the corporate base rate of interest publicly announced from time to time at Chase Bank.

 

(g) “ ARC Properties Lease ” means the Business and Commercial Lease dated October 23, 2001 (as supplemented or amended), by and between the Seller and Phoenix 6135 N. 7th Street, LLC.

 

(h) “ Assumed Liabilities” means (a) those liabilities of Seller listed on Schedule 1(h) and (b) all obligations of the Seller under the agreements, contracts, leases, licenses and other arrangements referred to in the definition of Acquired Assets either (i) to furnish goods, services and other non-cash benefits to another party after the Closing, (ii) to pay for goods, services and other non-cash benefits that another party will furnish to it after the Closing, or (iii) all other liabilities and obligations of the Seller listed on Schedule 1(h) attached hereto under an express statement (that the Buyer has initialed) to the effect that the definition of Assumed Liabilities will include the liabilities and obligations so disclosed; provided, however, that the Assumed Liabilities shall not include (i) any liability of the Seller for Income Taxes, (ii) any liability of the Seller for transfer, sales, use and other taxes arising in connection with the consummation of the transactions contemplated hereby, (iii) any liability of the Seller for the unpaid taxes of any Person (other than the Buyer and its Subsidiaries) under Reg. §1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise, (iv) any liability or obligation of the Seller or any of its ERISA Affiliates under any Plan maintained by the Seller or any of its ERISA Affiliates, (v) any obligations and

 

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benefits (financial or otherwise), if any, and any responsibility owed to any Transferred Employee that arise or result from such Transferred Employee’s employment (whether by contract, at law or otherwise) with the Seller whether arising or accruing before, on or after the Closing Date or resulting from the termination of such Transferred Employee’s employment with the Seller (but not those obligations arising from the Transferred Employee’s employment with Newco), (vi) any liabilities or obligations of the Seller under the ARC Properties Lease, (vii) any liabilities or obligations to pay any fees or commissions to any broker, finder or agent in connection with this Agreement and the transactions contemplated hereby, (viii) any obligation of the Seller to indemnify any Person (including the Seller Stockholder) by reason of the fact that such Person was a director, officer, employee or agent of or was serving at the request of any such entity as a partner, trustee, director, officer, employee or agent of another entity (whether such indemnification is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses or otherwise and whether such indemnification is pursuant to any statute, charter document, bylaw, agreement or otherwise), (ix) any liability of the Seller for costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby or (x) any liability or obligation of the Seller under this Agreement.

 

(i) “ Audited Financial Statements ” has the meaning set forth in Section 3(g).

 

(j) “ Base Price ” has the meaning set forth in Section 2(c).

 

(k) “ Business ” means the business sold by the Seller to the Buyer hereunder, which primarily constitutes of the provision of services to third parties related to what is commonly referred to as “web hosting.”

 

(l) [ INTENTIONALLY OMITTED ]

 

(m) “ Buyer ” has the meaning set forth in the preface above.

 

(n) “ Buyer Group ” has the meaning set forth in Section 5(b) of the Seller Stockholder Agreement.

 

(o) “ Buyer Stock ” means the common stock of Newtek Business Services, Inc., par value $0.02, listed on the Nasdaq National Market under the symbol of “NKBS.”

 

(p) “ Buyer Stock Payment Amount ” has the meaning set forth in Section 2(c).

 

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(q) “ Change in Control ” means the execution and closing of an agreement providing for the merger or sale of substantially all of the assets of Buyer (or its successor) where the Buyer is not the survivor or where the board of directors of the survivor following such merger or sale does not consist of previous Buyer directors constituting a majority.

 

(r) “ Closing ” has the meaning set forth in Section 2(f).

 

(s) “ Closing Date ” has the meaning set forth in Section 2(f).

 

(t) “ Code ” means the Internal Revenue Code of 1986, as amended.

 

(u) “ Confidential Information ” means any information concerning the businesses and affairs of the Seller that is not already generally available to the public; provided however, that Confidential Information shall not include any information concerning the business and affairs of the Seller that has been disclosed to any Person prior to the date hereof without an obligation to keep such information confidential, but only to the extent thereof.

 

(v) “ Customer List ” has the meaning set forth in Section 3(gg).

 

(w) “ Disclosure Schedules ” has the meaning set forth in Section 3.

 

(x) “ Earnest Money Deposit ” has the meaning set forth in Section 2(f).

 

(y) “ EBITDA ” means the net earnings of an entity without deduction of interest expenses, taxes, depreciation and amortization, as calculated according to GAAP, consistently applied; provided, however, that for purposes of calculating the EBITDA of the Business under Sections 2(e)(i) and 2(e)(ii), the EBITDA of the Business shall be computed without regard to any gains, losses, profits or expenses realized from any Extraordinary Item that has a material effect on the EBITDA of the Business. As used in this definition, the term “material effect” means any Extraordinary Item that (i) has a value per occurrence in excess one-half percent (0.5%) of the EBITDA of the Business for any annual calculation period, or (ii) has a value in the aggregate in excess of five percent (5%) of the EBITDA of the Business for any annual calculation period.

 

(z) “ Employment Agreements ” has the meaning set forth in Section 6(a)(xiii).

 

(aa) “ Environmental, Health and Safety Laws ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976 and the Occupational Safety and Health Act of

 

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1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments orders, decrees, rulings and charges there under) of federal, state, local and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety or employee health and safety, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or chemical, industrial, hazardous or toxic materials or wastes into ambient air, surface water, ground water or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or chemical, industrial, hazardous or toxic materials or wastes.

 

(bb) “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

(cc) “ ERISA Affiliate ” mean all Persons that are treated as being under common control with the Seller or any of its Affiliates of the Seller under Code Section 414(b), (c), (m) or (o).

 

(dd) “ Escrow Agent ” means the escrow agent party to the Escrow Agreement.

 

(ee) “ Escrow Agreement ” means the Escrow Agreement among the Buyer, Newco, the Seller, the Seller Stockholder and the Escrow Agent substantially in the form set forth as Exhibit B attached hereto.

 

(ff) “ Excess Adjustment Amount ” has the meaning set forth in Section 2(d).

 

(gg) “ Excluded Assets ” means (i) the corporate charter, qualifications to conduct business as a foreign corporation, contracts with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates and other documents relating to the organization, maintenance of the existence of the Seller as a corporation; (ii) the ARC Properties Lease; (iii) the insurance policies with respect to which the Seller is a party other than the insurance policies set forth on Schedule 1(b)(viii) ; (iv) any of the rights of the Seller under this Agreement (or under any agreement between the Seller on the one hand and the Buyer on the other hand entered into on or after the date of this Agreement); (v) all cash on hand or on deposit by Seller as of the Settlement Date; (vi) the other property and assets listed on Schedule 1(gg) attached hereto; and (vii) all other assets of the Seller

 

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listed on Schedule 1(gg) attached hereto under an express statement (that the Buyer has initialed) to the effect that the definition of Excluded Assets will include the assets so disclosed.

 

(hh) “ Extraordinary Items ” shall mean any transactions or events (i) that are of a character significantly different from the typical or customary business activities of the Business as of December 31, 2003 or (ii) that constitute a material change in the manner or operation of the Business as of December 31, 2003. Notwithstanding the foregoing, Extraordinary Items shall include (A) any legal or accounting fees and expenses incurred in connection with the preparation, execution and performance of this Agreement and the Purchase Documents, and (B) any increased gains, losses, profits or expenses realized from the effect of any merger with or acquisition of another business by Newco subsequent to the Closing.

 

(ii) “ Extremely Hazardous Substance ” has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.

 

(jj) “Financial Statement” has the meaning set forth in Section 3(g).

 

(kk) “ First Contingent Amount ” has the meaning set forth in Section 2(e)(i).

 

(ll) “ First Contingent Amount Period ” has the meaning set forth in Section 2(e)(i).

 

(mm) “ First Contingent Amount Threshold ” has the meaning set forth in Section 2(e)(i).

 

(nn) “ GAAP ” means United States generally accepted accounting principles, as in effect from time to time.

 

(oo) “ Good Reason ” has the meaning set forth in Section 1(j) of the Seller Stockholder Employment Agreement.

 

(pp) “ Governmental Agency ” means any (i) United States federal, state, local, municipal, or other governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal), or (ii) United States body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature.

 

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(qq) “ Income Tax ” means any federal, state, local or foreign income tax, including any interest, penalty or addition thereto, whether disputed or not.

 

(rr) “ Income Tax Return ” means any return, estimate, declaration, report, claim for refund or information return or statement relating to Income Taxes, including any schedule or attachment thereto and including any amendment thereof.

 

(ss) “ Indemnity Reduction Amount ” means the amount, if any, by which the aggregate amount to which the Buyer Group is entitled to indemnity pursuant to Section 5(b) of the Seller Stockholder Agreement plus a mutually agreeable good faith estimate by the Buyer and the Seller of the maximum amount of each claim or Third Party Claim that has been made by a member of the Buyer Group that is being disputed by the Seller or the Seller Stockholder or the amount of which claim or Third Party Claim has not been determined. In the event that the Buyer and the Seller are unable to mutually agree upon a good faith estimate of the maximum amount of each claim or Third Party Claim that has been made by a member of the Buyer Group that is being disputed by the Seller or the Seller Stockholder or the amount of which claim or Third Party Claim has not been determined, the dispute shall be submitted to arbitration. Christopher Skelly shall be the arbitrator for any disputes pertaining to the good faith estimate to be used for purposes of calculating the Indemnity Reduction Amount. The Buyer and the Seller shall each present to the arbitrator its good faith estimate of the maximum amount of each claim or Third Party Claim that has been made by a member of the Buyer Group that is being disputed by the Seller or the Seller Stockholder or the amount of which claim or Third Party Claim has not been determined and the arbitrator shall select either the Buyer’s or the Seller’s good faith estimate as the good faith estimate to be used for purposes of calculating the Indemnity Reduction Amount. The decision of the arbitrator shall be the binding and final determination of the good faith estimate to be used for purposes of calculating the Indemnity Reduction Amount. The fees and expenses of the arbitrator shall be borne by the party whose good faith estimate was not selected by the arbitrator.

 

(tt) “ Intellectual Property ” means all of the following that is owned by, licensed by, licensed to, or used by the Seller (including authorized copies or embodiments thereof) (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto and all patents, patent applications and patent

 

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disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof, (b) all registered and unregistered trademarks, service marks, trade dress, logos, trade names, corporate names or other indications of origin, including, but not limited to the name “CrystalTech Web Hosting, Inc.” and all variations or combinations thereof, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith and all applications, registrations and renewals in connection therewith, (c) all copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith, (d) all mask works and all applications, registrations and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business plans, marketing plans and proposals, operations manuals, training manuals and other technical data), (f) all computer software (including data and related documentation), domain name servers, software systems and databases, (g) all internet domain names, email addresses and world wide web addresses and pages used or otherwise employed by the Seller, (h) all other proprietary rights and (i) all copies and tangible embodiments of any of the foregoing (in whatever form or medium).

 

(uu) “ Intellectual Property Licenses ” has the meaning set forth in Section 3(n)(iii).

 

(vv) “ Interim Financial Statements ” has the meaning set forth in Section 3(g).

 

(ww) “ IRS ” means the Internal Revenue Service.

 

(xx) “ Just Cause ” has the meaning set forth in Section 1(k) of the Seller Stockholder Employment Agreement.

 

(yy) “ Knowledge ” means with respect to (i) the Seller, the knowledge of Tim Uzzanti and all other employees of the Seller if (A) such individual is actually aware of such fact or matter or (B) such individual would reasonably be expected to become aware of such fact or matter in the ordinary course of discharging such individual’s duties as an employee of the Seller, or (ii) the Buyer, the knowledge of Barry Sloane and all other senior management employees of the Buyer if (A) such individual is actually aware of

 

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such fact or matter or (B) such individual would reasonably be expected to become aware of such fact or matter in the ordinary course of discharging his duties as an employee of the Buyer.

 

(zz) “ Law ” means any federal, state or local statute, law, ordinance, code, rule, regulation, order, decree, writ, judgment or injunction.

 

(aaa) “ Material Adverse Effect ” means any change or effect, individually or in the aggregate with any other change or effect, that is or would reasonably be expected to be materially adverse to the Business, the Acquired Assets, the ownership or use of the Acquired Assets by the Buyer, the Assumed Liabilities or the financial condition, operations, results of operations or future prospects of the Seller.

 

(bbb) “ Most Recent Balance Sheet ” means the balance sheet contained within the Most Recent Financial Statements.

 

(ccc) “ Most Recent Financial Statements ” has the meaning set forth in Section 3(g).

 

(ddd) “ Most Recent Fiscal Month End ” has the meaning set forth in Section 3(g).

 

(eee) “ Most Recent Fiscal Year End ” has the meaning set forth in Section 3(g).

 

(fff) “ Newco ” has the meaning set forth in Section 2(i).

 

(ggg) “ Ordinary Course of Business ” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

 

(hhh) “ Party ” has the meaning set forth in the preface above.

 

(iii) “ Person ” means any individual, general or limited partnership, corporation (including any non-profit corporation), association, joint stock company, firm, trust, estate, joint venture, limited liability company, unincorporated organization or Governmental Agency.

 

(jjj) “ PBGC ” means the Pension Benefit Guaranty Corporation.

 

(kkk) “ Personal Property ” has the meaning set forth in Section 1(b)(ii).

 

(lll) “ Plan ” has the meaning set forth in Section 3(y)(i).

 

(mmm) “ Purchase Documents ” has the meaning set forth in Section 3(b).

 

(nnn) “ Purchase Price ” has the meaning set forth in Section 2(c).

 

(ooo) “ Real Estate Sublease ” has the meaning set forth in Section 6(a)(v).

 

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(ppp) “ Reconciled Adjustment Amount ” means the dollar amount determined by mutual agreement of the Parties and based upon the Buyer’s review of and revisions to the Financial Statements one hundred twenty (120) days after the Closing (which may be a positive or negative number), equal to (A) plus (B) minus (C) plus (D), as follows:

 

The sum of:

 

(A) all monthly fees (excluding set up fees or any one time fees) paid to and received by the Seller prior to the Settlement Date from its customers for base services to be rendered by the Seller after the Settlement Date that have not been subsequently refunded by the Buyer or Newco pursuant to the terms of any agreement entered into between the Seller and such customers,

 

plus

 

(B) the face amount of all Assumed Liabilities as of the Closing,

 

less the sum of:

 

(C) all unbilled and/or unpaid accounts receivable for overage services provided by the Seller prior to the Closing and received by the Seller after the Closing for the month immediately prior to the Closing,

 

plus

 

(D) the amount of any prepaid expenses.

 

(qqq) “ Scheduled Closing Date ” has the meaning set forth in Section 2(f).

 

(rrr) “ Second Contingent Amount ” has the meaning set forth in Section 2(e)(ii).

 

(sss) “ Second Contingent Amount Period ” has the meaning set forth in Section 2(e)(ii).

 

(ttt) “ Second Contingent Amount Threshold ” has the meaning set forth in Section 2(e)(ii).

 

(uuu) “ Securities Act ” means the Securities Act of 1933, as amended.

 

(vvv) “ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

(www) “ Security Interest ” means any debt, claim, mortgage, pledge, lien, encumbrance, assessment, charge restriction or other security interest, other than (a) statutory liens of landlords, mechanics, materialmens and similar liens imposed by Law,

 

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(b) liens for taxes not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money.

 

(xxx) “ Seller ” has the meaning set forth in the preface above.

 

(yyy) “ Seller Employment Agreements ” has the meaning set forth in Section 3(x).

 

(zzz) “ Seller Stockholder ” has the meaning set forth in the preface above.

 

(aaaa) “ Seller Stockholder Agreement ” means the Seller Stockholder Agreement between the Buyer and Seller Stockholder dated on even date herewith in the form set forth as Exhibit A attached hereto.

 

(bbbb) “ Seller Stockholder Employment Agreement ” has the meaning set forth in Section 6(a)(xii).

 

(cccc) “ Settlement Date ” means 11:59 p.m. Mountain Standard Time on the day prior to the Closing Date.

 

(dddd) “ Smartertools ” shall mean Smartertools, Inc., an Arizona corporation.

 

(eeee) “ Smartertools Sublease ” means the Real Estate Sublease between Newco and Smartertools with respect to a portion of the property located at 6135 N. 7th Street, Phoenix, Arizona.

 

(ffff) “ Software Agreements ” means the Software Use Agreement and the Software Distribution Agreement, each between Newco and Smartertools substantially in the forms set forth as Exhibit C attached hereto.

 

(gggg) “ Stock Incentive Plan ” shall mean the Newtek Business Services, Inc. 2000 Stock Incentive and Deferred Compensation Plan, as amended.

 

(hhhh) “ Subsidiary ” means any Person with respect to which a specified Party (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors or, if the Person is not a corporation, such equivalent role.

 

(iiii) “ Third Party Claim ” has the meaning set forth in Section 5(d) of the Seller Stockholder Agreement.

 

(jjjj) “ Transferred Employees ” has the meaning set forth in Section 5(i).

 

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2. Basic Transaction.

 

(a) Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller and the Seller agrees to sell, transfer, convey and deliver to the Buyer, all of the Acquired Assets at the Closing for the consideration specified below in this Section 2. It is agreed that the Buyer shall not purchase from the Seller and the Seller shall not sell, transfer, convey or delivery to the Buyer the Excluded Assets.

 

(b) Assumption of Liabilities. On and subject to the terms and conditions of this Agreement, the Buyer agrees to assume, become responsible for, and hold the Seller harmless on account of all of the Assumed Liabilities at the Closing. The Buyer will not assume or have any responsibility, however, with respect to any other obligation or liability of the Seller not included within the definition of Assumed Liabilities.

 

(c) Purchase Price . The consideration for the Acquired Assets (the “Purchase Price”) shall be equal to (i) $10,250,000, plus or minus (ii) the Adjustment Amount, if any ($10,250,000 plus or minus the Adjustment Amount, the “Base Price”), plus or minus (iii) the Reconciled Adjustment Amount, if any, plus (iv) the First Contingent Amount, if any; and plus (v) the Second Contingent Amount, if any. The Base Price shall be paid at Closing by the Buyer to the Seller and shall be payable as follows: (i) $10,000,000 plus or minus the Adjustment Amount shall be payable in cash, by wire transfer to an account designated in writing by the Seller or by delivery of other immediately available funds, and (ii) $250,000 shall be payable in shares of Buyer Stock valued at a price per share equal to (A) the price received by the Buyer in the sale of Buyer Stock referenced in Section 6(a)(xvii) if Buyer shall have completed a sale of Buyer Stock, or (B) the closing price of Buyer Stock as listed on the Nasdaq National Market for the trading day immediately preceding the financing transaction referenced in Section 6(a)(xvii) if Buyer shall have completed a financing transaction other than a sale of Buyer Stock. The Buyer Stock provided for in this Section 2(c) shall be issued in the name of the Seller Stockholder, unless otherwise instructed by the Seller in writing, and shall be registered by the Buyer for resale pursuant to Section 2(k). If Buyer fails to register the Buyer Stock that comprises part of the Base Price for resale on or before the date one hundred twenty (120) days after Closing as required under Section 2(k), the Seller Stockholder shall have

 

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a thirty-five (35) day option to tender to the Buyer all, but not less than all, of the Buyer Stock that comprises part of the Base Price, for $250,000 (the “Buyer Stock Payment Amount”). The Buyer shall pay the Buyer Stock Payment Amount to the Seller Stockholder in cash, by wire transfer to an account designated in writing by the Seller Stockholder or delivery of other immediately available funds, within five (5) business days of receipt of the certificates representing the Buyer Stock that comprises part of the Base Price from the Seller Stockholder. The Seller Stockholder’s option under this Section 2(c) shall expire and become null and void unless exercised in writing within such thirty-five (35) day period. In addition, the Buyer agrees to issue $250,000 of shares of Buyer Stock pursuant to its Stock Incentive Plan to the Transferred Employees in conjunction with the employment arrangements set forth in Section 5(k). In conjunction with the Closing, the Buyer shall deposit $250,000 in cash into an escrow account to be held in accordance with the terms and conditions of the Escrow Agreement to secure the payment of the Buyer Stock Payment Amount to the Seller Stockholder pursuant to this Section 2(c), if any.

 

(d) Reconciled Adjustment Amount. Once the Reconciled Adjustment Amount has been determined, if the Reconciled Adjustment Amount is less than the Adjustment Amount, the Purchase Price shall be increased by such shortfall (the “Adjustment Amount Shortfall”). The Buyer shall pay the Adjustment Amount Shortfall to the Seller in cash, by wire transfer to an account designated in writing by the Seller or by delivery of other immediately available funds, within five (5) business days of the determination of the Reconciled Adjustment Amount. Conversely, if the Reconciled Adjustment Amount exceeds the Adjustment Amount, the Purchase Price shall be reduced by such excess (the “Excess Adjustment Amount”). The Seller shall pay the Excess Adjustment Amount to the Buyer in cash, by wire transfer to an account designated in writing by the Buyer or by delivery of other immediately available funds, within five (5) business days of the determination of the Reconciled Adjustment Amount.

 

(e) Contingent Amount Payments.

 

(i) In the event that the Business has achieved EBITDA of at least $2,800,000 at the conclusion of twelve (12) months commencing on the first day of the first month following the Closing Date (the “First Contingent Amount Period”), the Buyer

 

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shall allow Newco to pay to the Seller, or shall cause the Escrow Agent to pay to the Seller, within thirty (30) days thereafter or in accordance with Section 2(e)(iv): (A) $750,000 in cash, by wire transfer to an account designated in writing by the Seller or by delivery of other immediately available funds, and (B) $750,000 in Buyer Stock valued at a price per share equal to (1) the price received by the Buyer in the sale of Buyer Stock referenced in Section 6(a)(xvii) if Buyer shall have completed a sale of Buyer Stock, or (2) the closing price of Buyer Stock as listed on the Nasdaq National Market for the trading day immediately preceding the financing transaction referenced in Section 6(a)(xvii) if Buyer shall have completed a financing transaction other than a sale of Buyer Stock (collectively, the “First Contingent Amount”), less any Indemnity Reduction Amount. The Buyer Stock provided for in this Section 2(e)(i) shall be issued in the name of the Seller Stockholder, unless otherwise instructed by the Seller in writing. Any Indemnity Reduction Amount under this Section 2(e)(i) shall be deposited into an escrow account, to the extent not already in an escrow account, to be held until final determination of the Indemnity Reduction Amount, at which point any such Indemnity Reduction Amount for which the Buyer Group is entitled to indemnity shall be released to Newco and any amount held in the escrow account for which the Buyer Group is not entitled to indemnity shall be released to the Seller substantially in accordance with the procedures established in the Escrow Agreement. The Parties agree that the any Indemnity Reduction Amount shall first be satisfied from the cash portion of the First Contingent Amount. The Buyer shall deposit the Buyer Stock portion of the First Contingent Amount into an escrow account at Closing to be held in accordance with the terms and conditions of the Escrow Agreement. In addition, if the Business has achieved EBITDA of at least $2,050,000 (the “First Contingent Amount Threshold”) at any time during the First Contingent Amount Period, as demonstrated by the Buyer’s monthly financials as mutually agreed upon by the Parties, the Buyer shall allow Newco to deposit all or such part of the cash portion of the First Contingent Amount equal to the EBITDA of the Business in excess of the First Contingent Amount Threshold into an escrow account to be held in accordance with the terms and conditions of the Escrow Agreement; provided, however, that in the event that at the conclusion of the First Contingent Amount Period, the Business fails to have achieved EBITDA of at least $2,800,000 during such period, all amounts deposited into an escrow account pursuant to this Section 2(e)(i) shall be returned to Newco, together with interest earned thereon, if any.

 

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(ii) In the event that the Business has achieved EBITDA of at least $3,200,000 at the conclusion of twenty-four (24) months commencing on the first day of the first month following the Closing Date (the “Second Contingent Amount Period”), the Buyer shall allow Newco to pay to the Seller, or shall cause the Escrow Agent to pay to the Seller, within thirty (30) days thereafter or in accordance with Section 2(e)(iv): (A) $500,000 in cash, by wire transfer to an account designated in writing by Seller Stockholder or delivery of other immediately available funds, and (B) $1,000,000 in Buyer Stock valued at a price per share equal to (1) the price received by the Buyer in the sale of Buyer Stock referenced in Section 6(a)(xvii) if Buyer shall have completed a sale of Buyer Stock, or (2) the closing price of Buyer Stock as listed on the Nasdaq National Market for the trading day immediately preceding the financing transaction referenced in Section 6(a)(xvii) if Buyer shall have completed a financing transaction other than a sale of Buyer Stock (collectively, the “Second Contingent Amount”), less any Indemnity Reduction Amount. The Buyer Stock provided for in this Section 2(e)(ii) shall be issued in the name of the Seller Stockholder, unless otherwise instructed by the Seller in writing. Any Indemnity Reduction Amount under this Section 2(e)(ii) shall be deposited into an escrow account, to the extent not already in an escrow account, to be held until final determination of the Indemnity Reduction Amount, at which point any such Indemnity Reduction Amount for which the Buyer Group is entitled to indemnity shall be released to Newco and any amount held in the escrow account for which the Buyer Group is not entitled to indemnity shall be released to the Seller substantially in accordance with the procedures established in the Escrow Agreement. The Parties agree that any Indemnity Reduction Amount shall first be satisfied from the cash portion of the Second Contingent Amount. The Buyer shall deposit the Buyer Stock portion of the Second Contingent Amount into an escrow account at Closing to be held in accordance with the terms and conditions of the Escrow Agreement. In addition, if the Business has achieved EBITDA of at least $2,450,000 (the “Second Contingent Amount Threshold”) at any time during the Second Contingent Amount Period, as demonstrated by the Buyer’s monthly financials as mutually agreed upon by the Parties, the Buyer shall allow Newco to deposit all or such

 

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part of the cash portion of the Second Contingent Amount equal to the EBITDA of the Business in excess of the Second Contingent Amount Threshold into an escrow account to be held in accordance with the terms and conditions of the Escrow Agreement; provided, however, that in the event that at the conclusion of the Second Contingent Amount Period, the Business fails to have achieved EBITDA of at least $3,200,000 during such period, all amounts deposited into an escrow account pursuant to this Section 2(e)(ii) shall be returned to Newco, together with interest earned thereon, if any.

 

(iii) Notwithstanding the foregoing, if a Change in Control shall occur or the Seller Stockholder’s employment with the Buyer is terminated for any reason (a) at any time prior to the conclusion of the First Contingent Amount Period, the First Contingent Amount and the Second Contingent Amount shall, no later than thirty (30) days after such Change in Control or termination of employment, be paid to the Seller and the Seller Stockholder as provided in Sections 2(e)(i) and 2(e)(ii); and (b) at any time prior to the conclusion of the Second Contingent Amount Period, the Second Contingent Amount shall, no later than thirty (30) days after such Change in Control or termination of employment, be paid to the Seller and the Seller Stockholder as provide in Section 2(e)(ii).

 

(iv) In connection with determining the EBITDA of the Business, Newco will permit the Seller Stockholder to have full access at all reasonable times and in a manner so as to not interfere with the normal business operations of Newco, to the books and records of Newco and to Newco’s accountant’s work papers, to the extent such work papers contain information relevant to the EBITDA of the Business, to verify the computation of EBITDA. In the event that the Seller Stockholder disagrees with the calculation of the EBITDA of the Business for either the First Contingent Amount Period or the Second Contingent Amount Period, the Seller Stockholder shall have the right, at his sole cost and expense, to conduct an independent audit of Newco’s books and records for such period. Any such audit performed under this Section 2(e)(iv) shall be completed within thirty (30) days after the First Contingent Amount Period or Second Amount Period, as applicable. In the event that the EBITDA was calculated incorrectly and the Seller should have been entitled to the payments provided under Section 2(e)(i) or (2)(e)(ii), the Buyer shall allow Newco to pay to the Seller, or shall cause the Escrow Agent to pay to the Seller, such payments within thirty (30) days after the completion of the applicable

 

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audit. Any information provided to the Seller Stockholder under this Section 2(e)(iv) shall be deemed to be confidential and the Seller Stockholder shall treat and hold any information he receives from the Buyer or Newco in the course of the audits contemplated by this Section 2(e)(iv) strictly confidential, will not use such information except in connection with this Agreement and, upon completion of any audit, will return to Newco all tangible embodiments (and copies thereof) of the information which are in his possession.

 

(f) The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Nearhood Law Offices in Scottsdale, Arizona, commencing at 9:00 a.m. Mountain Standard Time on May 17, 2004 (the “Scheduled Closing Date”). The Buyer shall have two options to extend the Scheduled Closing Date for a period of one (1) month each by delivering written notice to Seller not later than 5:00 p.m. Mountain Standard Time on the day prior to the then scheduled Closing Date (the later of the Scheduled Closing Date, or if such option(s) are exercised, June 17, 2004 or July 19, 2004, the “Closing Date). If Buyer exercises such option(s) to extend the Scheduled Closing Date, and as a condition to such extension(s), Buyer shall at each time Buyer delivers such notice, pay to Seller a nonrefundable earnest money deposit in the amount of $100,000 (each, a “Earnest Money Deposit”). The Earnest Money Deposit(s) shall be applied as a credit against the Base Price payable by Buyer at the Closing; and if Buyer fails to close timely as provided herein, the Earnest Money Deposit(s) shall be forfeited to Seller as liquidated damages (and not a penalty) to compensate Seller for holding the Acquired Assets off the market pending the sale to Buyer contemplated under this Agreement. If Buyer fails to exercise timely the options to extend the Scheduled Closing Date as provided in this Section 2(f), such options shall be deemed terminated, null and void, and of no further force or effect.

 

(g) Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyer the various certificates, instruments and documents referred to in Section 6(a); (ii) the Buyer will deliver to the Seller the various certificates, instruments and documents referred to in Section 6(b); (iii) the Seller will execute, acknowledge (if appropriate) and deliver to the Buyer (and with respect to the Smartertools Sublease and the Software Agreements will deliver on behalf of Smartertools) (A) the Escrow Agreement, (B) the Software Agreements executed by Smartertools, (C) the Real Estate Sublease, (D) the

 

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Smartertools Sublease, and (E) such other instruments of sale, transfer, conveyance and assignment as the Buyer and its counsel may reasonably request that are necessary, appropriate or desirable for the consummation of the transactions contemplated by this Agreement; (iv) the Buyer will execute, acknowledge (if appropriate) and deliver to the Seller (and with respect to the Smartertools Sublease will deliver on behalf of Newco) (A) the Escrow Agreement, (B) the Software Agreements executed by Smartertools, (C) the Real Estate Sublease, (D) the Smartertools Sublease, and (E) such other instruments of assumption as the Seller and its counsel may reasonably request that are necessary, appropriate or desirable for the consummation of the transactions contemplated by this Agreement; and (v) the Buyer will deliver to the Seller the Base Price specified in Section 2(c).

 

(h) Allocation. The Parties agree to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with the Schedule 2(h) .

 

(i) Buyer Acquisition Subsidiary. Buyer intends to organize a new corporation for purposes of this transaction (“Newco”) and to assign to it all of Buyer’s rights under this Agreement. In such event, Newco shall expressly assume the assignment of all rights and responsibilities hereunder; provided, however, Buyer shall at all times remain jointly and severally liable with Newco for the full and timely performance of all obligations hereunder.

 

(j) Buyer Stock . Each certificate representing Buyer Stock that comprises part of the Base Price will be imprinted with a legend substantially in the following form until such time as Buyer has obtained the effectiveness of a registration statement to cover the sale of such Buyer Stock:

 

“The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended. The transfer of the shares is subject to certain restrictions set forth in the Securities Act of 1933. Each holder desiring to transfer such shares first must furnish the company with (i) a written opinion reasonably satisfactory to the company in form and substance from counsel reasonably satisfactory to the company, which may be from counsel to the company, to the effect that the holder may transfer

 

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the shares as desired without registration under the Securities Act and (ii) a written undertaking executed by the desired transferee reasonably satisfactory to the company in form and substance agreeing to be bound by the restrictions on transfer contained herein.”

 

(k) Registration of Buyer Stock . Buyer agrees to use its best efforts to cause a registration statement covering the resale of the Buyer Stock issued to Seller Stockholder that comprises part of the Base Price to be filed and to be declared effective at the earliest practicable time, but in no event later than one hundred twenty (120) days after the Closing Date. The Buyer shall notify the Seller within five (5) days of the effective date of any registration statement filed pursuant to this Section 5(k), to the extent such registration statement is declared effective.

 

3. Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as set forth in the disclosure schedules accompanying this Agreement and initialed by the Parties (the “Disclosure Schedules”).

 

(a) Organization of the Seller. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of the State of Arizona and has all the requisite power and authority to own, lease and operate its properties and to carry on the Business as now being conducted. Seller is qualified to do business in the jurisdictions set forth in Schedule 3(a) , which constitute each jurisdiction other than Arizona, if any, in which it is conducting business or the operation, ownership or leasing of its properties makes such qualification necessary.

 

(b) Authorization of Transaction. The Seller has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and the other agreements, documents, certificates and instruments required to be delivered by the Seller pursuant to this Agreement (collectively, but excluding this Agreement the “Purchase Documents”) and to perform its obligations hereunder and the