EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is made and entered into as of
March 31, 1998 (the "Effective Date") by and among NETSELECT, INC., a Delaware
corporation ("NetSelect"), THE ENTERPRISE OF AMERICA, LTD., a Wisconsin
corporation ("Enterprise"), and ROGER SCOMMEGNA, the only shareholder of
Enterprise (the "Enterprise Shareholder").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, NetSelect will acquire one hundred percent (100%) of the outstanding
share capital of Enterprise from the Enterprise Shareholder pursuant to the
terms and conditions set forth herein in exchange for cash and shares of
NetSelect Common Stock, in a transaction not intended to constitute a
reorganization within the meaning of the Internal Revenue Code of 1986, as
amended.
B. Upon the effectiveness of the Exchange (as defined below), all the
outstanding shares of Enterprise will be transferred to NetSelect in exchange
for cash and shares of NetSelect Common Stock, as provided in this Agreement.
C. The representations and warranties of Enterprise and the Enterprise
Shareholder herein are a material inducement to NetSelect to enter into this
Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms will
have the meanings set forth below:
1.1 "Closing Indebtedness" means, collectively, (i) the indebtedness
represented by the Scommegna Obligations as defined in Section 2(c) below, and
(ii) the indebtedness of Enterprise to the Zetley & Cohn Loan Trust, with
aggregate principal and accrued interest of such indebtedness collectively
aggregating $836,433.68 as of the Closing Date.
1.2 "Enterprise Ancillary Agreements" means, collectively, each agreement,
certificate or document (other than this Agreement) which Enterprise is to enter
into as a party thereto, or is to otherwise execute and deliver, pursuant to or
in connection with this Agreement.
1.3 "Enterprise Certificates" means the share certificates representing
all the Enterprise Shareholder's shares of Enterprise Stock.
1.4 "Enterprise Net Sales" means net revenues after the Closing Date from
the business activities that were conducted by Enterprise as of the Closing Date
as described in the business plan delivered by Enterprise to NetSelect before
the Closing Date, but not from new lines of business conducted by Enterprise or
NetSelect after the Closing Date or other new or additional business activities
conceived or engaged in by the Enterprise Shareholder or other persons who were
employees of Enterprise before the Closing Date. The foregoing notwithstanding,
the term "Enterprise Net Sales" shall include all revenues from the pager
operations and print operations (as defined in Exhibit 1.4 attached hereto)
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either conducted by Enterprise prior to the Closing Date or under development by
Enterprise prior to the Closing Date; provided, however, that with respect to
print operations, only revenues from transactions or sales with gross margins of
20% or more (or from transactions which, although having a gross margin of less
than 20%, the Chief Executive Officer of NetSelect expressly approves or
directs, or otherwise agrees will be included in the definition of "Enterprise
Net Sales") shall count as "Enterprise Net Sales."
1.5 "Enterprise Stock" means the shares of Enterprise, $1.00 par value per
share, comprising the authorized capital of Enterprise, as constituted
immediately prior to the Closing, as defined in Section 7.1 below.
1.6 "Exchange" means, collectively, the exchange of all of the outstanding
Enterprise Stock for cash and the Exchange Shares.
1.7 "Exchange Shares" means the one hundred five thousand (105,000) shares
of NetSelect Common Stock that will be issued under this Agreement.
1.8 "Material Adverse Effect" means any event, change or effect that is
(or will with the passage of time be) materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of operations or prospects of the Enterprise or NetSelect, as applicable
in context.
1.9 "NetSelect Ancillary Agreements" means, collectively, each agreement,
certificate or document (other than this Agreement) which NetSelect is to enter
into as a party thereto, or is to otherwise execute and deliver, pursuant to or
in connection with this Agreement.
1.10 "NetSelect Common Stock" means the Class A Common Stock, $0.001 par
value per share, of NetSelect.
1.11 "NetSelect Financial Information" means the unaudited, consolidated
income statement of NetSelect for the twelve months ending December 31, 1997 and
the month ended January 31, 1998, and certain consolidated balance sheet
information of NetSelect as of January 31, 1998, to be made available by
NetSelect to Enterprise and the Enterprise Shareholder as provided in Section
6.1(a).
1.12 "Schmidt Receivable Amount" means the amount of indebtedness of Robert
Schmidt to Enterprise, which amount is $23,139.63 as of the Closing Date, and
the balance of
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which as of January 31, 1998 is accrued on the balance sheet as of January 31,
1998 included in the Enterprise Financial Statements.
1.13 "Shareholder Ancillary Agreements" means, collectively, the
Investment Representation Letter, the Stock Power, Form W-8 and each other
agreement, certificate or document (other than this Agreement) to which the
Enterprise Shareholder is to enter into as a party thereto, or is to otherwise
execute and deliver pursuant to or in connection with this Agreement.
Other capitalized terms defined elsewhere in this Agreement and not defined
in this Section 1 shall have the meanings assigned to such terms in this
Agreement.
2. THE EXCHANGE
(a) Subject to the terms and conditions of this Agreement, at the
Closing:
(1) the Enterprise Shareholder shall irrevocably assign and transfer
to NetSelect all of his shares of Enterprise Stock, the amount of which is set
forth beside his name on Exhibit A hereto, and in exchange therefor NetSelect
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shall issue to the Enterprise Shareholder the Exchange Shares; and
(2) in addition, NetSelect shall pay the Enterprise Shareholder the
aggregate sum of $1,445,000 minus the amount of the Closing Indebtedness, and
minus the Schmidt Receivable Amount, in cash (or by wire transfer of immediately
available funds), and shall execute a note (the "Note") attached hereto as
Exhibit 2(a), which Note shall evidence NetSelect's promise to pay the
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Enterprise Shareholder (i) $633,333.33 (without a stated interest rate) each
year for three additional years beginning on the first anniversary of the
Closing Date, as defined in Section 7.1 below, and continuing on the second and
third anniversaries of the Closing Date, subject to the provisions of Section 11
below, and (ii) $300,000 (without a stated interest rate) on the earlier to
occur of (i) the closing of NetSelect's initial public offering of its equity
securities or (ii) January 1, 1999 (the "Additional Deferred Amount"). The Note
shall be secured by certain assets of Enterprise pursuant to a Security
Agreement with the Enterprise Shareholder in the form of Exhibit 2(b).
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(b) Subject to the terms and conditions of this Agreement, NetSelect shall
pay to the Enterprise Shareholder the "Earn-Out," as defined below. The parties
acknowledge that NetSelect and the Enterprise Shareholder intend, at the
Closing, to enter into an Employment Agreement dated the Closing Date in
substantially the form of Exhibit 9.9A attached hereto (the "Scommegna
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Employment Agreement"). For each calendar year during the period from the
Closing Date through December 31, 2000 (in other words, calendar years 1998,
1999 and 2000), if the Enterprise Shareholder has remained employed as an
employee of NetSelect for the entire calendar year (with respect to 1998 from
the Closing Date through the end of the calendar year), then subject to Section
11 below, NetSelect shall pay the Enterprise Shareholder, within ninety (90)
days after the end of each such calendar year, an amount in cash equal to five
percent (5%) of the excess of the dollar amount of Enterprise Net Sales for such
year (as reflected in NetSelect's financial statements) over Four Million
Dollars ($4,000,000). In no event, however,
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shall aggregate Earn-Out Payments exceed One Million Dollars ($1,000,000). If
the Enterprise Shareholder's employment is terminated by NetSelect during such
period in a Termination Without Cause or if the Enterprise Shareholder
terminates employment for Good Reason, as defined in Section 6 of the Scommegna
Employment Agreement, then the Enterprise Shareholder shall be entitled to
receive the Earn-Out payments for each of the three calendar years, at the times
and in the amounts that he would have been entitled to if he had remained
employed by NetSelect during the entire Earn-Out period; and if the Enterprise
Shareholder's employment is terminated during such period in a Termination "For
Cause" (as defined in Section 6 of the Scommegna Employment Agreement) by reason
of the Enterprise Shareholder's death (other than by suicide) or disability (as
defined in Section 6 of the Scommegna Employment Agreement), then the Enterprise
Shareholder shall be entitled to receive the Earn-Out payment for the calendar
year in which such event occurred (in the case of disability the year in which
such disability commenced), but not for subsequent years.
(c) Exhibit 2(c) attached hereto sets forth certain obligations owed by
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Enterprise to Lillian and/or Antonio Scommegna (the "Scommegnas"), including the
principal and accrued interest owed with respect to each such obligation as of
the Closing, a brief description of the material terms of such notes and/or
other obligations, and the instruments pursuant to which such obligations were
created (the "Scommegna Obligations"). Before the Closing, Enterprise shall
deliver to NetSelect copies of all instruments reflecting the Scommegna
Obligations.
(d) At or immediately after the Closing, NetSelect shall infuse such funds
as are reasonably necessary to cause Enterprise to pay, or NetSelect shall on
Enterprise's behalf pay the Closing Indebtedness (by wire transfer of
immediately available funds to an account specified by the person entitled to
receive such funds).
2.1 Exchange of Shares. At the Closing, all of the shares of Enterprise
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Stock that are issued and outstanding immediately prior to the Closing will be
exchanged for the Exchange Shares and other consideration payable under this
Agreement. Subject to surrender and delivery to NetSelect by the Enterprise
Shareholder of the applicable Enterprise Certificates at the Closing and an
accompanying Stock Power (in a form approved by counsel to NetSelect and
NetSelect's transfer agent) and Form W-8, the Enterprise Shareholder shall
receive a stock certificate for the Exchange Shares at the Closing.
2.2 Adjustments for Capital Changes. Notwithstanding the provisions of
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Section 2.1 above, if at any time after the Effective Date and prior to the
Closing, NetSelect recapitalizes, either through a subdivision (or stock split)
of any of its outstanding shares into a greater number of shares, or a
combination (or reverse stock split) of any of its outstanding shares into a
lesser number of shares, or reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a subdivision or combination of shares provided for
in the previous clause), or declares a dividend on its outstanding shares
payable in shares or securities convertible into shares of NetSelect Common
Stock (each event, a "Capital Change"), then the number of shares of NetSelect
Common Stock for which shares of Enterprise Stock are to be exchanged in the
Exchange shall be appropriately, equitably and proportionately adjusted so as to
maintain the proportionate interests of the Enterprise Shareholder contemplated
by this Agreement.
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2.3 Further Assurances. If, at any time after the Closing, NetSelect or
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the Enterprise Shareholder are advised by counsel that any further instruments,
deeds, assignments or assurances are reasonably necessary or desirable to
consummate the Exchange at or after the Closing, then Enterprise or NetSelect
(as the case may be) and its officers and directors, and the Enterprise
Shareholder, shall execute and deliver such proper deeds, assignments,
instruments and assurances and do all other things that NetSelect or the
Enterprise Shareholder have been so advised is reasonably necessary or desirable
to consummate the Exchange.
2.4 Securities Laws Issues. NetSelect shall issue the Exchange Shares
----------------------
pursuant to an exemption from registration under Section 4(2) and/or Regulation
D promulgated under the Securities Act of 1933, as amended (the "1933 Act").
Concurrently with execution of this Agreement, the Enterprise Shareholder will
execute and deliver to NetSelect an Investment Representation Letter in the form
of Exhibit 2.4A hereto (the "Investment Representation Letter"), and if
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immediately after the Closing the Enterprise Shareholder transfers to Cleary (as
defined below) 10,000 of the Exchange Shares as described in Section 2.6 below,
then Cleary will execute and deliver to NetSelect an investment representation
letter in substantially the form of Exhibit 2.4B hereto.
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2.5 Put Option Agreement. In addition, NetSelect, the Enterprise
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Shareholder, and Cleary shall enter into an agreement at Closing in the form of
Exhibit 2.5 providing for the right to "put" the Exchange Shares and shares of
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NetSelect Common Stock that are issued pursuant to the exercise of the stock
options to be granted to the Enterprise Shareholder pursuant to the Employment
Agreement attached hereto as Exhibit 9.9A.
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2.6 Consent to Transfer of Certain Shares. NetSelect acknowledges that
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the Enterprise Shareholder intends, immediately after the Closing, to transfer
10,000 of the Exchange Shares to Cleary, Gull, Reiland & McDevitt, Inc. and/or
certain persons affiliated with such firm (collectively, "Cleary"). Upon
receipt of appropriate instruments of transfer from the Enterprise Shareholder
and Cleary's agreement in writing to be bound by all of the provisions of this
Agreement applicable to such shares and making appropriate investment
representations, in form and substance reasonably satisfactory to NetSelect,
NetSelect will transfer 10,000 of the Exchange Shares to Cleary.
2.7 [Reserved]
3. REPRESENTATIONS AND WARRANTIES OF ENTERPRISE AND THE ENTERPRISE SHAREHOLDER
Enterprise and the Enterprise Shareholder hereby jointly and severally
represent and warrant to NetSelect that, except as set forth in the Enterprise
Schedule of Exceptions attached hereto as Exhibit 3 (the "Enterprise Schedule of
---------
Exceptions"), each of the following representations and statements in this
Section 3 is true and correct. For purposes of this Agreement, phrases such as
"the knowledge of Enterprise and the Enterprise Shareholder," "to the best
knowledge of Enterprise and the Enterprise Shareholder," or similar phrases
shall mean, and shall be limited to, the actual knowledge of Roger Scommegna and
Kevin Malloy after
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having made reasonable investigation and inquiry of the directors, officers or
employees of Enterprise who could reasonably be expected to have knowledge of
the matters to which the statement relates.
3.1 Organization and Good Standing. Enterprise is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Wisconsin. Enterprise has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted and as
proposed to be conducted, and is duly qualified to transact business as a
foreign corporation in each jurisdiction in which its failure to be so qualified
would have a Material Adverse Effect.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 Enterprise has the right, power, legal capacity and authority
to enter into, execute, deliver and perform its obligations under this Agreement
and all Enterprise Ancillary Agreements, and Enterprise has all requisite
corporate power and authority to consummate the Exchange. The execution,
delivery and performance of this Agreement and each of the Enterprise Ancillary
Agreements by Enterprise have been duly and validly approved and authorized by
all necessary corporate action on the part of Enterprise's Board of Directors.
The Enterprise Shareholder has the right, power, legal capacity and authority to
enter into, execute, deliver and perform the Enterprise Shareholder's
obligations under this Agreement and all Shareholder Ancillary Agreements and
has the requisite power and authority to consummate the Exchange.
3.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to be made or obtained by
Enterprise or the Enterprise Shareholder to enable Enterprise and the Enterprise
Shareholder to lawfully enter into, and to perform their respective obligations
under, this Agreement, the Enterprise Ancillary Agreements, and/or the
Shareholder Ancillary Agreements.
3.2.3 Except to the extent this Agreement and the Enterprise
Ancillary Agreements create obligations of the Enterprise Shareholder and not
Enterprise, this Agreement and the Enterprise Ancillary Agreements are, or when
executed by Enterprise will be, valid and binding obligations of Enterprise
enforceable against Enterprise in accordance with their respective terms.
Except to the extent they create obligations of Enterprise and not the
Enterprise Shareholder, this Agreement and the Shareholder Ancillary Agreements
are, or when executed by the Enterprise Shareholder will be, valid and binding
obligations of the Enterprise Shareholder enforceable against the Enterprise
Shareholders in accordance with their respective terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (ii) the remedy of specific performance and injunctive relief and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.2.4 All representations, warranties and other statements made by
the Enterprise Shareholder in the Investment Representation Letter executed and
delivered to
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NetSelect by the Enterprise Shareholder pursuant hereto (a) is now, and at the
Closing shall be, true and correct, and (b) shall be deemed to be
representations and warranties made pursuant to this Section 3 for all purposes
of this Agreement (including but not limited to Section 11 hereof).
3.3 Capitalization of Enterprise.
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3.3.1 Outstanding Stock. The authorized capital stock of Enterprise
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consists entirely of 9,000 shares of common stock, $1.00 par value per share, of
which a total of 100 shares are issued and outstanding, all of which are now
owned and held (and all of which at the Closing will be owned and held) only by
the Enterprise Shareholder. No other shares of the capital stock of Enterprise
are (or will at Closing be) authorized, issued or outstanding. No fractional
shares of Enterprise Stock are (or will at Closing be) issued or outstanding.
All issued and outstanding shares of Enterprise Stock have been duly authorized
and validly issued, are fully paid and nonassessable, except for assessment
under the Wisconsin employee compensation statute (Wis. Stat. (S)
180.0622(2)(b)), are not subject to any claim, lien, preemptive right, or right
of rescission, and have been offered, issued, sold and delivered by Enterprise
(and, if applicable, transferred) in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of all
applicable securities laws, Enterprise's Articles of Incorporation and other
charter documents and all agreements to which Enterprise is a party.
3.3.2 No Options, Warrants or Rights. There are no options,
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warrants, convertible or other securities, calls, commitments, conversion
privileges, preemptive rights or other rights or agreements outstanding to
purchase or otherwise acquire (whether directly or indirectly) any shares of
Enterprise's authorized but unissued capital stock or any securities convertible
into or exchangeable for any shares of Enterprise's capital stock or obligating
Enterprise to grant, issue, extend, or enter into, any such option, warrant,
convertible or other security, call, commitment, conversion privilege,
preemptive right or other right or agreement, and Enterprise has no liability
for any dividends accrued but unpaid. No person or entity holds or has any
option, warrant or other right to acquire any issued and outstanding shares of
the capital stock of Enterprise from any record or beneficial holder of shares
of the capital stock of Enterprise. No shares of Enterprise Stock are reserved
for issuance under any stock purchase, stock option or other benefit plan.
3.3.3 No Voting Arrangements or Registration Rights. There are no
---------------------------------------------
voting agreements, voting trusts, rights of first refusal or other restrictions
(other than normal restrictions on transfer under applicable securities laws)
applicable to any of Enterprise's outstanding securities. Enterprise is not
under any obligation to register under the 1933 Act or otherwise any of its
currently outstanding securities or any securities that may be subsequently
issued.
3.4 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any Enterprise Ancillary Agreement, nor the
consummation of the Exchange or any of the other transactions contemplated
hereby, nor Enterprise's discussion or negotiation with NetSelect of the
Exchange or any other transaction contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or
7
violation of: (i) any provision of the charter documents of Enterprise as
currently in effect; (ii) any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Enterprise or its
assets or properties; or (iii) any material instrument, agreement, contract,
letter of intent or commitment to which Enterprise is a party or by which
Enterprise or its assets or properties are or were bound. The consummation of
the Exchange by Enterprise will not require the consent of any third party other
than the approval of the Enterprise Shareholder, and no agreement to which
Enterprise is a party requires that any other party thereto consent to the
Exchange, whether as a condition to the assignment or transfer of such
agreement, or otherwise.
3.5 Litigation. There is no action, suit, arbitration, mediation,
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proceeding, claim or investigation pending against Enterprise (or to the
knowledge of Enterprise and the Enterprise Shareholder, against any officer or
director of Enterprise or, to the knowledge of Enterprise and the Enterprise
Shareholder, against any employee or agent of Enterprise, in their capacity as
such or relating to their employment, services or relationship with Enterprise)
before any court, administrative agency or arbitrator that, if determined
adversely to Enterprise (or any such officer, director, employee or agent) may
reasonably be expected to have a Material Adverse Effect on Enterprise, nor, to
the best of Enterprise's knowledge, has any such action, suit, proceeding,
arbitration, mediation, claim or investigation been threatened. To the
knowledge of Enterprise and the Enterprise Shareholder, there is no basis for
any person, firm, corporation or other entity, to assert a claim against
Enterprise or NetSelect based upon: (a) Enterprise's entering into this
Agreement or consummating the Exchange; (b) any claims of ownership, rights to
ownership, or options, warrants or other rights to acquire ownership, of any
shares of the capital stock of Enterprise; or (c) any rights as the Enterprise
Shareholder. There is no judgment, decree, injunction, rule or order of any
governmental entity or agency, court or arbitrator outstanding against
Enterprise.
3.6 Taxes. Enterprise has filed all national, state, local and foreign
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tax returns required to be filed, has paid all taxes required to be paid in
respect of all periods for which returns have been filed, has established what
it believes is an adequate accrual or reserve for the payment of all taxes
payable in respect of the periods subsequent to the periods covered by the most
recent applicable tax returns, has made all necessary estimated tax payments,
and has no material liability for taxes in excess of the amount so paid or
accruals or reserves so established. Enterprise is not delinquent in the
payment of any tax or in the filing of any tax returns, and to the knowledge of
Enterprise and the Enterprise Shareholder no deficiencies for any tax are
threatened, claimed, proposed or assessed. Enterprise has not received any
notification that any issues have been raised (and are currently pending) by any
taxing authority (including but not limited to any franchise, sales or use tax
authority) regarding Enterprise and no tax return of Enterprise has ever been
audited by any national, state, local or foreign taxing agency or authority.
There are no tax liens against any assets of Enterprise. Enterprise is not a
"personal holding company" within the meaning of Section 542 of the Internal
Revenue Code of 1986, as amended (the "Code"). Enterprise is not a "U.S. Real
Property Holding Company" as defined in the Code.
For the purposes of this Section, the terms "tax" and "taxes" include all
national, state, local and foreign income, alternative or add-on minimum income,
gains, franchise, excise,
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property, sales, use, employment, license, payroll (including any taxes or
similar payments required to be withheld from payments of salary or other
compensatory payments), ad valorem, payroll, stamp, occupation, recording, value
added or transfer taxes, governmental charges, fees, customs duties, levies or
assessments (whether payable directly or by withholding), and, with respect to
such taxes, any estimated tax, interest and penalties or additions to tax and
interest on such penalties and additions to tax.
3.7 Enterprise Financial Statements. Enterprise was incorporated in
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Wisconsin. Enterprise's fiscal year ends on December 31. Enterprise has
delivered to NetSelect (i) Enterprise's balance sheet as of December 31, 1996,
(ii) Enterprise's income statements for the years ended December 31, 1996 and
1997, and (iii) Enterprise's balance sheet (the "Balance Sheet") as of December
31, 1997 (the "Balance Sheet Date"), and (iv) Enterprise's balance sheet, and
income statement for the month ended January 31, 1998, copies of which are
attached as Exhibit 3.7 hereto (all such financial statements of Enterprise are
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hereinafter collectively referred to as the "Enterprise Financial Statements").
To the knowledge of Enterprise and the Enterprise Shareholder, the Enterprise
Financial Statements (a) are in accordance with the books and records of
Enterprise and (b) fairly present the financial condition of Enterprise at the
dates therein indicated and the results of operations for the periods therein
specified. To the knowledge of Enterprise and the Enterprise Shareholder,
Enterprise has no material debt, liability or obligation of any nature (whether
intercompany or owed to third parties), whether accrued, absolute, contingent or
otherwise, and whether due or to become due, except for (i) those shown on the
Balance Sheet, and (ii) those that may have been incurred after the Balance
Sheet Date in the ordinary course of Enterprise's business consistent with past
practice, and that are not material in amount, either individually or
collectively. To the knowledge of Enterprise and the Enterprise Shareholder, (i)
all reserves established by Enterprise and set forth in the Balance Sheet are
reasonably adequate, and (ii) at the Balance Sheet Date, there were no material
loss contingencies (as such term is used in United States Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) which are not adequately provided for in the Balance Sheet as
required by said Statement No. 5. Enterprise has no obligation to any employee,
officer or director of Enterprise to reimburse such person for expenses incurred
by such person on behalf of Enterprise, except for such unreimbursed obligations
as (i) are reflected in the Enterprise balance sheet as of January 31, 1998
which is included in the Enterprise Financial Statements, or (ii) have been
incurred after January 31, 1998 in the ordinary course of Enterprise's business
consistent with Enterprise's past practices and in immaterial amounts.
3.8 Title to Properties. Enterprise has good and marketable title to all
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of its assets (including but not limited to those shown on the Balance Sheet),
free and clear of all liens, mortgages, security interests, claims, charges,
restrictions or encumbrances. All machinery, vehicles, equipment and other
tangible personal property included in such assets and properties are in good
condition and repair, normal wear and tear excepted, and all leases of real or
personal property to which Enterprise is a party are fully effective and afford
Enterprise peaceful and undisturbed possession of the real or personal property
that is the subject of the lease. Enterprise does not own any real property. To
the knowledge of Enterprise and the Enterprise Shareholder, Enterprise is not in
violation of any zoning, building, safety or environmental ordinance, regulation
or requirement or other law or regulation applicable to the operation of owned
or
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leased properties, the violation of which would have a Material Adverse Effect
on Enterprise, nor has Enterprise received any notice of such violation with
which it has not complied.
3.9 Absence of Certain Changes. Since the Balance Sheet Date, there has
--------------------------
not been with respect to Enterprise any:
(a) material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of Enterprise;
(b) amendments or changes in the charter documents of Enterprise;
(c) (i) incurrence, creation or assumption by Enterprise of any mortgage,
security interest, pledge, lien or other encumbrance on any of the assets or
properties of Enterprise or any material obligation or liability or any
indebtedness for borrowed money in excess of Ten Thousand Dollars ($10,000); or
(ii) issuance or sale of, or change with respect to the rights of, any debt or
equity securities of Enterprise or any options or other rights to acquire from
Enterprise, directly or indirectly, any debt or equity securities of Enterprise;
(d) payment or discharge of a lien or liability in excess of Ten Thousand
Dollars ($10,000) which lien or liability was not either shown on the Balance
Sheet or incurred in the ordinary course of business after the Balance Sheet
Date;
(e) purchase, license, sale or other disposition, or any agreement or
other arrangement for the purchase, license, sale or other disposition, of any
of the assets, properties or goodwill of Enterprise in excess of Ten Thousand
Dollars ($10,000) other than in the ordinary course of its business consistent
with its past practice;
(f) damage, destruction or loss, whether or not covered by insurance,
having a Material Adverse Effect on Enterprise;
(g) declaration, setting aside or payment of any dividend on, or the
making of any other distribution in respect of, the capital stock of Enterprise,
any split, combination or recapitalization of the capital stock of Enterprise or
any direct or indirect redemption, purchase or other acquisition of the capital
stock of Enterprise or any change in any rights, preferences, privileges or
restrictions of any outstanding security of Enterprise;
(h) change or increase in the compensation payable or to become payable to
any of the officers, employees, consultants or agents of Enterprise, or any
bonus or pension, insurance or other benefit payment or arrangement (including,
without limitation, stock awards, stock appreciation rights or stock option
grants) made to or with any of such officers, employees, consultants or agents
except in connection with normal salary or performance reviews, pursuant to
arrangements of which NetSelect has been informed, or otherwise in the ordinary
course of business consistent with Enterprise's past practice, all of which are
set forth on the Enterprise Schedule of Exceptions;
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(i) change with respect to the management, supervisory or other key
personnel of Enterprise;
(j) obligation or liability incurred by Enterprise to any of its
officers, directors or shareholders except normal compensation and expense
allowances payable to officers in the ordinary course of business consistent
with Enterprise's past practice;
(k) making by Enterprise of any loan, advance or capital contribution to,
or any investment in, any officer, director or record or beneficial shareholder
of Enterprise;
(l) entering into, amendment of, relinquishment, termination or non-
renewal by Enterprise of any contract, lease, transaction, commitment or other
right or obligation which by its terms calls for annual payments in excess of
Ten Thousand Dollars ($10,000) (a "Section 3.9 Contract") other than in the
ordinary course of its business consistent with its past practice or any written
or oral indication or assertion by the other party thereto of problems with
Enterprise's services or performance under Section 3.9 Contract or such other
party's desire to so amend, relinquish, terminate or not renew any Section 3.9
Contracts;
(m) material change in the manner in which Enterprise extends discounts
or credits to customers or otherwise deals with its customers;
(n) entering into by Enterprise of any transaction, contract or agreement
or the conduct of business or operations other than in the ordinary course of
its business consistent with its past practices;
(o) transfer or grant of a right under any Enterprise IP Rights (as
defined in Section 3.12 below), other than those transferred or granted in the
ordinary course of Enterprise's business consistent with Enterprise's past
practice; or
(p) agreement or arrangement made by Enterprise to take any action which,
if taken prior to the date of this Agreement, would have made any representation
or warranty of Enterprise and the Enterprise Shareholder set forth in this
Agreement untrue or incorrect.
3.10 Contracts and Commitments. To the best of Enterprise's and
-------------------------
Enterprise Shareholder's knowledge, Exhibit 3.10 sets forth a list of each of
------------
the following written or oral contracts, agreements, commitments or other
instruments to which Enterprise is a party or to which it or any of its assets
or properties is bound which calls for or requires payments or the provision of
goods or services by any party in excess of Ten Thousand Dollars ($10,000) per
year (each a "Material Contract") (For purposes of this Section and Section 3.9,
an agreement which provides for an initial payment or obligation less than
$10,000, but which provides for possible future payments or obligations, shall
be deemed to be in excess of $10,000 if Enterprise or the Enterprise Shareholder
reasonably expect that the agreement will involve amounts in excess of $10,000
over the term of the agreement.):
(a) consulting or similar agreement under which Enterprise provides any
advice or services to a customer of Enterprise;
11
(b) continuing contract for the future purchase, sale, license, provision
or manufacture of products, material, supplies, equipment or services which is
not terminable on ninety (90) days' or less notice without cost or other
liability to Enterprise or in which Enterprise has granted or received
manufacturing rights, most favored customer pricing provisions or exclusive
marketing rights relating to any product or services, group of products or
services or territory;
(c) contract providing for the acquisition of software by Enterprise, for
the development of software for Enterprise, or the license of software to
Enterprise, which software is used or incorporated in any products currently
distributed by Enterprise or services currently provided by Enterprise or is
contemplated to be used or incorporated in any products to be distributed or
services to be provided by Enterprise (other than software generally available
to the public at a per copy license fee of less than One Thousand Dollars
($1,000));
(d) joint venture or partnership contract or agreement or other agreement
which has involved or is reasonably expected to involve a sharing of profits or
losses in excess of Ten Thousand Dollars ($10,000) per annum with any other
party;
(e) contract or commitment for the employment of any officer, employee or
consultant of Enterprise or any other type of contract or understanding with any
officer, employee or consultant of Enterprise which is not immediately
terminable by Enterprise without cost or other liability;
(f) indenture, mortgage, trust deed, promissory note, loan agreement,
guarantee or other agreement or commitment for the borrowing of money, for a
line of credit or for a leasing transaction of a type required to be capitalized
in accordance with United States Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board;
(g) lease or other agreement under which Enterprise is lessee of or holds
or operates any items of tangible personal property or real property owned by
any third party and under which payments to such third party exceed Ten Thousand
Dollars ($10,000) per annum;
(h) agreement or arrangement for the sale of any assets, properties,
services or rights, other than in the ordinary course of business consistent
with past practice;
(i) agreement which restricts Enterprise from engaging in any aspect of its
business or competing in any line of business in any geographic area;
(j) Enterprise IP Rights Agreements (as defined in Section 3.12 below);
(k) agreement relating to the sale, issuance, grant, exercise, award,
purchase, repurchase or redemption of any shares of capital stock or other
securities of Enterprise or any options, warrants or other rights to purchase or
otherwise acquire any such shares of stock, other securities or options,
warrants or other rights therefor;
12
(l) contract with or commitment to any labor union; or
(m) other agreement, contract, commitment or instrument that is material
to the business of Enterprise or that involves a commitment by Enterprise in
excess of Ten Thousand Dollars ($10,000).
A copy of each Material Contract, or if such Material Contract is not in
writing a written summary of the material terms thereof, which is required by
this Section to be listed on Exhibit 3.10 has been delivered to NetSelect.
------------
(Where several Material Contracts that are not in writing contain material terms
that do not differ in significant respects from each other, Enterprise may
summarize once the material terms of such Material Contracts and then simply
identify the various parties to such Material Contracts.) No consent or
approval of any third party is required to ensure that, following the Closing,
any Material Contract shall continue to be in full force and effect without any
breach or violation thereof caused by virtue of the Exchange or by any other
transaction called for by this Agreement.
3.11 No Default. To the best knowledge of Enterprise and the Enterprise
----------
Shareholder, Enterprise is not in breach or default of, and has not breached or
been in default of, any Material Contract, and Enterprise is not a party to any
contract, agreement or arrangement which has had, or is reasonably expected to
have, a Material Adverse Effect on Enterprise. To the best knowledge of
Enterprise and the Enterprise Shareholder, Enterprise does not have any material
liability for renegotiation of government contracts or subcontracts, if any.
3.12 Intellectual Property.
---------------------
3.12.1 Enterprise owns, or has the irrevocable right to use, sell or
license all Intellectual Property Rights (as defined below) necessary or
required for the conduct of its business as presently conducted and as presently
proposed to be conducted (such Intellectual Property Rights being hereinafter
collectively referred to as the "Enterprise IP Rights"), and such rights to use,
sell or license are sufficient for such conduct of its business. Enterprise is
the legal and beneficial owner of all rights, including all copyright and
worldwide distribution rights, to those certain computer software programs set
forth on Exhibit 3.12, including all object code, source code, configurations,
------------
routines and algorithms contained therein with annotations and related
documentation, together with all alterations, modifications and reconfigurations
thereof in all forms of expression, including but not limited to, the source
code, object code, flowcharts, block diagrams, manuals and all other
documentation no matter how stored, transmitted, read or utilized and all
copyrights, trade secrets, patents, inventions (whether patentable or not),
proprietary rights and intellectual property rights associated therewith
(collectively the "Software"). The term "Enterprise IP Rights" includes,
without limitation, the Software.
3.12.2 The execution, delivery and performance of this Agreement and
the consummation of the Exchange and the other transactions contemplated hereby
will not constitute a material breach of or default under any instrument,
contract, license or other agreement governing any Enterprise IP Right (the
"Enterprise IP Rights Agreements") and will not cause the forfeiture or
termination, or give rise to a right of forfeiture or termination, of any
13
Enterprise IP Right or materially impair the right of Enterprise to use, sell,
license, provide or otherwise commercially exploit any Enterprise IP Right or
portion thereof (except where such breach, forfeiture or termination would not
have a Material Adverse Effect on Enterprise). There are no royalties,
honoraria, fees or other payments payable by Enterprise to any person by reason
of the ownership, use, license, sale, exploitation or disposition of the
Enterprise IP Rights.
3.12.3 Neither the manufacture, marketing, license, sale, furnishing
or intended use of any product or service currently licensed, utilized, sold,
provided or furnished by Enterprise or currently under development by Enterprise
has violated or now violates any license or agreement between Enterprise and any
third party or infringes or misappropriates any Intellectual Property Right of
any other party; and there is no pending or, to the best knowledge of Enterprise
and the Enterprise Shareholder, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Enterprise
IP Right nor is there any basis for any such claim, nor has Enterprise received
any notice asserting that any Enterprise IP Right or the proposed use, sale,
license or disposition thereof conflicts or will conflict with the rights of any
other party, nor is there any basis for any such assertion. To the knowledge of
Enterprise and the Enterprise Shareholder, no employee or agent of or consultant
to Enterprise is in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, non-solicitation agreement or
any other contract or agreement, or any restrictive covenant relating to the
right of any such employee, agent or consultant to be employed thereby, or to
use trade secrets or proprietary information of others, and the employment of
such employees or engagement of such agents and consultants does not subject
Enterprise to any liability.
3.12.4 Enterprise has taken reasonable and practicable steps, in
accordance with prevailing industry standards, designed to protect, preserve and
maintain the secrecy and confidentiality of all material Enterprise IP Rights
and all Enterprise's proprietary rights therein; provided, however, that
NetSelect acknowledges that Enterprise does not have any registered patents,
trademarks or copyrights, and has not filed any patent, trademark or copyright
registrations. All officers, employees, agents and consultants of Enterprise
having access to proprietary information have executed and delivered to
Enterprise an agreement regarding the protection of such proprietary information
and the assignment of inventions to Enterprise in the form attached hereto as
Exhibit 3.12.4, which was provided to counsel for NetSelect. Copies of all such
--------------
agreements, executed by all such persons, have been delivered to NetSelect's
counsel.
3.12.5 Exhibit 3.12 contains a list of all Enterprise IP Rights and
------------
all worldwide applications, registrations, filings and other formal actions made
or taken pursuant to federal, state and foreign laws by Enterprise to secure,
perfect or protect its interest in Enterprise IP Rights, including, without
limitation, all patents, patent applications, copyrights (whether or not
registered), copyright applications, trademarks, service marks and trade names
(whether or not registered) and trademark, service mark and trade name
applications.
3.12.6 As used herein, the term "Intellectual Property Rights" means,
collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade dress rights, trade names, service
marks, service mark applications, copyrights, copyright
14
applications, mask work rights, mask work registrations, franchises, licenses,
inventions, trade secrets, know-how, customer lists, proprietary processes and
formulae, software source and object code, algorithms, architecture, structure,
display screens, layouts, inventions, development tools and all documentation
and media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
3.13 Compliance with Laws. To the knowledge of Enterprise and the
--------------------
Enterprise Shareholder, Enterprise is now and at the Closing Date will be in
compliance in all material respects with all applicable national, state, local
or foreign laws, ordinances, regulations, and rules, and all orders, writs,
injunctions, awards, judgments, and decrees applicable to Enterprise or to
Enterprise's assets, properties, and business, where failure to be in such
compliance would have a Material Adverse Effect on Enterprise. To the knowledge
of Enterprise and the Enterprise Shareholder, Enterprise holds all permits,
licenses and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in connection
with Enterprise's present business, except those where failure to do so would
not have a Material Adverse Effect on Enterprise.
3.14 Certain Transactions and Agreements. To the knowledge of Enterprise
-----------------------------------
and the Enterprise Shareholder, (i) none of the officers or directors of
Enterprise, nor any member of their immediate families, has any direct or
indirect ownership interest in any firm or corporation that competes with, or
does business with, or has any contractual arrangement with Enterprise (except
with respect to any interest in less than five percent (5%) of the stock of any
corporation whose stock is publicly traded), (ii) none of said officers,
directors, employees or shareholders or any member of their immediate families,
is directly or indirectly interested in any contract or informal arrangement
with Enterprise, except for normal compensation for services as an officer,
director or employee thereof that have been disclosed to NetSelect, and (iii)
none of said officers, directors, employees or shareholders or family members
has any interest in any property, real or personal, tangible or intangible
(including but not limited to any Enterprise IP Rights or any other Intellectual
Property Rights) that is used in or that pertains to the business of Enterprise,
except for the normal rights of a shareholder.
3.15 Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 Enterprise is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, wages, hours, and terms and conditions of employment, including, but
not limited to, employee compensation matters in each of the jurisdictions in
which it conducts business. A list of all employees, officers and consultants
of Enterprise, their title, date of hire, employer entity and current
compensation is set forth on Exhibit 3.15.1, which has been delivered to
--------------
NetSelect. Enterprise does not have any employment contracts or consulting
agreements currently in effect that are not terminable at will (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.15.2 Enterprise (i) has not previously been and is not now subject
to a union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its employees, (iii) is not subject to any
other contract, written or oral, with any trade or labor
15
union, employees' association or similar organization, and (iv) does not have
any current labor disputes. Enterprise has good labor relations, and has no
knowledge of any facts indicating that the consummation of the transactions
contemplated hereby will have a Material Adverse Effect on such labor relations.
Neither Enterprise nor the Enterprise Shareholder has any knowledge that any key
employee of Enterprise intends to leave the employ of Enterprise.
3.15.3 Enterprise does not have any "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Enterprise has no pension plan which constitutes, or has
since the enactment of ERISA constituted, a "multiemployer plan" as defined in
Section 3(37) of ERISA. No Enterprise pension plans are subject to Title IV of
ERISA.
3.15.4 Exhibit 3.15.4 lists each employment, severance or other
--------------
similar contract, arrangement or policy, each "employee benefit plan" as defined
in Section 3(3) of ERISA (if any) and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' benefits, vacation benefits, severance benefits, disability benefits,
death benefits, hospitalization benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or post-
retirement insurance, compensation or benefits for employees, consultants or
directors which is entered into, maintained or contributed to by Enterprise and
covers any employee or former employee or consultant or former consultant of
Enterprise. Such contracts, plans and arrangements are as described in this
Section 3.15.4 are hereinafter collectively referred to as the "Enterprise
Benefit Arrangements." Each Enterprise Benefit Arrangement has been maintained
in compliance in all material respects with its terms and with the requirements
prescribed by any and all laws, statutes, orders, rules and regulations that are
applicable to such Enterprise Benefit Arrangement. Enterprise has delivered to
NetSelect and its counsel, Fenwick & West LLP, a complete and correct copy and
summary description of each Enterprise Benefit Arrangement.
3.15.5 There has been no amendment to, written interpretation or
announcement (whether or not written) by Enterprise relating to, or change in
employee participation or coverage under, any Enterprise Benefit Arrangement
that would increase materially the expense of maintaining such Enterprise
Benefit Arrangement above the level of the expense incurred in respect thereof
for Enterprise's fiscal year ended December 31, 1997.
3.15.6 The group health plans (as defined in Section 4980B(g) of the
Code) that benefit employees of Enterprise are in compliance, in all material
respects, with the continuation coverage requirements of Section 4980B of the
Code as such requirements affect Enterprise and its employees. As of the
Closing Date, there will be no material outstanding, uncorrected violations
under the Consolidation Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), with respect to any of the Enterprise Benefit Arrangements, covered
employees, or qualified beneficiaries that could result in a Material Adverse
Effect on Enterprise, or in a material adverse effect on the business,
operations or financial condition of NetSelect as its successor. Enterprise has
provided, or shall have provided prior to the Closing, to individuals entitled
thereto, all required notices and coverage pursuant to Section 4980B of COBRA,
with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the
Code) occurring prior
16
to and including the Closing Date, and no material amount payable on account of
Section 4980B of the Code has been incurred with respect to any current or
former employees of Enterprise (or their beneficiaries).
3.15.7 No benefit payable or which may become payable by Enterprise
pursuant to any Enterprise Benefit Arrangement or as a result of or arising
under this Agreement shall constitute an "excess parachute payment" (as defined
in Section 280G(b)(1) of the Code) which is subject to the imposition of an
excise tax under Section 4999 of the Code or which would not be deductible by
reason of Section 280G of the Code. Enterprise is not a party to any (a)
agreement (other than as described in (b) below) with any executive officer or
other key employee thereof (i) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving Enterprise in the nature of any of the transactions contemplated by
this Agreement, (ii) providing any term of employment or compensation guarantee,
or (iii) providing severance benefits or other benefits after the termination of
employment of such employee regardless of the reason for such termination of
employment, or (b) agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be materially increased, or the vesting of benefits of
which will be materially accelerated, by the occurrence of the Exchange or any
of the other transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
3.16 Corporate Documents. Enterprise has delivered to NetSelect for
-------------------
examination all documents and information listed in the Enterprise Schedule of
Exceptions or other Exhibits called for by this Agreement, including, without
limitation, the following: (a) copies of the charter documents as currently in
effect of Enterprise; (b) the Minute Book containing all records of all
proceedings, consents, actions, minutes, and meetings of Enterprise, including
(but not limited to) actions of shareholders, board of directors and any
committees thereof; (c) the stock ledger and journal reflecting all stock
issuances and transfers of Enterprise; (d) all material permits, orders, and
consents issued by any regulatory agency with respect to Enterprise, or any
securities of Enterprise, and all applications for such permits, orders, and
consents; and (e) all Material Agreements required to be disclosed pursuant to
Section 3.10.
3.17 No Brokers. Neither Enterprise nor the Enterprise Shareholder nor
----------
any affiliate of Enterprise is obligated for the payment of any fees or expenses
of any investment banker, broker or finder in connection with the origin,
negotiation or execution of this Agreement or in connection with the Exchange or
any other transaction contemplated hereby.
3.18 Books and Records. The books, records and accounts of Enterprise (a)
-----------------
are in all material respects true, complete and correct, (b) are stated in
reasonable detail and in all material respects fairly reflect the transactions
and dispositions of the assets of Enterprise, and (c) fairly reflect the basis
for the Enterprise Financial Statements.
3.19 Insurance. Exhibit 3.19 hereto lists all insurance maintained by
--------- ------------
Enterprise, including, without limitation, fire and casualty, general liability,
business interruption, product liability, errors and omissions, and sprinkler
and water damage insurance.
17
3.20 Environmental Matters.
---------------------
3.20.1 During the period that Enterprise has leased or owned its
respective properties or owned or operated any facilities, to the best knowledge
of Enterprise and the Enterprise Shareholder, there have been no disposals,
releases or threatened releases of Hazardous Materials (as defined below) on,
from or under such properties or facilities that resulted from any act or
omission of Enterprise or any of its employees, agents or invitees. Enterprise
has no knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to Enterprise having taken possession of any of
such properties or facilities. For the purposes of this Agreement, the terms
"disposal," "release," and "threatened release" shall have the definitions
assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For
the purposes of this Agreement "Hazardous Materials" shall mean any hazardous or
toxic substance, material or waste which is or becomes prior to the Closing
regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous materials," "toxic substance" or
"hazardous chemical" under (a) CERCLA; (b) any similar federal, state or local
law; or (c) regulations promulgated under any of the above laws or statutes.
3.20.2 To the best knowledge of Enterprise and the Enterprise
Shareholder, none of the properties or facilities of Enterprise is in violation
of any federal, state or local law, ordinance, regulation or order relating to
industrial hygiene or to the environmental conditions on, under or about such
properties or facilities, including, but not limited to, soil and ground water
condition. During the time that Enterprise has owned or leased its properties
and facilities, neither Enterprise nor, to the best knowledge of Enterprise and
the Enterprise Shareholder, any third party, has used, generated, manufactured
or stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials, other than
Enterprise's lawful use of standard office supplies customarily used in office
environments that contain legally permitted amounts of Hazardous Materials that
would have no Material Adverse Effect.
3.20.3 During the time that Enterprise has owned or leased its
properties and facilities, there has been no litigation brought or threatened
against Enterprise, or, to the best knowledge of Enterprise and the Enterprise
Shareholder, against any lessor or owner of real property leased by Enterprise,
or any settlement reached by Enterprise or the Enterprise Shareholder with any
party or parties alleging the presence, disposal, release or threatened release
of any Hazardous Materials on, from or under any of such properties or
facilities.
3.21 Tax Advice. Enterprise Shareholder has been advised by his own
----------
advisers concerning the tax treatment of the Exchange and the other transactions
contemplated by this Agreement, and is not relying on NetSelect or any of its
agents for any advice concerning such tax consequences.
3.22 Disclosure. To the best knowledge of Enterprise and the Enterprise
----------
Shareholder, neither this Agreement, its exhibits and schedules, nor any of the
certificates or documents to be
18
delivered by Enterprise and/or the Enterprise Shareholder to NetSelect under
this Agreement, taken together, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF NETSELECT
NetSelect hereby represents and warrants, that, except as set forth in the
Schedule of Exceptions attached hereto as Exhibit 4 (the "NetSelect Schedule of
---------
Exceptions"), each of the following representations and statements in this
Section 4 is true and correct. For purposes of this Agreement, phrases such as
"the knowledge of NetSelect," "to the best knowledge of NetSelect" or similar
phrases shall mean, and shall be limited to, the actual knowledge of the Chief
Executive Officer of NetSelect after having made reasonable investigation and
inquiry of the directors, officers or employees of NetSelect who could
reasonably be expected to have knowledge of the matters to which the statement
relates.
4.1 Organization and Good Standing. NetSelect is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted.
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 NetSelect has the right, power and authority to enter into,
execute and perform its obligations under this Agreement and the NetSelect
Ancillary Agreements. The execution, delivery and performance of this Agreement
and the NetSelect Ancillary Agreements by NetSelect have been duly and validly
approved and authorized by NetSelect's Board of Directors.
4.2.2 No filing, authorization, consent, approval or order,
governmental or otherwise, is necessary or required to enable NetSelect to enter
into, and to perform its obligations under, this Agreement and the NetSelect
Ancillary Agreements except for such filings as may be required to comply with
applicable securities laws in connection with the Exchange itself.
4.2.3 This Agreement and the NetSelect Ancillary Agreements are, or
when executed by NetSelect will be, valid and binding obligations of NetSelect,
enforceable in accordance with their respective terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (ii) the remedy of specific performance and injunctive relief and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
4.3 Capital Structure.
-----------------
19
4.3.1 Stock. The authorized capital stock of NetSelect consists of
-----
35,000,000 shares of Class A Common Stock, $0.001 par value per share,
10,000,000 shares of Class B Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share, of which
1,647,059 shares have been designated as Series A Convertible Preferred Stock,
352,941 shares have been designated as Series B Convertible Preferred Stock,
700,000 shares have been designated as Series C Convertible Preferred Stock, and
681,201 shares have been designated as Series D Convertible Preferred Stock
(such Preferred Stock referred to as the "NetSelect Preferred Stock"). On the
Effective Date, 265,852 shares of Class A Common Stock were issued and
outstanding, 116,470 shares of Class B Common Stock were issued and outstanding,
and 3,295,575 shares of NetSelect Preferred Stock were issued and outstanding.
All outstanding shares of NetSelect Common Stock are validly issued, fully paid
and nonassessable and not subject to preemptive rights. NetSelect has provided
to the Enterprise Shareholder, and his counsel, copies of (i) NetSelect's
Articles of Incorporation, (ii) By-Laws, and (iii) a true and correct list of
the shareholders of NetSelect and the number of shares of Common Stock and
Preferred Stock held by each such person.
4.3.2 Options. Options to purchase a total of 741,588 shares are
-------
outstanding, including options granted pursuant to the NetSelect 1996 Stock
Option Plan, (the "NetSelect Option Plan").
4.3.3 No Other Commitments. Except for (i) the NetSelect stock
--------------------
options (whether granted or ungranted) described in Section 4.3.2 above, (ii)
the conversion privileges of the NetSelect Preferred Stock, and (iii) the right
of first offer provided for in the NetSelect, Inc. Stockholder's Agreement,
dated as of November 26, 1996, as amended, as of the Effective Date, there are
no options, warrants, convertible or other securities, calls, commitments,
conversion privileges or preemptive or other rights or agreements of any
character to which NetSelect is a party or by which NetSelect is bound
obligating NetSelect to issue, deliver or sell, or cause to be issued, delivered
or sold, any shares of capital stock of NetSelect or securities convertible into
or exchangeable for shares of capital stock of NetSelect, or obligating
NetSelect to grant, extend or enter into any such option, warrant, call, right,
commitment, conversion right or agreement.
4.3.4 Other Entities. NetSelect and Infotouch, Inc. are the only
--------------
members of NetSelect LLC. NetSelect LLC and the National Association of
Realtors are the only beneficial owners of equity securities of RealSelect, Inc.
4.4 No Violation of Existing Agreements. Neither the execution and
------------------------------------
delivery of this Agreement or any NetSelect Ancillary Agreement, nor the
consummation of the Exchange or any of the other transactions contemplated
hereby, nor NetSelect's discussion or negotiation with Enterprise of the
Exchange or any other transaction contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in a termination,
breach, impairment or violation of: (i) any provision of the charter documents
of NetSelect as currently in effect; (ii) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to
NetSelect or its assets or properties; or (iii) any material instrument,
agreement, contract, letter of intent or commitment to which NetSelect is a
party or by which NetSelect or its assets or properties are or were bound. The
consummation of the Exchange by NetSelect will
20
not require the consent of any third party pursuant to the terms of any
agreement to which NetSelect is a party or by which NetSelect or its assets or
properties are bound.
4.5 Validity of Shares. The shares of NetSelect Common Stock to be issued
------------------
pursuant to the Exchange shall, when issued: (a) be duly authorized, validly
issued, fully paid and nonassessable and free of liens and encumbrances created
by NetSelect, and (b) be free and clear of any transfer restrictions, liens and
encumbrances except for restrictions on transfer under applicable federal
securities laws, including Rule 144 promulgated under the 1933 Act and except
for restrictions contemplated by this Agreement.
4.6 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against NetSelect (or to the
knowledge of NetSelect, against any officer, director or employee or agent of
NetSelect, in their capacity as such or relating to their employment, services
or relationship with NetSelect) before any court, administrative agency or
arbitrator that, if determined adversely to NetSelect (or any such officer,
director, employee or agent) may reasonably be expected to have a Material
Adverse Effect on NetSelect, nor, to NetSelect's knowledge, has any such action,
suit, proceeding, arbitration, mediation, claim or investigation been
threatened. To NetSelect's knowledge, there is no basis for any person, firm,
corporation or other entity, to assert a claim against NetSelect based upon:
(a) NetSelect's entering into this Agreement or consummating the Exchange; or
(b) any claims of ownership, rights to ownership, or options, warrants or other
rights to acquire ownership, of any material amount of shares of the stock of
NetSelect (except pursuant to agreements between such persons and NetSelect or
pursuant to the rights of outstanding Preferred Stock of NetSelect). There is
no judgment, decree, injunction, rule or order of any governmental entity or
agency, court or arbitrator outstanding against NetSelect.
4.7 No Default. To the knowledge of NetSelect, NetSelect is not in breach
----------
or default of any agreement to which NetSelect is a party which breach or
default is reasonably likely to have a Material Adverse Effect on NetSelect.
4.8 Absence of Certain Changes. Since December 31, 1997, there has not
--------------------------
been with respect to NetSelect any:
(a) material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of NetSelect;
(b) damage, destruction, or loss, whether or not covered by insurance,
having a Material Adverse Effect on NetSelect;
(c) transfer of a material intellectual property right of NetSelect, other
than those (if any) transferred in the ordinary course of NetSelect's business
consistent with NetSelect's past practice;
(d) amendments or changes in the certificate of incorporation of
NetSelect, as amended (including any certificates of designation), except
pursuant to the issuance of shares of Series D Preferred Stock of NetSelect in
January 1998; or
21
(e) agreement or arrangement made by NetSelect to take any action which,
if taken prior to the date of this Agreement, would have made any representation
or warranty of NetSelect set forth in this Agreement untrue or incorrect in any
material respect.
4.9 Compliance with Laws. To the knowledge of NetSelect, NetSelect is
--------------------
now and at the Closing Date will be in compliance in all material respects with
all applicable national, state, local or foreign laws, ordinances, regulations,
and rules, and all orders, writs, injunctions, awards, judgments, and decrees
applicable to NetSelect or to NetSelect's assets, properties, and business,
where failure to be in such compliance would have a Material Adverse Effect on
NetSelect. To the knowledge of NetSelect, NetSelect holds all permits, licenses
and approvals from and has made all filings for third parties, including
government agencies and authorities, that are necessary in connection with
NetSelect's present business, except where a failure to have such permits,
licenses or approvals or failure to make such filings would not have a Material
Adverse Effect on NetSelect.
4.10 Disclosure. To the knowledge of NetSelect, neither this Agreement,
----------
its exhibits and schedules, nor any of the certificates or documents to be
delivered by NetSelect to Enterprise or the Enterprise Shareholder under this
Agreement, taken together, contains any untrue statement of material fact or
omits to state any material fact necessary in order to make the statements
contained herein and therein in light of the circumstances under which such
statements were made, not misleading.
4.11 NetSelect Financial Information. The NetSelect Financial Information
-------------------------------
is unaudited and has not otherwise been reviewed by any independent accountant.
The NetSelect Financial Information has been prepared in good faith. However,
NetSelect does not represent or warrant that the NetSelect Financial Information
has been prepared in accordance with generally accepted accounting principles or
that the NetSelect Financial Information is accurate in all material respects;
and application of generally accepted accounting principles, or further review
of such NetSelect Financial Information and NetSelect's financial records by
NetSelect or an independent accountant, may result in differences (some of which
could be material) in the information presented in the NetSelect Financial
Information. The line item entitled "Cash and Cash Equivalents" in the balance
sheet information as of January 31, 1998, accurately sets forth in all material
respects NetSelect's cash and cash equivalents as of that date.
4.12 Shareholder Agreements. Other than compensatory plans, arrangements
----------------------
or agreements, those agreements referenced in connection with the organization
and formation of NetSelect, RealSelect, Inc. and NetSelect LLC, those agreements
referenced in the closing documents relating to NetSelect's Preferred Stock
financings, and those agreements made available by NetSelect for review by the
Enterprise Shareholder before the Closing Date, there are no agreements between
NetSelect and holders of NetSelect Common Stock ("Holders") that grant such
Holders materially superior rights or preferences by virtue of their ownership
of shares of NetSelect Common Stock, than the rights and preferences of holders
of NetSelect Common Stock generally or that provide materially superior economic
rights or relationships among NetSelect and such Holders.
22
5. COVENANTS OF ENTERPRISE AND THE ENTERPRISE SHAREHOLDER
During the period from the Effective Date until the earlier to occur of (i)
the Closing, or (ii) the termination of this Agreement in accordance with
Section 10, Enterprise and the Enterprise Shareholder hereby jointly and
severally covenant and agree with NetSelect as follows:
5.1 Advice of Changes. Enterprise or the Enterprise Shareholder, as the
-----------------
case may be, will use all reasonable efforts to promptly advise NetSelect in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Enterprise and the Enterprise
Shareholder contained in Section 3 of this Agreement, if made on or as of the
date of such event or the Closing Date, untrue or inaccurate in any material
respect and (b) of any material adverse change in Enterprise's assets, business,
results of operations, financial condition or prospects. Enterprise shall
deliver to NetSelect within thirty (30) days after the end of each calendar
month ending after the Effective Date and before the Closing Date, an unaudited
balance sheet and statement of operations, which financial statements shall be
prepared in the ordinary course of business consistent with Enterprise's past
practice (and in accordance with United States generally accepted accounting
principles, except for the absence of footnotes and subject to normal year-end
adjustments, none of which are expected to be material in amount), in accordance
with Enterprise's books and records and shall fairly present the financial
position of Enterprise as of their respective dates and the results of
Enterprise's operations for the periods then ended.
5.2 Maintenance of Business. Enterprise will uses its best efforts to
-----------------------
carry on and preserve its business and its relationships with customers,
suppliers, employees, consultants and others in substantially the same manner as
it has prior to the date hereof. If Enterprise becomes aware of a material
deterioration in the relationship with any customer, supplier, key employee,
consultant or business partner (including, without limitation, the Enterprise
Shareholder or Kevin Malloy), it will promptly bring such information to the
attention of NetSelect in writing and, if requested by NetSelect, will exert its
best efforts to restore the relationship.
5.3 Conduct of Business. Enterprise will continue to conduct its business
-------------------
and maintain its business relationships in the ordinary and usual course and
will not, without the prior written consent of NetSelect (which consent shall
not be unreasonably withheld):
(a) borrow or lend any money in excess of Ten Thousand Dollars ($10,000),
other than advances to employees for travel and expenses that are incurred in
the ordinary course of Enterprise's business consistent with Enterprise's past
practice;
(b) accelerate the payment of account receivables or delay the payment of
account payables other than in the ordinary course of business with persons or
entities, and in amounts, consistent with prior practice;
23
(c) purchase or sell shares or other equity interests in any corporation or
other business or enter into any transaction or agreement not in the ordinary
course of Enterprise's business consistent with Enterprise's past practice;
(d) encumber, or permit to be encumbered, its assets with debt in excess of
Ten Thousand Dollars ($10,000);
(e) sell, transfer or dispose of any of its assets except in immaterial
amounts and in the ordinary course of Enterprise's business consistent with
Enterprise's past practice;
(f) enter into any material lease or contract for the purchase or sale of
any property, whether real or personal, tangible or intangible for an amount in
excess of Ten Thousand Dollars ($10,000);
(g) pay any bonus, increased salary or special remuneration to any officer,
employee or consultant (except for normal salary increases consistent with past
practices not to exceed five percent (5%) of such officer's, employee's or
consultant's base annual compensation, except pursuant to existing arrangements
previously disclosed to and approved in writing by NetSelect) or enter into any
new employment or consulting agreement with any such person;
(h) change any of its accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of any of its capital stock, redeem, repurchase or
otherwise acquire any of its capital stock or other securities, pay or
distribute any cash or property to the Enterprise Shareholder or make any other
cash payment to the Enterprise Shareholder that is unusual, extraordinary, or
not made in the ordinary course of Enterprise's business consistent with
Enterprise's past practice;
(j) amend or terminate any contract, agreement or license to which it is a
party except those amended or terminated in the ordinary course of Enterprise's
business, consistent with Enterprise's past practice, and which are not material
in amount or effect;
(k) guarantee or act as a surety for any obligation of any third party;
(l) waive or release any material right or claim except in the ordinary
course of business, consistent with past practice, or agree to any audit
assessment by any tax authority or file any federal or state income or franchise
tax return unless copies of such returns have been delivered to NetSelect for
its review prior to filing;
(m) issue, sell, create or authorize any shares of its capital stock of any
class or series or any other of its securities, or issue, grant or create any
warrants, obligations, subscriptions, options, convertible securities, or other
commitments to issue shares of its capital stock or securities ultimately
exchangeable for, or convertible into, shares of its capital stock;
24
(n) subdivide or split or combine or reverse split the outstanding shares
of its capital stock of any class or enter into any recapitalization affecting
the number of outstanding shares of its capital stock of any class or affecting
any other of its securities;
(o) merge, consolidate or reorganize with, or acquire, any entity or enter
into any negotiations, discussions or agreement for such purpose;
(p) amend its charter documents;
(q) license any of its technology or Intellectual Property Rights except
in the ordinary course of business consistent with past practice;
(r) change any insurance coverage or issue any certificates of insurance;
(s) purchase or otherwise acquire, or sell or otherwise dispose of (i) any
shares of NetSelect Common Stock or other NetSelect securities or (ii) any
securities whose value is derived from or determined with reference to, in whole
or in part, the value of NetSelect stock or other NetSelect securities;
(t) agree to do any of the things described in the preceding clauses
5.3(a) through 5.3(s).
5.4 Regulatory Approvals. Enterprise and the Enterprise Shareholder will
--------------------
promptly execute and file, or join in the execution and filing, of any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign, which may be reasonably required, or which NetSelect may
reasonably request, in connection with the consummation by Enterprise and the
Enterprise Shareholder of the transactions contemplated by this Agreement.
Enterprise, its officers, directors and employees and the Enterprise Shareholder
will use their respective best efforts to promptly obtain, and to cooperate with
NetSelect to promptly obtain, all such authorizations, approvals and consents.
5.5 Necessary Consents. Enterprise, its officers, directors and employees
------------------
and the Enterprise Shareholder will use their respective best efforts to
promptly obtain such written consents and take such other actions as may be
reasonably necessary or appropriate in addition to those set forth in Section
5.4 to allow the consummation of the transactions contemplated hereby and to
allow NetSelect to carry on Enterprise's business after the Closing.
5.6 Litigation. Enterprise will notify NetSelect in writing promptly
----------
after learning of any action, suit, arbitration, mediation, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against it, or known by it to be threatened
against it or any of its directors, officers, employees or consultant in their
capacity as such.
5.7 No Other Negotiations. From the Effective Date until the earlier of
---------------------
the termination of this Agreement in accordance with Section 10 or the
consummation of the
25
Exchange, Enterprise, its officers, directors and employees and the Enterprise
Shareholder will not, and will not authorize, encourage or permit, any officer,
director, employee or affiliate of Enterprise, or any other person, on its or
their behalf to, directly or indirectly, solicit or encourage any offer from any
party or consider any inquiries or proposals received from any other party,
participate in any negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any person (other than NetSelect), concerning
any agreement or transaction regarding the possible disposition of all or any
substantial portion of the business, assets or capital stock of Enterprise by
merger, consolidation, reorganization, sale of assets, sale of stock, exchange,
tender offer or any other form of business combination ("Alternative
Transaction"). Enterprise will promptly notify NetSelect orally and in writing
of any such inquiries or proposals. In addition, neither Enterprise, nor the
Enterprise Shareholder, shall execute, enter into or become bound by (a) any
letter of intent or agreement or commitment between Enterprise and/or the
Enterprise Shareholder, on the one hand, and any third party, on the other hand,
that is related to an Alternative Transaction or (b) any agreement or commitment
between Enterprise and/or the Enterprise Shareholder, on the one hand, and a
third party, on the other hand, providing for an Alternative Transaction.
5.8 Access to Information. Until the Closing, Enterprise will allow
---------------------
NetSelect and its agents reasonable access to the files, books, records and
offices of Enterprise, including, without limitation, any and all information
relating to Enterprise's taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property and financial condition, subject to the
terms of the Mutual Nondisclosure Agreement between Enterprise and RealSelect,
Inc. dated as of August 20, 1997 (the "Confidentiality Agreement"). Enterprise
will cause its accountants to reasonably cooperate with NetSelect and its agents
in making available all financial and tax information reasonably requested,
including, without limitation, the right to examine all working papers
pertaining to all financial statements and tax returns, prepared or audited by
such accountants.
5.9 Satisfaction of Conditions Precedent. Enterprise, and its directors
------------------------------------
and officers and the Enterprise Shareholder will use their respective best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 9, and Enterprise, its directors and officers, and the
Enterprise Shareholder will use their respective best efforts to cause the
transactions contemplated by this Agreement to be consummated; and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on
Enterprise's part in order to effect the transactions contemplated hereby.
5.10 Securities Laws. Enterprise and the Enterprise Shareholder shall
---------------
each use all reasonable efforts to assist NetSelect to the extent necessary to
comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Exchange.
5.11 Termination of Registration and Voting Rights. All registration
---------------------------------------------
rights agreements and voting agreements applicable to or affecting any
outstanding shares or other securities of Enterprise (if any) shall be duly
terminated and canceled by no later than the Closing.
26
5.12 Invention Assignment and Confidentiality Agreements. Enterprise
---------------------------------------------------
shall obtain, before the Closing or within ten (10) days thereafter, from each
employee, and consultant providing significant services to Enterprise who has
had access to any proprietary software, technology or copyrightable, patentable
or other proprietary works or intellectual property owned or developed by
Enterprise or other Intellectual Property Rights, or to any other confidential
or proprietary information of Enterprise or its clients, an invention assignment
and confidentiality agreement in substantially the form of the agreement
attached hereto as Exhibit 5.12, duly executed by such employee or consultant
------------
(unless, with respect to consultants, the written agreement between Enterprise
and the consultant provides for retention by the consultant of intellectual
property rights relating to inventions developed by consultant) and delivered to
Enterprise (with Enterprise as a beneficiary of such agreement).
5.13 Non-Competition and Non-Solicitation and Employment Agreements. The
--------------------------------------------------------------
Enterprise Shareholder shall execute and deliver to NetSelect at the Closing the
Non-Competition and Non-Solicitation Agreement in the form attached hereto as
Exhibit 9.8 (the "Non-Competition and Non-Solicitation Agreement") and an
-----------
Employment Agreement in the form attached hereto as Exhibit 9.9A (the "Scommegna
------------
Employment Agreement"). The Scommegna Employment Agreement shall provide, among
other things, that the Enterprise Shareholder will initially have a title of
President of Realtor.com. Enterprise shall use its best efforts to cause Kevin
Malloy to execute and deliver to NetSelect at the Closing an Employment
Agreement (the "Malloy Employment Agreement") in the form attached hereto as
Exhibit 9.9B.
------------
5.14 Closing of Exchange. Enterprise and the Enterprise Shareholder shall
-------------------
not refuse to effect the Exchange if, on or before the Closing Date, all of the
conditions precedent to their obligations to effect the Exchange under Section 8
hereof have been satisfied, or in their sole discretion, waived by them.
5.15 Consultants to Become Employees. Enterprise and its officers shall
-------------------------------
use all reasonable efforts to cause those persons designated on Exhibit 5.15 to
------------
become employees of Enterprise at or prior to the Closing on terms and
conditions satisfactory to NetSelect.
5.16 Insurance.
---------
(a) Enterprise shall, if requested by NetSelect, cause the cancellation
of any outstanding life insurance policies on the life of the Enterprise
Shareholder; provided, however, that Enterprise may, before or after the
Closing, with the consent of NetSelect transfer to the Enterprise Shareholder
one or more life insurance policies with the Enterprise Shareholder as the
beneficiary. After the Closing, the Enterprise Shareholder shall cooperate with
NetSelect and Enterprise if NetSelect desires, at its expense, to acquire
additional or other insurance on the life of the Enterprise Shareholder.
5.17 Certain Indebtedness. On the date which is the earlier to occur of
--------------------
(i) the day before the closing of the initial public offering of equity
securities by NetSelect or (ii) December 31, 1998, Enterprise will forgive the
indebtedness owed by Roger Scommegna to Enterprise, evidenced by the written
materials (such as book entries, checks, etc.) delivered by Enterprise and/or
the Enterprise Shareholder to NetSelect before the Closing, which is reflected
in the
27
Enterprise Financial Statements, with principal and accrued interest as of the
Closing Date equal to $300,000. At the time such indebtedness is forgiven, the
amount (reasonably determined by NetSelect) required to be withheld by
Enterprise (or other applicable entity) under applicable federal, state and
local tax laws and other required withholdings (e.g., social security, Medicare,
Medicaid, etc.) with respect to such forgiveness of indebtedness shall be paid
by Enterprise Shareholder by means of a reduction in the Additional Deferred
Amount. In addition, NetSelect agrees that after the Closing it shall forgive
the principal and accrued interest of indebtedness owed by a certain employee of
Enterprise, which is identified in the Schedule of Exceptions (Exhibit 3), in
---------
the approximate amount of $11,000 (with the precise amount of outstanding
principal and accrued interest to be specified in the document delivered by
Enterprise to NetSelect), less any required taxes and other withholdings as
described in the preceding sentence.
5.18. Tax Returns. As soon after the Closing as is practicable, NetSelect
-----------
shall cause Enterprise to make a closing of the books election under Section
1362(e)(3) of the Code as of the Closing Date. NetSelect and the Enterprise
Shareholder shall cooperate in good faith with respect to preparation of
Enterprise's federal and state tax returns (which returns shall be reasonably
satisfactory to the Enterprise Shareholder) for the short tax year ending on the
Closing Date (and any other tax returns filed by Enterprise with respect to
periods before the Closing Date), and the costs of preparing such returns
(including reasonable fees of NetSelect's auditors) shall be paid by the
Enterprise Shareholder, up to a maximum of $7,000. The tax returns filed for
periods prior to the Closing Date must be reasonably satisfactory to the
Enterprise Shareholder. For purposes of this Section 5.18, the term "tax
return" shall include any and all returns and amended returns for "taxes" (as
defined in Section 3.6).
6. NETSELECT COVENANTS
6.1 Terminating Covenants. During the period from the Effective Date
---------------------
until the earlier to occur of (i) the Closing or (ii) the termination of this
Agreement in accordance with Section 10, NetSelect covenants and agrees as
follows:
(a) NetSelect Financial Information. No later than one business day
-------------------------------
before the Closing, NetSelect will make available for inspection by Enterprise
and the Enterprise Shareholder true and complete copies of the NetSelect
Financial Information.
(b) Advice of Changes. NetSelect will use all reasonable efforts to
-----------------
promptly advise Enterprise in writing (i) of any event occurring subsequent to
the date of this Agreement that would render any representation or warranty of
NetSelect contained in this Agreement, if made on or as of the date of such
event or the Closing Date, untrue or inaccurate in any material respect and (ii)
of any material adverse change in NetSelect's business, results of operations or
financial condition.
(c) Regulatory Approvals. NetSelect will execute and file, or join in
--------------------
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state or local, which may be reasonably required, in
connection with the consummation by NetSelect of the transactions
28
contemplated by this Agreement in accordance with the terms of this Agreement.
NetSelect will use its best efforts to obtain all such authorizations, approvals
and consents.
(d) Satisfaction of Conditions Precedent. NetSelect will use its best
------------------------------------
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 8, and NetSelect will use its best efforts to cause the
transactions contemplated by this Agreement to be consummated in accordance with
the terms of this Agreement, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
(e) Securities Laws. NetSelect shall take such steps as may be necessary
---------------
to comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Exchange, with the cooperation and assistance
of Enterprise and the Enterprise Shareholder.
6.2 Continuing Covenants.
--------------------
(a) Financial Data. During the period that the Enterprise Shareholder is
--------------
employed pursuant to the Scommegna Employment Agreement, NetSelect covenants and
agrees to provide the Enterprise Shareholder with the same financial data of
NetSelect that is provided to executive officers of NetSelect, with the
exception of data provided to the Chief Executive Officer that is not provided
to other executive officers.
(b) Continued Operations in Milwaukee. As long as the Enterprise
---------------------------------
Shareholder is employed by Enterprise, NetSelect or RealSelect, Inc. pursuant to
the Scommegna Employment Agreement, NetSelect will cause Enterprise (and/or
successors to the business operations of Enterprise) to continue to maintain its
principal business office in Milwaukee, Wisconsin for at least four (4) years
from the Closing Date.
(c) Office Space and Resources for the Enterprise Shareholder. As long as
---------------------------------------------------------
the Enterprise Shareholder is an employee of Enterprise, NetSelect or
RealSelect, Inc. pursuant to the Scommegna Employment Agreement, NetSelect will
cause Enterprise (and/or successors to the business operations of Enterprise) to
provide the Enterprise Shareholder appropriate office space and resources to
perform his duties.
(d) Employee Benefits. As soon as practicable after the Effective Date,
-----------------
NetSelect and Enterprise shall confer and work in good faith to agree upon a
plan under which Enterprise employees will be covered either by (a) NetSelect's
employee benefits plans or (b) Enterprise's employee benefit plans, with such
decision to be made no later than six (6) months following the Closing, in a
manner that results in minimal disruption to the continuing operations of
Enterprise, and minimal cost to NetSelect.
6.3 Advice of Changes. NetSelect shall use all reasonable efforts to
-----------------
promptly advise Enterprise and the Enterprise Shareholder in writing (a) of any
event occurring after the Effective Date and before the Closing or termination
of this Agreement that would render any representation or warranty of NetSelect
contained in this Agreement, if made on or as of the date
29
of such event or the Closing Date, untrue or inaccurate in any material respect
and (b) of any event that NetSelect believes will have a Material Adverse Effect
on NetSelect.
6.4 Satisfaction of Conditions Precedent. NetSelect, and its officers, and
------------------------------------
directors will use their respective best efforts to satisfy or cause to be
satisfied all the conditions precedent to NetSelect's obligation to consummate
the transactions contemplated hereby which are set forth in Section 8, and
NetSelect, its officers and directors, will use their respective reasonable best
efforts to cause the transactions contemplated by this agreement to be
consummated.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
-----------
Section 10 below, the closing of the transactions for consummation of the
Exchange (the "Closing") will take place at the offices of Fenwick & West LLP,
Two Palo Alto Square, Palo Alto, California 94306 on March 31, 1998 (with such
closing to be effective as of the close of business on such day) or on such
other date on or before the Termination Date (as defined in Section 10.1.2) as
NetSelect and Enterprise may mutually agree upon in writing after which the
satisfaction or waiver of the conditions to Closing set forth in Sections 8 and
9 hereof have been satisfied and/or waived in accordance with this Agreement
(the "Closing Date").
7.2 Exchanges at the Closing.
------------------------
7.2.1 At the Closing, (a) the Enterprise Certificates shall be
exchanged for the Exchange Shares as provided in Section 2 hereof and (b) the
Enterprise Shareholder shall be paid the amounts described in Section 2 hereof.
7.2.2 The Enterprise Shareholder understands and agrees that stop
transfer instructions will be given to NetSelect's transfer agent with respect
to certificates evidencing the Exchange Shares to assure compliance with the
provisions of the Investment Representation Letter and that there will be placed
on the certificates evidencing such Exchange Shares legends as specified in the
Investment Representation Letter.
7.2.3 After the Closing there will be no further registration of
transfers on the stock transfer books of Enterprise or its transfer agent of the
Enterprise Stock that was outstanding immediately prior to the Closing. If,
after the Closing, Enterprise Certificates are presented for any reason, they
will be canceled.
30
8. CONDITIONS TO OBLIGATIONS OF ENTERPRISE AND THE ENTERPRISE SHAREHOLDER
The obligations of Enterprise and the Enterprise Shareholder to consummate
the Exchange are subject to the fulfillment or satisfaction, on and as of the
Closing, of each of the following conditions (any one or more of which may be
waived by Enterprise and the Enterprise Shareholder in their sole discretion,
but only in a writing signed by Enterprise and the Enterprise Shareholder):
8.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of NetSelect set forth in Section 4 (as qualified by the NetSelect
Schedule of Exceptions, if any) shall be true and accurate in every material
respect on and as of the Closing with the same force and effect as if they had
been made at the Closing, and Enterprise shall have received a certificate to
such effect executed by NetSelect's Chief Executive Officer or President.
8.2 Covenants. NetSelect shall have performed and complied in all
---------
material respects with all of its covenants contained in Section 6 on or before
the Closing, and Enterprise shall have received a certificate to such effect
signed by NetSelect's Chief Executive Officer or President.
8.3 Compliance with Law; No Legal Restraints. There shall not be
----------------------------------------
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance
(other than any such matter initiated by Enterprise, its officers or directors
or the Enterprise Shareholder), that, directly or indirectly, challenges,
threatens, prohibits, enjoins, restrains, suspends, delays, conditions or
renders illegal or imposes limitations on (or is likely to result in a
challenge, threat to, or a prohibition, injunction, restraint, suspension, delay
or illegality of, or to impose limitations on): (i) the Exchange or any other
transaction contemplated by this Agreement; or (ii) NetSelect's payment for, or
acquisition or purchase of, some or all of the shares of Enterprise Stock or any
material part of the assets of Enterprise.
8.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits and/or authorizations, and there shall have been
taken such other action by any regulatory authority having jurisdiction over the
parties and the actions herein proposed to be taken, as may be required to
lawfully consummate the Exchange, including but not limited to requirements
under applicable U.S. securities and corporations laws.
8.5 Opinion of NetSelect's Counsel. Enterprise shall have received from
------------------------------
counsel to NetSelect, an opinion substantially in the form of Exhibit 8.5.
-----------
8.6 Documents. NetSelect shall have executed and delivered to Enterprise
---------
and/or the Enterprise Shareholder, as applicable, the NetSelect Ancillary
Agreements. Enterprise shall have received all written consents, assignments,
waivers, authorizations or other certificates reasonably deemed necessary by
Enterprise's legal counsel for Enterprise to lawfully consummate the
transactions contemplated hereby.
31
8.7 No Litigation. No litigation or proceeding (other than any litigation
-------------
or proceeding initiated by Enterprise, any member of its Board of Directors, any
employee of Enterprise or the Enterprise Shareholder) shall be threatened or
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of the Exchange or any of the other transactions contemplated
by this Agreement, or which could be reasonably expected to have a Material
Adverse Effect on NetSelect.
8.8 No Material Adverse Change. There shall not have been any Material
--------------------------
Adverse Effect in the financial condition, properties, assets, liabilities,
business, results of operations, operations or prospects of NetSelect, taken as
a whole.
8.9 Instructions to Transfer Agent; Deliveries. NetSelect shall have made
------------------------------------------
the deliveries contemplated by Section 2 hereof.
8.10 Satisfactory Form of Legal Matters. The form, scope and substance of
----------------------------------
all legal and accounting matters contemplated hereby and all closing documents
and other papers delivered hereunder shall be reasonably acceptable to
Enterprise's counsel.
8.11 Ancillary Agreements. NetSelect shall have delivered to Enterprise,
--------------------
the Enterprise Shareholder and Kevin Malloy, as applicable, fully executed
copies of each NetSelect Ancillary Agreement (including, without limitation, the
Employment Agreements described in Exhibits 9.9A and 9.9B).
------------- ----
9. CONDITIONS TO OBLIGATIONS OF NETSELECT
The obligations of NetSelect hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by NetSelect in its sole discretion, but only
in a writing signed by NetSelect):
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Enterprise and the Enterprise Shareholder set forth in Section 3
(as qualified by the Enterprise Schedule of Exceptions) and in the Investment
Representation Letter shall each be true and accurate in every material respect
on and as of the Closing with the same force and effect as if they had been made
at the Closing, and NetSelect shall have received certificates to such effect
executed by Enterprise's President and by the Enterprise Shareholder.
9.2 Covenants. Enterprise and the Enterprise Shareholder shall have
---------
performed and complied in all material respects with all of their respective
covenants contained in Section 5 on or before the Closing, and NetSelect shall
have received certificates to such effect signed by Enterprise's President and
by the Enterprise Shareholder.
9.3 Compliance with Law; No Legal Restraints. There shall not be
----------------------------------------
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or
32
circumstance (other than any such matter initiated by NetSelect or its officers
or directors), that, directly or indirectly, challenges, threatens, prohibits,
enjoins, restrains, suspends, delays, conditions, or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on): (i) the Exchange or any other transaction contemplated
by this Agreement; (ii) NetSelect's payment for, or acquisition or purchase of,
some or all of the shares of Enterprise Stock or any material part of the assets
of Enterprise; (iii) the ownership or operation by NetSelect or Enterprise of
all or any material portion of the business or assets of Enterprise, including
(but not limited to) Enterprise's Intellectual Property Rights; or (iv)
NetSelect's ability to exercise full rights of ownership with respect to
Enterprise, and its respective assets and shares, including but not limited to
restrictions on NetSelect's ability to vote all the shares of Enterprise.
9.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits or authorizations from, and there shall have been
taken such other action, as may be required to lawfully consummate the Exchange
by, any governmental or regulatory authority having jurisdiction over any of the
parties and/or the actions herein proposed to be taken, including but not
limited to requirements under applicable U.S. and foreign securities and
corporate laws.
9.5 Opinion of Enterprise's Counsel. NetSelect shall have received from
-------------------------------
counsels to Enterprise, opinions in substantially the form of Exhibit 9.5.
-----------
9.6 Documents and Consents. Enterprise and the Enterprise Shareholder
----------------------
shall have executed and delivered to NetSelect all the Enterprise Ancillary
Agreements and all the Shareholder Ancillary Agreements, as applicable. The
Enterprise Shareholder shall have delivered to NetSelect Enterprise Certificates
representing one hundred percent (100%) of the outstanding shares of Enterprise
together with the other deliverables specified in Section 2.1 hereof. NetSelect
shall have received (or waived receipt of) duly executed copies of all third-
party consents, approvals, assignments, waivers, authorizations or other
certificates contemplated by this Agreement or the Enterprise Schedule of
Exceptions or reasonably deemed necessary by NetSelect's legal counsel to
provide for the continuation in full force and effect of any and all material
contracts, agreements and leases of Enterprise and the preservation of
Enterprise's IP Rights and other assets and properties and for NetSelect to
consummate the transactions contemplated hereby, in form and substance
reasonably satisfactory to NetSelect, except for such thereof (if any) as
NetSelect and Enterprise shall have agreed in writing need not be obtained.
9.7 No Litigation. No litigation or proceeding shall be threatened or
-------------
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of the Exchange or any of the other transactions contemplated
by this Agreement, or which could be reasonably expected to have a Material
Adverse Effect on the present or future operations or financial condition of
Enterprise or NetSelect or which asserts that Enterprise's or NetSelect's or the
Enterprise Shareholder's negotiations regarding this Agreement, NetSelect's or
Enterprise's or the Enterprise Shareholder's entering into this Agreement or
Enterprise's or NetSelect's or the Enterprise Shareholder's consummation of the
Exchange or other transactions contemplated hereby, breaches or violates any
law, rule, order or judgment, or any agreement or commitment
33
of Enterprise or the Enterprise Shareholder or constitutes tortious conduct on
the part of NetSelect, Enterprise or the Enterprise Shareholder.
9.8 Non-Competition and Non-Solicitation Agreement. NetSelect shall have
----------------------------------------------
received from the Enterprise Shareholder a fully executed copy of a Non-
Competition and Non-Solicitation Agreement in the form of Exhibit 9.8.
-----------
9.9 Employment Agreement. NetSelect shall have received from the
--------------------
Enterprise Shareholder and Kevin Malloy, a fully executed copy of an Employment
Agreement in the forms of Exhibits 9.9A and 9.9B, respectively.
----------------------
9.10 Appointment of New Directors and Officers. The directors and
-----------------------------------------
officers of Enterprise in office immediately prior to the Closing of the
Exchange shall have resigned effective as of the Closing, unless otherwise
directed by NetSelect.
9.11 No Material Adverse Effect. There shall not have been any Material
--------------------------
Adverse Effect as to Enterprise.
9.12 Satisfactory Form of Legal and Accounting Matters. The form, scope
-------------------------------------------------
and substance of all legal and accounting matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to NetSelect's counsel and independent public accountants.
9.13 Closing Indebtedness. Each person entitled to receive payments of
--------------------
Closing Indebtedness shall have executed and delivered to NetSelect and
Enterprise instruments in form and substance reasonably satisfactory to counsel
for Enterprise and NetSelect, evidencing receipt of full payment for the Closing
Indebtedness owed to such person.
10. TERMINATION OF AGREEMENT
10.1 Prior to or at the Closing.
--------------------------
10.1.1 This Agreement may be terminated at any time prior to or at
the Closing by the mutual written consent of NetSelect and Enterprise, approved
by their respective Boards of Directors.
10.1.2 This Agreement may be terminated after the Termination Date,
as defined below, by NetSelect if the conditions precedent set forth in Section
9 shall have not been complied with, waived or performed and such noncompliance
or nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by Enterprise and/or the Enterprise Shareholder
on or before 11:59 p.m., Pacific Time on April 15, 1998 (the "Termination
Date").
10.1.3 This Agreement may be terminated after the Termination Date
by Enterprise and the Enterprise Shareholder if the conditions precedent set
forth in Section 8 shall
34
have not been complied with, waived or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) by NetSelect on or before the Termination Date.
10.1.4 NetSelect may terminate this Agreement at any time prior to
or at the Closing if any of the representations and warranties of Enterprise
and/or the Enterprise Shareholder in Section 3 of this Agreement were incorrect,
untrue or false in any material respect as of the Effective Date or are
incorrect, untrue or false in any material respect as of the proposed Closing
Date or Enterprise and/or the Enterprise Shareholder have materially breached
any of their respective covenants under Section 5 of this Agreement, and
Enterprise and/or the Enterprise Shareholder have not cured such breach prior to
the earlier of (i) the Closing, (ii) thirty (30) days after NetSelect has given
Enterprise written notice of its intention to terminate this Agreement pursuant
to this subsection or (iii) the Termination Date.
10.1.5 Enterprise and the Enterprise Shareholder may terminate this
Agreement at any time prior to or at the Closing if any of the representations
and warranties of NetSelect in Section 4 of this Agreement were incorrect,
untrue or false in any material respect as of the Effective Date or are
incorrect, untrue or false in any material respect as of the proposed Closing
Date or NetSelect has materially breached any of its covenants under Section 6
of this Agreement, and NetSelect has not cured such breach prior to the earlier
of (i) the Closing, (ii) thirty (30) days after Enterprise and the Enterprise
Shareholder have given NetSelect written notice of their intention to terminate
this Agreement pursuant to this subsection or (iii) the Termination Date.
Any termination of this Agreement under this Section 10 will be effective
by the delivery of notice of the terminating party to the other party hereto.
10.2 No Liability for Proper Termination. Any termination of this
-----------------------------------
Agreement in accordance with this Section 10 will be without further obligation
or liability upon any party in favor of the other party hereto or to its
stockholders, directors or officers, other than the obligations provided in the
Confidentiality Agreement; provided, however, that nothing herein will limit the
-------- -------
obligation of Enterprise, the Enterprise Shareholder and NetSelect for any
willful breach hereof or failure to use their best efforts to cause the Exchange
to be consummated, as set forth in Sections 5.9 and 6.1(c) hereof, respectively.
In the event of the termination of this Agreement pursuant to this Section 10,
this Agreement shall thereafter become void and have no effect and each party
shall be responsible for its own expenses incurred in connection herewith.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of (i) Enterprise and the Enterprise Shareholder and (ii) NetSelect,
contained in this Agreement will remain operative and in full force and effect,
regardless of any investigation made by or on behalf of NetSelect, until that
date which is the earlier of (iii) the termination of this Agreement or (iv)
three (3) years after the Closing Date, except that the representations and
warranties of
35
Enterprise and the Enterprise Shareholder in Section 3.6 of this Agreement shall
survive until the expiration of the applicable statute of limitations (including
extensions) ("Release Date").
11.2 Agreement to Indemnify. (a) Subject to the limitations set forth in
----------------------
Section 11.3 below, the Enterprise Shareholder agrees to indemnify and hold
harmless NetSelect and its officers, directors, agents, stockholders and
employees, and each person, if any, who controls or may control NetSelect within
the meaning of the 1933 Act (such persons, together with persons entitled to
indemnity under paragraph (b) below, as applicable in context, referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all claims, demands, suits, actions, causes
of actions, losses, costs, damages, liabilities and expenses including, without
limitation, reasonable attorneys' fees, other professionals' and experts'
reasonable fees and court or arbitration costs (hereinafter collectively
referred to as "Damages") incurred and arising out of any inaccuracy,
misrepresentation, breach of, or default in, any of the representations,
warranties or covenants given or made by Enterprise and/or the Enterprise
Shareholder in this Agreement or in the Enterprise Schedule of Exceptions or in
any certificate delivered by or on behalf of Enterprise pursuant hereto (if such
inaccuracy, misrepresentation, breach or default existed at the Closing Date).
Any Damages asserted by an Indemnified Person shall be adjusted to reflect the
Tax Benefit to such Indemnified Person resulting from the payment of such
amount, and the amount of Damages for purposes of indemnification payments
hereunder shall be so adjusted. For these purposes, "Tax Benefit" shall mean
the actual reduction in federal and state taxes (as defined in Section 3.6) paid
(determined, if the Indemnified Person is a member of a group with NetSelect
that reports its taxes on a consolidated basis, on a consolidated basis) which
does or will result from the appropriate tax treatment (as reasonably determined
by the Indemnified Person) of such payment of the item of Damage as a deduction
(whether immediate or through depreciation/amortization or otherwise) or credit
and, in the case of any determinable actual future Tax Benefit (i.e., a Tax
Benefit which will not be realized for the tax year such indemnification payment
is made), such amount shall be discounted to its present value using a discount
rate equal to the Prime Rate as published in The Wall Street Journal as of the
date of satisfaction of the claim. Any claim of indemnity made by an
Indemnified Person under this Section 11.2 must be asserted no later than the
Release Date. An Indemnified Person may not make a claim for indemnification
pursuant to Section 11 unless, at the time such assertion of a claim is made,
the Indemnified Person has a good faith basis for assertion of the claim.
(b) NetSelect agrees to indemnify and hold harmless the Enterprise
Shareholder from and against any and all Damages incurred and arising out of any
inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties or covenants given or made by NetSelect in this
Agreement or in the NetSelect Schedule of Exceptions or in any certificate
delivered by or on behalf of NetSelect pursuant hereto (if such inaccuracy,
misrepresentation, breach or default existed at the Closing Date). Any Damages
asserted by the Enterprise Shareholder shall be adjusted (as set forth above) to
reflect the Tax Benefit (as set forth above) to the Enterprise Shareholder
resulting from the payment of such amount, and the amount of Damages for
purposes of indemnification payments hereunder shall be so adjusted.
11.3 Limitation. (a) Except as provided herein, the Enterprise
----------
Shareholder's indemnification liability under Section 11.2 shall be satisfied
by, and shall be limited to,
36
withholding and offsetting that portion of the purchase price for the Enterprise
Stock as is represented by the cash payments that are payable (but not payments
already made) by NetSelect pursuant to this Agreement after the Closing Date
evidenced by the Note and the payments pursuant to the Earn-Out pursuant to this
Agreement (such payments referred to as the "Payments"), and such amounts shall
be the exclusive remedies of NetSelect and the other Indemnified Persons under
this Agreement or in any cause of action based thereon (subject to the
exceptions in the last sentence of this Section) against the Enterprise
Shareholder for any inaccuracy, misrepresentation, breach of, or default in, any
of the representations, warranties or covenants given or made by Enterprise or
the Enterprise Shareholder in this Agreement or in any certificate, document or
instrument delivered by or on behalf of Enterprise pursuant hereto or in any
cause of action based thereon (subject to the exceptions in the last sentence of
this Section). In no event, however, shall any portion of the Additional
Deferred Amount be subject to the provisions of this Section 11 or otherwise
available to satisfy the Enterprise Shareholder's indemnification obligations
hereunder. If NetSelect has made a payment pursuant to the Note or the Earn-Out,
then once such payment is made the amount of such payment shall no longer be
considered to be included in the Payments and shall not be available to satisfy
the Enterprise Shareholder's indemnity obligations hereunder (subject to the
exceptions in the last sentence of this Section). Amounts that are unpaid under
the Note because of nonpayment constituting a material breach by NetSelect of
provisions of the Note shall not be considered to be amounts available to
satisfy the Enterprise Shareholder's indemnification obligations hereunder
(subject to the exceptions in the last sentence of this Section). If an
Indemnified Person becomes entitled to indemnity under this Section 11 for
amounts in excess of the amounts then-represented by amounts remaining to be
paid pursuant to the Note, but no amounts are then-owed pursuant to the Earn-
Out, then the person obligated to provide indemnity under this Section 11 (an
"Indemnitor") shall be obligated to make additional indemnity payments only at
such time, if any, as amounts become due and payable pursuant to the Earn-Out,
and in such event only to the extent of such Payments (subject to the exceptions
in the last sentence of this Section). In addition, the other provisions of
Section 11 notwithstanding, if the aggregate Damages for which one or more
Indemnified Persons seeks or has sought indemnification against the Enterprise
Shareholder hereunder exceeds a cumulative aggregate of Fifty Thousand Dollars
($50,000) (the "Basket"), then (i) the Enterprise Shareholder shall be liable to
indemnify the Indemnified Persons for only Damages in excess of the Basket and
(ii) NetSelect shall be entitled to withhold, forgo and offset against such
amount any of the Payments that would otherwise be owed by NetSelect to the
Enterprise Shareholder. The limitations on the indemnification obligations set
forth in this Section shall not be applicable to (aa) Misconduct Damages (as
---
defined below), (bb) Damages resulting from breach of the representations and
warranties set forth in Section 3.6 of this Agreement and (cc) Damages incurred
and arising out of any inaccuracy, misrepresentation, breach of, or default in,
the representations and warranties set forth in Sections 3.1, 3.2, 3.3 and 3.8.
As used herein, "Misconduct Damages" means Damages resulting from fraudulent
conduct of Enterprise or the Enterprise Shareholder.
(b) Except as provided herein, NetSelect shall not have any liability to
the Enterprise Shareholder under Section 11.2 of this Agreement in excess of the
Payments, and such amounts shall be the exclusive remedies of the Enterprise
Shareholder under this Agreement or in any cause of action based thereon (except
for Damages resulting from fraudulent conduct of NetSelect) against NetSelect
for any inaccuracy, misrepresentation, breach
37
of, or default in, any of the representations, warranties or covenants given or
made by NetSelect in this Agreement or in any certificate, document or
instrument delivered by or on behalf of NetSelect pursuant hereto or in any
cause of action based thereon (except for Damages resulting from fraudulent
conduct of NetSelect). In addition, the other provisions of Section 11
notwithstanding, if the aggregate Damages for which the Enterprise Shareholder
seeks or has sought indemnification against NetSelect hereunder exceeds the
Basket, then NetSelect shall be liable to indemnify the Enterprise Shareholder
for only Damages in excess of the Basket.
11.4 Notice. Promptly after an Indemnified Person becomes aware of the
------
existence of any claim by an Indemnified Person for indemnity from an Indemnitor
based on any action, suit or proceeding commenced by a third party, the
Indemnified Person will notify the Indemnitor of such potential claim (in the
case of third party claims, such notice shall in any event be given within
twenty (20) days of filing or assertion of any claim against the person claiming
indemnification, stating the nature and basis of such claim) and will, to the
extent that it can reasonably do so without materially impairing its ability to
adequately defend and respond to any such claim, permit the Indemnitor the
option to assume the defense of such claim. The Indemnified Person will
cooperate with the Indemnitor in obtaining copies of any records or other
information which is relevant to the defense of such claim. Delay in giving
such notice shall not affect any rights or remedies of an Indemnified Person or
the Indemnitor hereunder with respect to indemnification for Damages unless such
delay renders the Indemnified Person or the Indemnitor unable to defend the
claim. If the Indemnitor shall assume the defense of a claim, it shall promptly
notify the other parties that it has elected to assume such defense, and shall
have the right and obligation (i) to conduct any proceedings or negotiations in
connection therewith and necessary or appropriate to defend the indemnified
person, (ii) to take all other required steps or proceedings to settle or defend
any such claims and (iii) to employ counsel reasonably satisfactory to the
Indemnified Person to contest any such claim or liability in the name of the
Indemnified Person or otherwise. If and only if the Indemnitor shall not assume
the defense of any such claim, the Indemnified Person may defend against any
such claim or litigation in such manner as it may deem appropriate and the
Indemnified Person may settle such claim or litigation on such terms as it may
deem appropriate. In addition to the foregoing, the Indemnified Person shall
have the right to participate (at its own expense and with counsel of its
choice) in the defense, compromise or settlement of the action, suit,
proceeding, claim or demand. The Indemnitor will not compromise or settle any
such action, suit, proceeding, claim or demand without the prior written consent
of the Indemnified Person, which consent will not be unreasonably withheld or
delayed. So long as the Indemnitor is defending in good faith any such action,
suit, proceeding, claim or demand asserted by a third party against the
Indemnified Person, the Indemnified Person shall not settle or compromise such
action, suit, proceeding, claim or demand without the prior written consent of
the Indemnitor, which consent will not be unreasonably withheld or delayed. If
the Indemnitor shall fail to promptly and adequately defend any such action,
suit, proceeding, claim or demand, or if the Indemnified Person has been advised
by counsel that there may be additional or different defenses available to the
Indemnified Person or that a conflict of interest may exist between Indemnitor
and the Indemnified Person, then the Indemnified Person may defend, through
counsel of its own choosing, such action, suit, proceeding, claim or demand and
(so long as the Indemnified Person gives Indemnitor at least ten (10) days
notice of the terms of the proposed settlement thereof and permits the
Indemnitor to then undertake the defense thereof if the Indemnitor objects to
the proposed settlement) to settle
38
such action, suit, proceeding, claim or demand and to recover from the
Indemnitor the amount of any resulting Damages, with the attorney's fees and
expenses of counsel to the Indemnified Person to be paid by the Indemnitor.
11.5 Further Procedures. (a) If an Indemnified Person intends to assert
------------------
a claim for indemnification, it must first notify the Indemnitor in writing. If
the Indemnitor disputes the claim, it shall deliver a notice of dispute within
30 days of the date on which the Indemified Person's notice was delivered, and
the dispute ("Dispute") shall be resolved by binding arbitration in Los Angeles,
California, under the commercial arbitration rules of the American Arbitration
Association ("AAA") (subject to the provisions set forth below) (and, if AAA is
unable or unwilling to resolve the Dispute as provided below, then under the
auspices of Judicial Arbitration and Mediation Services, Inc.). Any judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction over the subject matter thereof. The arbitrators shall have the
authority to grant any equitable and legal remedies that could be available in
any judicial proceeding instituted to resolve a Dispute. The parties shall use
their best efforts to select an arbitrator within 30 days and to resolve the
Dispute within 60 days.
(b) Each party shall select one arbitrator, and the two arbitrators
so selected shall appoint the third arbitrator. The parties shall each pay one-
half of the costs of the arbitrators. The arbitrators shall be compensated at a
rate to be determined by the parties or by AAA, but based upon reasonable hourly
or daily consulting rates for the arbitrators in the event the parties are not
able to agree upon rates of compensation.
(c) Enterprise Shareholder and NetSelect will each pay 50% of the
initial compensation to be paid to the arbitrators in any such arbitration and
50% of the costs of transcripts and other normal and regular expenses of the
arbitration proceedings. The parties shall pay their own attorneys' fees and
costs.
(d) For any Dispute submitted to arbitration, the burden of proof
will be as it could be if the claim were litigated in a judicial proceeding.
(e) Upon the conclusion of any arbitration proceedings hereunder,
the arbitrators will render findings of fact and conclusions of law and a
written opinion setting forth the basis and reasons for any decision reached and
will deliver such documents to each party to this Agreement along with a signed
copy of the award.
(f) The arbitrators chosen in accordance with these provisions will
not have the power to alter, amend or otherwise affect the terms of these
arbitration provisions or the provisions of this Agreement.
12. INCIDENTAL REGISTRATION RIGHTS
12.1 Definitions. For the purposes of this Section 12, the following
-----------
words shall have the meanings set forth below:
(a) An "Affiliate" of any Person is any other Person which controls,
---------
is controlled by or is under common control with such Person.
39
(b) "Corporation" shall mean NetSelect.
-----------
(c) "Person" includes an individual, partnership, trust, corporation,
------
limited liability company, joint venture, association, government, government
bureau or agency or other entity of whatsoever kind or nature.
(d) The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act.
(e) "Registrable Stock" means (x) the shares of NetSelect Class A
-----------------
Common Stock issued pursuant to this Agreement or upon exercise of the stock
options referenced in the Employment Agreements and held by the Enterprise
Shareholder, Kevin Malloy or Cleary; and (y) any shares issued or issuable with
respect to the securities identified in clause (x) above by reason of a stock
dividend or stock split or in connection with a combination of shares of Class A
Common Stock, merger, consolidation or other reorganization. Each share of
Registrable Stock shall cease to be Registrable Stock when transferred to any
person who is not Affiliated with a holder or transferred pursuant to a
registered public offering or pursuant to Rule 144 promulgated by the Securities
and Exchange Commission (the "Commission") under the 1933 Act.
(f) "Short-Form Registration Statement" means a registration
---------------------------------
statement on Form S-3 or any similar form of registration statement adopted by
the Commission from and after the date hereof.
12.2 Incidental Registration.
-----------------------
(a) If the Corporation at any time proposes to register on a firmly
underwritten public offering basis any of its shares of Class A Common Stock to
be offered for cash for its own account pursuant thereto (other than a
registration requested pursuant to registration rights held by other
shareholders), it shall give written notice (the "Corporation's Notice"), at its
expense, to all holders of Registrable Stock of its intention to do so at least
15 days prior to the filing of a registration statement with respect to such
registration with the Commission. If any holder of Registrable Stock desires to
dispose of all or part of such stock, it may request registration thereof in
connection with the Corporation's registration by delivering to the Corporation,
within ten days after receipt of the Corporation's Notice, written notice of
such request (the "Holder's Notice") stating the number of shares of Registrable
Stock to be disposed. The Corporation shall use its best efforts to cause all
shares of Class A Common Stock specified in the Holder's Notice to be registered
under the 1933 Act so as to permit the sale or other disposition by such holder
or holders of the shares so registered, subject however, to the limitations set
forth in Section 12.3 hereof.
(b) Notwithstanding anything to the contrary contained in this
Section 12.2, no person (as defined, for these purposes, in Rule 144(a)(2) of
the Commission under the 1933 Act) who then beneficially owns one percent (1%)
or less of the outstanding shares of the Class A Common Stock (including the
Registrable Stock) may request that any of its shares of Registrable Stock be
included in any registration statement filed by the Corporation pursuant to this
Section 12.2 unless, in the opinion of counsel for such person, such person's
intended
40
disposition of Registrable Stock could not be effected within 90 days of the
date of said opinion without registration of such shares under the Securities
Act (assuming, for this purpose, that if "current public information" (as
defined in Rule 144 (c) of the Commission under the 1933 Act) is available with
respect to the Corporation as of the date of such opinion, it will remain so
available for such 90-day period).
Section 12.3 Limitations on Incidental Registration.
--------------------------------------
(a) The Corporation shall have the right to limit the aggregate size
of the offering or the number of shares of Registrable Stock to be included
therein by stockholders of the Corporation if requested to do so in writing and
good faith by the managing underwriter or agent of the offering. Only
securities which are to be included in the underwriting may be included in the
registration. NetSelect shall deliver a copy of such written request to the
Enterprise Shareholder.
(b) Whenever the number of shares of Registrable Stock which may be
registered pursuant to Section 12.2 is limited by the provisions of Section
12.3(a) hereof, the Corporation will include in such registration, (i) first,
the securities the Corporation proposes to sell, (ii) second, the shares of
Registrable Stock requested to be sold by the holders of Registrable Stock and
other shares of NetSelect Common Stock requested to be included in the
registration by stockholders of the Corporation who have the contractual right
to include all or a portion of their shares in the registration, on a pro rata
basis, and (iii) third, any other securities of the Corporation requested to be
included in such registration on a pro rata basis; provided, that, if, at level
--------
(ii) above, any such holder would thus be entitled to include more shares than
such holder requested to be registered, the excess will be allocated among the
other requesting holders pro rata based upon the number of shares owned by such
--- ----
holders of Registrable Stock and other stockholders.
(c) Notwithstanding anything to the contrary contained in this
Section, the Corporation may decide, in its sole and absolute discretion, not to
proceed with or to discontinue any registration commenced or proposed to be
commenced under Section 12.2 hereof.
12.4 Registration Procedures.
-----------------------
(a) If and when the Corporation is required by the provisions of this
Agreement to use its best efforts to effect the registration of shares of
Registrable Stock, the Corporation shall:
(1) furnish to each holder of shares of Registrable Stock selling
shares in the registration (a "Prospective Seller") such number of copies of
each prospectus, including preliminary prospectuses, in conformity with the
requirements of the 1933 Act, and such other documents, as the Prospective
Seller may reasonably request in order to facilitate the public sale or other
disposition of the shares of Registrable Stock owned by it;
(2) if requested by a Prospective Seller, use its best efforts to
register or qualify the shares of Registrable Stock covered by such registration
statement under the applicable securities or blue sky laws of such jurisdictions
as the Prospective Seller reasonably
41
requests and take such other similar actions that the Prospective Seller
reasonably requests to qualify the disposition of such Registerable Stock under
the laws of such jurisdiction;
(3) if the registration is underwritten, furnish to each
Prospective Seller a copy of a "comfort" letter addressed to the Corporation and
the underwriter, if any, of the Prospective Sellers, signed by the independent
public accountants who have certified the Corporation's financial statements
included in the registration statement; covering substantially the same matters
with respect to the registration statement (and the prospectus included therein)
and (in the case of the accountants' letter) with respect to the events
subsequent to the date of the financial statements, as are customarily covered
(at the time of such registration) in accountants' letters delivered to the
underwriters in connection with underwritten public offerings of securities; and
(4) use its best efforts to cause all such Registrable Stock to
be listed on each securities exchange on which similar securities issued by the
Corporation are then listed.
(b) Each Prospective Seller of Registrable Stock shall furnish to the
Corporation in writing such information as the Corporation may reasonably
require from the Prospective Seller for inclusion in the registration statement
(and the prospectus included therein).
(c) The Prospective Sellers shall not (until further notice) effect
sales of the shares of Registrable Stock covered by the registration statement
after receipt of telegraphic or written notice from the Corporation to suspend
sales to permit the Corporation to correct or update a registration statement or
prospectus.
12.5 Expenses of Registration. All expenses incurred in effecting any
------------------------
registration requested pursuant to Section 12.2 hereof, including, without
limitation, all registration and filing fees, printing expenses, expenses of
compliance with blue sky laws, fees and disbursements of counsel for the
Corporation, and expenses of any audits incidental to or required by any each
registration ("Registration Expenses") shall be borne by the Corporation;
provided that each Prospective Seller shall bear its own legal expenses (if it
--------
retains separate counsel) and all underwriting discounts or brokerage fees or
commissions relating to the sale of its Registrable Stock.
12.6 Indemnification and Contribution. (a) The Corporation shall
--------------------------------
indemnify each Stockholder who sells Registrable Stock in a registration
("Selling Stockholder") (and each person, if any, who controls such Selling
Stockholder) against all claims, losses, damages, expenses and liabilities
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
incident to the offering, or any omission (or alleged omission) to state a
material fact required to be stated or necessary to make the statements
contained in any such document not misleading, or any violation by the
Corporation of any rule or regulation promulgated under the 1933 Act applicable
to the Corporation, and shall reimburse such Selling Stockholder (and each
person, if any, who controls such selling Stockholder) for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, however, that the
-------- -------
Corporation shall not be liable to the extent that any claim,
42
loss, damage, expense or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Corporation by such Selling Stockholder specifically for use in such document.
(b) Each Selling Stockholder shall indemnify the Corporation and its
officers and directors against all claims, losses, damages, expenses and
liabilities arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document incident to the offering or any omission (or alleged omission) to
state a material fact required to be stated or necessary to make the statements
contained in any such document not misleading, and shall reimburse the
Corporation and its officers and directors for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, expense, liability or action; provided, however, that such
-------- -------
statement or omission was made in reliance upon and in conformity with
information furnished to the Corporation in writing by such Selling Stockholder
specifically for use in such document. In no event shall the liability of a
Selling Stockholder exceed the net amount received by such Selling Stockholder
upon the sale of Registrable Stock pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 12, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
--------
however, that the failure of any indemnified party to give notice as provided
-------
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 12, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties is reasonably likely to exist in respect of
such claim, the indemnifying party shall be entitled to participate in and, to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defense thereof and the indemnified party notifies the
indemnifying party of such indemnified party's judgment and the basis therefor.
No indemnifying party shall be liable for any settlement of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.
(d) If the indemnification provided for in this Section 12.6 is held
to be unavailable by a court of competent jurisdiction to an indemnified party
in respect of any claims, losses, damages, expenses or liabilities referred to
herein, then each applicable indemnifying
43
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such claims,
losses, damages, expenses or liabilities in such proportion as is appropriate to
reflect the relative fault of the Corporation, on the one hand, and the Selling
Stockholder, on the other hand, in connection with the statements or omissions
which resulted in such claims, losses, damages, expenses or liabilities, as well
as any other relative equitable considerations. The relative fault of the
Corporation, on the one hand, and of such Selling Stockholder, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Corporation, on the one hand, or by such Selling Stockholder, on the other hand,
and the party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the claims, losses, damages, expenses and
liabilities referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any such action or claim. The Corporation and Stockholders agree
that it would not be just and equitable if contribution pursuant to this Section
12.6(c) were determined by pro rata allocation or by any other method of
--- ----
allocation that does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 12.6(c), no Selling
Stockholder shall be required to contribute any amount in excess of the amount
by which the net price at which the shares of Registrable Stock sold by such
Selling Stockholder and distributed to the public or offered to the public
exceeds the amount of any damages which such Selling Stockholder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
13. MISCELLANEOUS
13.1 Governing Law; Consent to Jurisdiction. The laws of the State of
--------------------------------------
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
Each party to this Agreement hereby consents to exclusive personal jurisdiction
and venue of the federal and state courts for Los Angeles, California, and
agrees that service of process in any such action may be made in the manner
provided in this Agreement for the delivery of notices.
13.2 Assignment; Binding Upon Successors and Assigns. Neither party
-----------------------------------------------
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto, except that NetSelect may assign its
respective rights and/or obligations to any wholly-owned subsidiary of
NetSelect; and except that after the Closing, NetSelect may assign its rights
and obligations hereunder without the prior written consent of Enterprise or the
Enterprise Shareholder in connection with a merger, consolidation or sale of all
or substantially all of NetSelect's assets, provided that the acquiring or
surviving corporation agrees to assume all of NetSelect's obligations under this
Agreement. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
44
13.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
13.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
both parties reflected hereon as signatories.
13.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
13.6 Amendment and Waivers. Any term or provision of this Agreement may
---------------------
be amended prior to the Closing by the written consent of NetSelect, Enterprise
and the Enterprise Shareholder, and, after the Closing by NetSelect and the
Enterprise Shareholder (or their successors in interest). The observance of any
term, condition or provision of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only by a
writing signed by the party to be bound thereby or for whose benefit such
condition was provided. The waiver by a party of any breach hereof or default
in the performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. In addition, at any time prior to
the Closing, the Enterprise Shareholder and each of Enterprise and NetSelect (by
action taken by its respective Board of Directors) may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations or
other acts of the other; (ii) waive any inaccuracies in the representations and
warranties made to it contained herein or in any document delivered pursuant
hereto; and (iii) waive compliance with any of the agreements or conditions for
its benefit contained herein. No such waiver or extension shall be effective
unless signed in writing by the party against whom such waiver or extension is
asserted. The failure of any party to enforce any of the provisions hereof will
not be construed to be a waiver of the right of such party thereafter to enforce
such provisions or any other provisions.
13.7 Expenses. Each party will bear its respective expenses and legal
--------
fees incurred with respect to this Agreement, and the transactions contemplated
hereby; provided, however, that the Enterprise Shareholder shall pay all of the
-------- -------
expenses and legal, accounting and other fees incurred by Enterprise with
respect to this Agreement and transactions contemplated hereby.
13.8 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation,
45
costs, expenses and fees on any appeal). The prevailing party will be entitled
to recover its costs of suit, regardless of whether such suit proceeds to final
judgment.
13.9 Notices. All notices and other communications required or permitted
-------
under this Agreement will be in writing and will be either hand delivered in
person, sent by telecopier, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service.
Such notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, five (5) days after mailing if sent by mail,
and one (l) day after dispatch if sent by express courier, to the following
addresses, or to such other addresses or fax number as any party may notify the
other parties in accordance with this Section:
(i) If to NetSelect:
NetSelect, Inc.
5655 Lindero Canyon Road, Suite 120
Westlake Village, CA 91362
Attention: Stuart Wolff, Chairman and Chief Executive Officer
with a copy to:
Mark Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Fax Number: (415) 494-1417
(ii) If to Enterprise:
The Enterprise of America, Ltd.
823 South 60/th/ Street
Milwaukee, WI 53214
Attention: Roger Scommegna, President
with a copy to:
John C. Vitek, Esq.
Beck, Chaet, Molony & Bamberger, S.C.
Two Plaza East, Suite 1085
330 East Kilbourn Avenue
Milwaukee, WI 53202
Fax Number: (414) 273-7786
with a copy to:
Craig H. Zetley, Esq.
46
Zetley & Cohn, S.C.
324 East Wisconsin Avenue
Suite 1400
Milwaukee, WI 53202
Fax Number: (414) 272-1435
(iii) If to Enterprise Shareholder:
Roger Scommegna
20740 Lincolnshire Court
Brookfield, WI 53005
with a copy to:
John C. Vitek, Esq.
Beck, Chaet, Molony & Bamberger, S.C.
Two Plaza East, Suite 1085
330 East Kilbourn Avenue
Milwaukee, WI 53202
Fax Number: (414) 273-7786
with a copy to:
Craig H. Zetley, Esq.
Zetley & Cohn, S.C.
324 East Wisconsin Avenue
Suite 1400
Milwaukee, WI 53202
Fax Number: (414) 272-1435
13.10 Construction of Agreement. This Agreement has been negotiated by
-------------------------
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
13.11 No Joint Venture. Nothing contained in this Agreement will be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other party and their
status is, and at all times will continue to be, that of independent contractors
with respect to each other. No party will have any power or authority to bind
or commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
47
13.12 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
13.13 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner, employee, agent, consultant or any
party hereto or any other person or entity unless specifically provided
otherwise herein, and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
13.14 Confidentiality. Enterprise, the Enterprise Shareholder, and
---------------
NetSelect each confirm that they have entered into the Confidentiality Agreement
and that they are each bound by, and will abide by, the provisions of such
Confidentiality Agreement (except that NetSelect will cease to be bound by the
Confidentiality Agreement after the Exchange becomes effective). If this
Agreement is terminated, all copies of documents containing confidential
information of a disclosing party shall be returned by the receiving party to
the disclosing party or be destroyed, as provided in the Confidentiality
Agreement.
13.15 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto other than the Confidentiality
Agreement. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
13.16 Withholding. All amounts payable to the Enterprise Shareholder
-----------
hereunder shall be reduced by all federal, state, local and other withholding,
employment and similar taxes and payments on such amounts (e.g., if required,
social security, Medicare, Medicaid, etc.) that NetSelect determines in good
faith are required by applicable law. In connection herewith, the parties
acknowledge that payments and deliveries to the Enterprise Shareholder pursuant
to Section 2 of this Agreement are intended as consideration in exchange for the
transfer of the Enterprise Stock. The parties agree to report the transactions
contemplated under this Agreement consistent with that understanding and will
not take an inconsistent position in connection therewith in connection with any
tax filing or reporting.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NETSELECT, INC. THE ENTERPRISE OF AMERICA, LTD.
a Delaware corporation a Wisconsin corporation
By: /s/ Stuart Wolff By: /s/ Roger Scommegna
--------------------------------- ----------------------------------
Stuart Wolff Roger Scommegna, President
Chairman and Chief Executive Officer
ENTERPRISE SHAREHOLDER
ROGER SCOMMEGNA
/s/ Roger Scommegna
-------------------------------------
Roger Scommegna, individually
[SIGNATURE PAGE TO EXCHANGE AGREEMENT]
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LIST OF EXHIBITS
Exchange Agreement - NetSelect Inc., The Enterprise of America Ltd. and Roger Scommegna
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