Exhibit 10.18
ASSET PURCHASE AGREEMENT
INTRODUCTION
THIS ASSET PURCHASE AGREEMENT is made as of this 13th day of December,
1999 by and among BOL Acquisition Co. VII, Inc., a Connecticut corporation (the
"Buyer") and wholly-owned subsidiary of XxxxxxxXxxxxx.xxx, Inc., a Delaware
corporation (the "Parent"); the Parent; Cyberzone, LLC, a Connecticut limited
liability company (the "Seller"); and Xxxx Xxxxxxx and Xxxxxxxxx Xxxxxx, the
owners of all the outstanding membership interests of the Seller (collectively,
the "Members").
BACKGROUND
The Seller is the owner of certain assets described herein and desires
to sell to the Buyer, and the Buyer desires to purchase substantially all of
assets of the Seller, for the consideration and upon the terms and conditions
set forth in this Agreement.
The Members are joining this Agreement to guarantee the Seller's
performance of its obligations under this Agreement and to join, jointly and
severally, with the Seller in the Seller's representations and warranties
hereunder and to undertake certain other obligations set forth in this
Agreement.
AGREEMENTS
THE PARTIES HERETO, intending to be legally bound, agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 In addition to the other definitions set forth herein, when used in
this Agreement, the following terms have the meanings set forth below:
"Affiliate" of an entity or person means any business entity which
controls, or is controlled by, or is under common control with such person or
entity.
"Agreement" means this asset purchase agreement.
"Balance Sheet" means the balance sheet of the Seller as of the Balance
Sheet Date, which is included in the Financial Statements.
"Balance Sheet Date" means October 31, 1999.
"Business" means the business of the Seller as conducted up to the
Closing.
"Closing" means the taking of the actions required to consummate the
sale and purchase of the Assets by the Seller to the Buyer pursuant to this
Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" means those certain financial statements of the
Seller compiled by Xxxxxxx, Xxxxxxxxx & Company, P.C., the independent public
accountant of the Seller, as well as certain other unaudited financial
statements prepared by the Seller for his own use, all of which are more
particularly described in SCHEDULE 5.6.
"GAAP" means generally accepted accounting principles.
"Internal Revenue Code" means the United States Internal Revenue Code
of 1986, as amended.
"Liability" means any liability whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"PBGC" means the Pension Benefit Guaranty Corporation.
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"Permitted Liens" means those certain liens and security interests
solely to the extent such liens and security interests secure liabilities which
are to be assumed by the Buyer pursuant to SECTION 3.1(d) below.
1.2 In this Agreement, unless the context otherwise requires:
(a) The words "hereby", "hereof", "hereto", "herein",
"hereunder", and any similar words refer to this Agreement; the word "hereafter"
means after, and the word "heretofore" means before, the date of this Agreement.
(b) The word "person" refers to partnerships (including
limited partnerships), corporations, governmental entities, trusts and other
legal entities as well as to natural persons.
(c) References to the "knowledge" or the "best knowledge" of
the Seller unless otherwise qualified herein means the understanding of the
Seller and of the Members after reasonable investigation.
1.3 Section and subsection titles are for convenience of reference only
and are not to be considered in the interpretation or construction of any of the
provisions hereof.
1.4 Representations, warranties, covenants, obligations and agreements
of the Seller and/or the Members set forth in this Agreement will be deemed to
be the joint and several warranties, covenants, obligations and agreements of
each of the Members and the Seller.
2. PURCHASE AND SALE OF ASSETS.
2.1 ASSETS. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign, and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller, at the Closing, the
assets and property of the Seller described on SCHEDULE 2.1 attached hereto (the
"Assets"), free and clear of all liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature whatsoever except for
Permitted Liens. For purposes of this Agreement, the Assets will also mean and
include all assets and property acquired hereafter by the Seller before the
Closing Date but will not include the assets and property of the Seller disposed
of as permitted by this Agreement or the "Excluded Assets" as defined in SECTION
2.2 hereof.
2.2 EXCLUDED ASSETS. "Excluded Assets" shall mean (a) income and other
tax records of the Seller (copies of which have been made available to the
Buyer), provided, however, the Seller will retain these records for a period of
not less than five (5) years after the Closing and make them available to the
Buyer upon the Buyer's request; (b) any contract, executory agreement or lease
of the Seller which is not expressly assumed by the Buyer hereunder; and (c) any
other assets listed on SCHEDULE 2.2 hereof or which the Buyer notifies the
Seller in writing that the Buyer is not purchasing.
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3. PURCHASE PRICE
3.1 PAYMENT. Subject to the adjustments set forth in SECTION 3.3, the
total consideration to be paid to the Seller by the Buyer as full payment for
the Assets (the "Purchase Price") is as follows:
(a) CASH PAYMENT: The Buyer shall pay the Seller at the
Closing, a total of One Million Seven Hundred Fifty-Two Thousand One Hundred
Fifty Dollars ($1,752,150) payable by wire transfer to the account identified in
SCHEDULE 3.1(a);
(b) PARENT STOCK. The Buyer shall deliver to the Escrow Agent
(as defined below) One Million Seven Hundred Fifty-Two Thousand One Hundred
Fifty Dollars ($1,752,150) in unregistered common stock of the Parent (the
"Parent Stock"). The number of shares of Parent Stock to be delivered shall be
based on the average Nasdaq National Market price of the Parent Stock for the
twenty (20) business day period ending on the eighth business day immediately
preceding the Closing date.
The "average Nasdaq National Market price" for such twenty (20)
business day period shall mean the average of the closing sales prices, or, in
case no such reported sale takes place on any given day, the average of the
reported closing bid and asked prices for such day, in either case as reported
by The Nasdaq Stock Market, Inc.
(c) ESCROW. The Buyer shall, simultaneously with the Closing,
place all of the shares of Parent Stock described in SECTION 3(b) above (the
"Escrow Deposit') into escrow with the Buyer's counsel (the "Escrow Agent")
until January 10, 2001 and the shares of Parent stock representing Seven Hundred
Thousand Dollars ($700,000) (valued in accordance with SECTION 3.1(b) shall be
held in escrow until January 10, 2002) all pursuant to the escrow agreement
attached hereto as EXHIBIT 3.1(c). The Buyer shall have the right to setoff from
and against the Escrow Deposit the amount of the adjustments, if any, described
in SECTION 3.3, as well as the amount of any claims of the Buyer for
indemnification for breach of any warranty or representation herein by the
Seller or the Members respectively, and such right of setoff shall be in
addition to the Buyer's right to seek damages or obtain any other remedy at law
or in equity to which the Buyer shall be entitled by virtue of such breach.
(d) ASSUMPTION OF LIABILITIES. At the Closing, the Buyer will
assume those certain trade debts, liabilities, obligations and contracts of the
Seller, specifically described on SCHEDULE 3.1(d) (the "Assumed Liabilities").
The Buyer will not be liable for any of the obligations or Liabilities of the
Seller of any kind and nature other than those specifically listed or described
on SCHEDULE 3.1(d). Without limiting the foregoing, the Buyer shall not assume
any Liability for (i) any tax including, but not limited to, income, sales or
use tax, imposed on the Seller or the Members because of the sale of the Assets;
(ii) any liabilities or expenses of the Seller or the Members incurred in
negotiating and carrying out their obligations under this Agreement; (iii) any
obligations incurred by the Seller or the Members after the Closing; (iv) any
liabilities or obligations incurred by the Seller in violation of, or as a
result of the Seller's or Members' breach of,
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this Agreement; (v) any intercompany payables or outstanding loans or lines of
credit of the Seller; (vi) any liability for any litigation involving the
Seller, including but not limited to matters listed on SCHEDULE 5.15; and (vii)
liabilities for any severance, accrued vacation/sick day or other employee
benefits of the Seller whether or not resulting from the transactions
contemplated hereby.
(e) EMPLOYMENT AGREEMENTS. At the Closing, the Buyer will
simultaneously enter into employment agreements with (i) Xxxx Xxxxxxx and (ii)
Xxxxxxxxx Xxxxxx in the forms attached as EXHIBIT 3.1(e)(i) and EXHIBIT
3.1(e)(ii) respectively (the "Employment Agreements").
3.2 ALLOCATION. The total purchase price will be allocated among the
items of the Assets in proportion to their fair market value and in accordance
with Section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The allocation (or the method by which the allocation
will be determined) is set forth in this SECTION 3.2 and SCHEDULE 3.2. In
connection with their filing of Federal income tax returns, the parties will
file Treasury Forms 8594 consistent with this allocation.
3.3 ADJUSTMENTS.
(a) POST CLOSING ADJUSTMENT FOR DEFICIENCY IN 1999 REVENUES.
On or about April 30, 2000, the Buyer's accountants shall prepare an income
statement in accordance with GAAP showing the actual audited revenues for the
year ended and the six (6) months ended December 31, 1999 of the Seller
determined on an accrual method basis. To the extent that (i) the aggregate
audited revenues (accrual basis) of the Seller for the six (6) months ended
December 31, 1999 are less than Six Hundred Seventy-Five Thousand Dollars
($675,000), the Seller shall pay the Buyer as a reduction of the Purchase Price
paid to the Seller hereunder an amount equal to Five Dollars ($5.00) for each
One Dollar ($1.00) in revenue less than Six Hundred Seventy-Five Thousand
($675,000), and (ii) the aggregate audited revenues of the Seller for the six
(6) months ended December 31, 1999 are greater than Six Hundred Seventy-Five
Thousand Dollars ($675,000), the Purchase Price would be increased by an amount
equal to Five Dollars ($5.00) for each One Dollar ($1.00) in revenue greater
than Six Hundred Seventy-Five Thousand ($675,000). For example, in the event the
aggregate revenues of the Seller for the six (6) months ended December 31, 1999
are Six Hundred Twenty-Five Thousand Dollars ($625,000), the Purchase Price
would be reduced by Two Hundred Fifty Thousand Dollars ($250,000) (i.e. the
$50,000 shortfall multiplied by 5.00). To the extent payment by the Seller or
the Members to the Buyer are required under this SECTION 3.3, the Buyer shall be
entitled to receive payment from the Escrow Deposit or to receive payment
directly from the Seller or the Members within ten (10) days of the delivery of
the final income statement for 1999 as audited by the Buyer's accountants. In
the event the Buyer's accountants determine that any revenues of the Seller's
business during the last six (6) months of calendar year 1999 are required to be
"written off" as uncollectible ("Uncollected Revenues"), then for purposes of
the adjustment required to be made under this SECTION 3.3(a), fifty percent
(50%) of the amount of the Uncollected Revenues shall be credited toward the
Seller's revenues. Notwithstanding the foregoing
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sentence, the maximum revenue credit to the Seller based on Uncollected Revenues
shall not exceed $25,000 (i.e. in the event the Uncollected Revenues exceed
Fifty Thousand Dollars ($50,000), the Seller shall not receive any additional
credit towards such revenue calculation).
To the extent payment by the Buyer is required under this SECTION 3.3,
the Buyer shall pay to Seller 50% of the amount of such payment in cash and the
other 50% in shares of Parent Stock, which shares shall be valued at the average
Nasdaq National Market price for the twenty (20) day period prior to the date of
delivery of the final income statement. Such payment, if any, shall be made
within ten (10) days of the delivery of the final income statement.
(b) PAYABLES AND LIABILITIES. The Seller shall (i) deliver to
Buyer Twenty Thousand Dollars ($20,000) in cash at the Closing; (ii) pay all
outstanding accounts payable existing as of the Closing Date and (iii) pay, when
due, all liabilities of the Seller accrued up to and including the Closing Date.
Within forty-five (45) days of the Closing, the Buyer and/or its accountants
shall review the records of the Seller's business and to the extent that there
was a surplus or deficiency in the Minimum Cash Amount (as hereafter defined)
such amount shall be paid in cash to the respective party within ten (10) days
of determination by Buyer of the Minimum Cash Amount. For purposes hereof, the
"Minimum Cash Amount" shall mean Twenty Thousand Dollars ($20,000) in excess of
the Seller's outstanding accounts payable and liabilities accrued up to and
including the Closing Date (e.g. American Express xxxx, non-capital leases, cell
phone bills, etc.).
(c) ADJUSTMENT BASED ON SHORTFALL OF CERTAIN ACCOUNTS IN
CALENDAR YEAR 2000. On or about January 31, 2001, the Buyer shall review the
revenue generated in calendar year 2000 and collected by the Buyer for the
following customers of the Seller's business: Computer Solutions, Northeast
Healthcare and Lincoln National Life. In the event that individually any or all
of such accounts fail to generate the collected revenue as specified for each
such customer on SCHEDULE 3.1(d)(t), then the Seller shall make payment to Buyer
of the amount of such shortfall, if any, within five (5) business days of such
determination.
(d) DISPUTES REGARDING ADJUSTMENTS. If the Seller disputes any
item contained on the audited 1999 revenues of the Seller or any adjustment
based on subsection (b) or (c) of this SECTION 3.3, the Seller shall notify the
Buyer in writing of each disputed item (collectively, the "Disputed Amounts"),
and specify the amount thereof in dispute within thirty (30) days after the
delivery of the final income statement for 1999. If the Seller and the Buyer
cannot resolve any such dispute, then such dispute shall be resolved by an
independent nationally recognized accounting firm which is reasonably acceptable
to the Seller and the Buyer (the "Independent Accounting Firm"). The
determination of the Independent Accounting Firm shall be made as promptly as
practical and shall be final and binding on the parties, absent manifest error
which error may only be corrected by the Independent Accounting Firm. Any
expenses relating to the engagement of the Independent Accounting Firm shall be
allocated between the Seller
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and the Buyer so that the Seller's aggregate share of such costs shall bear the
same proportion to the total costs that the Disputed Amounts unsuccessfully
contested by the Stockholder (as finally determined by the Independent
Accounting Firm) bear to the total of the Disputed Amounts so submitted to the
Independent Accounting Firm.
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4. CLOSING. The sale and transfer of the Assets by the Seller to the
Buyer (the "Closing") will take place at the offices of Xxxxx & Xxxxxxx, LLP,
300 Turks Head Building, Providence, Rhode Island beginning at 10:00 a.m. on
December 13, 1999 or at such other time and place as the parties may agree to in
writing (the "Closing Date") subject to the satisfaction of all of the
conditions to Closing described in SECTIONS 8 AND 9.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE MEMBERS. As a
material inducement to the Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, the Seller and the Members, jointly and
severally, make to the Buyer the representations and warranties contained in
this SECTION 5, which shall be true and correct as of the date hereof and as of
the Closing Date.
5.1 ORGANIZATION AND QUALIFICATION OF THE SELLER. The Seller is a
limited liability company duly organized, validly existing and in good standing
under the laws of Connecticut with full power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Articles of
Organization of the Seller as amended to date, certified by the Secretary of
State of Connecticut and the operating agreement certified by the Manager of the
Seller and heretofore delivered to the Buyer's counsel, are complete and
correct, and no amendments thereto are pending. The records of the Seller which
have heretofore been delivered to the Buyer's counsel are correct and complete.
The Seller is not required to qualify to do business as a foreign company in any
jurisdiction in which it owns, operates or leases real property nor in any other
jurisdiction in which the failure to be so qualified or registered would have a
material adverse effect on the properties, assets, business, financial condition
and prospects of the Seller.
5.2 SUBSIDIARIES; INVESTMENTS. The Seller has no direct or indirect
subsidiaries and owns no securities issued by any other business organization or
governmental authority, except U.S. Government securities, bank certificates of
deposit and money market accounts acquired as short-term investments in the
ordinary course of its business. Except as disclosed on SCHEDULE 5.2, neither
the Seller nor the Members own or have any direct or indirect interest in or
control over any corporation, partnership, joint venture, proprietorship, entity
or business interest of any kind other than the ownership of less than two
percent (2%) of the issued and outstanding common stock of a publicly held
company. For purposes of this Agreement, the term "subsidiary" means, with
respect to any person, any corporation 5% or more of the outstanding voting
securities of which, or any partnership, joint venture or other entity 5% or
more of the total equity interest of which, is directly or indirectly owned by
such person.
5.3 MEMBERSHIP INTERESTS. The total membership interests of the Seller
consist solely of the interests listed on SCHEDULE 5.3. All of the issued and
outstanding membership interests are duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Members as set forth on
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SCHEDULE 5.3, and all such membership interests of the Seller were offered,
issued, sold and delivered by the Seller in compliance with all applicable state
and federal laws concerning the issuance of securities. Further, none of such
membership interests of the Seller were issued in violation of the preemptive
rights of any past or present member. The Members hold of record and own
beneficially all of the membership interests of the Seller, free and clear of
any restrictions on transfer taxes, security interests, mortgages, pledges,
liens, encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. None of the Members are a party to any option,
warrant, purchase right, or other contract or commitment that could require any
Member to sell, transfer, or otherwise dispose of any membership interest of the
Seller. None of the Members are a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any membership
interests of the Seller. There are no outstanding subscriptions, options,
warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
membership or other equity interests of the Seller.
5.4 AUTHORITY OF THE MEMBERS.
(a) Each of the Members has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of the Seller pursuant to or as
contemplated by this Agreement and to carry out the transactions contemplated
hereby and thereby. This Agreement and each agreement, document and instrument
to be executed and delivered by the Seller pursuant to or as contemplated by
this Agreement (to the extent it contains obligations to be performed by the
Seller and/or the Members) constitutes, or when executed and delivered will
constitute, valid and binding obligations of the Seller and the Members
enforceable in accordance with their respective terms, subject to the terms
hereof. The execution, delivery and performance by each of the Members and the
Seller of this Agreement and each such agreement, document and instrument:
(i) do not and will not violate any provision of the
Articles of Organization or operating agreement of the Seller;
(ii) do not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to such Member or
require such Member to obtain any approval, consent or waiver of, or make any
filing with, any federal, state, local or foreign governmental body, agency or
official that has not been obtained or made; and
(iii) do not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Member or the Seller is a party or by which the property of such
Member or the Seller is bound or to which the property of such Member or the
Seller is subject or result in the creation or imposition of any
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mortgage, pledge, lien, security interest or other charge or encumbrance on any
of the assets or properties of such Member or the Seller.
5.5 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. The Seller does not own any real property.
The real property identified as being leased by the Seller on SCHEDULE 5.5(a) is
collectively referred to herein as the "Real Property". The Real Property
constitutes all the real property leased by the Seller.
(i) COMMISSIONS. To the best knowledge of the
Members, there are no brokerage or leasing fees or commissions or other
compensation due or payable on an absolute or contingent basis to any person,
firm, corporation, or other entity with respect to or on account of the Lease
described in SCHEDULE 5.5(a).
(ii) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 5.5(a), to the knowledge of the Members without any independent
investigation, (a) there is no material defect in the physical condition of any
of the Real Property, (b) there is no material defect in any material
improvements located on or constituting a part of any of the Real Property,
including, without limitation, the structural elements thereof, the mechanical
systems (including without limitation all heating, ventilating, air
conditioning, plumbing, electrical, elevator, security, telecommunication,
utility, and sprinkler systems) therein, the roofs or the parking and loading
areas (collectively, the "Improvements"), and (c) all of the Improvements
located on or constituting a part of any of the Real Property, including,
without limitation, the structural elements thereof, the mechanical systems
therein, the roofs and the parking and loading areas are in generally good
operating condition and repair.
(iii) UTILITIES. The Seller has not received any
written notice of any termination or impairment of the furnishing of, or any
material increase in rates for, services to any of the Real Property of water,
sewer, gas, electric, telecommunication, drainage or other utility services,
except ordinary and usual rate increases applicable to all customers (or all
customers of a certain class) of a utility provider. The Seller has not entered
into any agreement requiring it to pay to any utility provider rates which are
less favorable than rates generally applicable to customers of the same class as
the Seller.
(iv) COMPLIANCE. The Seller has not received any
written notice from any municipal, state, federal or other governmental
authority with respect to any violation of any zoning, building, fire, water,
use, health, environmental or other statute, ordinance, code or regulation
issued in respect of any of the Real Property that has not been heretofore
corrected.
(v) GOVERNMENT APPROVALS. The Seller has not received
any notice of any plan, study or effort by any Governmental Entity which would
adversely affect the present use, zoning or value to the Seller of any of the
Real Property or which would
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modify or realign any adjacent street or highway in a manner materially adverse
to the Seller.
(vi) ZONING. The Seller has not received any notice
of any zoning violations.
(vii) REAL PROPERTY TAXES. To the knowledge of the
Members without any independent investigation, except as set forth in said
SCHEDULE 5.5(a), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any portion
thereof, which are outstanding or unpaid.
(b) PERSONAL PROPERTY. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Seller having a fair
market value of at least Five Hundred Dollars ($500), is contained in SCHEDULE
5.5(b) hereto. All of such equipment and other machinery, equipment and personal
property of the Seller is located on the Real Property or otherwise is used in
the operation of the Seller's Business. Except as specifically disclosed in
SCHEDULE 5.5(b) or in the Financial Statements, the Seller has good and
marketable title to all of such personal property. None of such personal
property or assets is subject to any mortgage, pledge, lien, conditional sale
agreement, security title, encumbrance or other charge except as specifically
disclosed in any Schedule hereto and in the Financial Statements. The Financial
Statements reflect all personal property of the Seller, subject to dispositions
and additions in the ordinary course of business consistent with this Agreement.
Except as otherwise specified in SCHEDULE 5.5(b) hereto, all leasehold
improvements, furnishings, machinery and equipment of the Seller are in
generally good repair, normal wear and tear excepted, have been well maintained,
and conform in all material respects with all applicable ordinances, regulations
and other laws.
5.6 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Seller has delivered to the Buyer the following
financial statements of the Seller, copies of which are attached hereto as
SCHEDULE 5.6: (i) Balance Sheet prepared by Seller's accountants, Xxxxxxx
Xxxxxxxxx & Company, P.C.] dated December 31, 1998; and (ii) Management prepared
monthly profit and loss statements dated January 1999 through October 31, 1999.
The Financial Statements have been prepared in accordance with
accounting principles applied consistently during the periods covered thereby
(except that the interim financial statements are subject to normal year-end
audit adjustments and do not include footnotes), and present fairly in all
respects the financial condition of the Seller at the dates of said statements
and the results of their operations for the periods covered thereby.
(b) As of the Balance Sheet Date, the Seller had no
Liabilities of any nature, whether accrued, absolute, contingent or otherwise,
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others or contingent
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liabilities arising prior to the Balance Sheet Date) except liabilities stated
or adequately reserved for on the Financial Statements or reflected in Schedules
furnished to Buyer hereunder as of the date hereof.
(c) As of the date hereof, the Seller has no Liabilities of
any nature, whether accrued, absolute, contingent or otherwise, (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due or contingent liabilities arising prior to the date hereof or the Closing,
as the case may be) except liabilities (i) stated or adequately reserved for on
the appropriate Financial Statement or the notes thereto, (ii) reflected in
Schedules furnished to the Buyer hereunder on the date hereof or (iii) incurred
in the ordinary course of business of the Seller consistent with prior
practices.
(d) All financial information delivered to KPMG, LLP and the
Buyer in connection with their audit of the Seller's financial statements as of
the date hereof are true and correct in all material respects and reflect all
liabilities of the Seller as of the date(s) of such information, and have been
prepared in accordance with accounting principles applied consistently during
the periods covered thereby.
5.7 TAXES.
(a) The Seller has paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), in the amounts indicated
on tax returns filed by the Seller through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing authority,
whether disputed or not (other than current taxes the liability for which is
adequately reserved for on the financial statements provided to the Buyer
pursuant to SECTION 5.6 hereof).
(b) The Seller has in accordance with applicable law filed all
federal, state, local and foreign tax returns required to be filed by them
through the date hereof and all such returns correctly and accurately set forth
the amount of any Taxes relating to the applicable period. For every taxable
period of the Seller, the Seller has delivered or made available to the Buyer
complete and correct copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Seller. SCHEDULE 5.7 attached hereto sets forth all federal tax
elections under the Internal Revenue Code, that are in effect with respect to
the Seller or for which an application by the Seller is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Seller any deficiency or claim for additional taxes or a claim that
the Seller has or may be
12
subject to taxation by that jurisdiction. There are no security interests on any
of the assets of the Seller that arose in connection with any failure (or
alleged failure) to pay any Tax. The Seller has not entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code.
(d) Except as set forth in SCHEDULE 5.7 attached hereto, there
has not been any audit of any tax return filed by the Seller, no audit of any
tax return of the Seller is in progress, and the Seller has not been notified by
any tax authority that any such audit is contemplated or pending. Except as set
forth in SCHEDULE 5.7, no extension of time with respect to any date on which a
tax return was or is to be filed by the Seller is in force, and no waiver or
agreement by the Seller is in force for the extension of time for the assessment
or payment of any Taxes.
(e) (i) The Seller has not consented to have the provisions of
Section 341(f)(2) of the Internal Revenue Code applied to it, (ii) the Seller
has not agreed to, and has not been requested by any governmental authority to,
make any adjustments under Section 481(a) of the Internal Revenue Code by reason
of a change in accounting method or otherwise and (iii) the Seller has never
made any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances would obligate it to make any
payments, that will not be deductible under Section 280G of the Internal Revenue
Code. The Seller has disclosed on its federal income tax returns all positions
taken therein that could give rise to a penalty for underpayment of federal Tax
under Section 6662 of the Internal Revenue Code. The Seller has never had any
liability for unpaid Taxes because it is a member of an "affiliated group" (as
defined in Section 1504(a) of the Internal Revenue Code). The Seller has never
filed, nor has it ever been required to file, a consolidated, combined or
unitary tax return with any entity. The Seller is not a party to any tax sharing
agreement.
(f) The Seller computes its federal taxable income under the
accrual method of accounting.
5.8 ACCOUNTS RECEIVABLE. All accounts receivable of the Seller as of
the respective Balance Sheet Dates and all accounts receivable arising
thereafter or hereafter to the Closing Date, arose or will arise from valid
sales in the ordinary course of business and are not subject to setoff or
counterclaim. Except as set forth in SCHEDULE 5.8, the Seller has no accounts or
loans receivable from any person, firm or corporation which is Affiliated with
the Seller.
5.9 INVENTORIES. The Seller maintains less than Five Thousand Dollars
($5,000) of inventory, all saleable in the ordinary course and stated in
accordance with GAAP.
5.10 ABSENCE OF CERTAIN CHANGES.
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Since December 31, 1998, the Seller has conducted business only in the
ordinary course and consistent with past practices and except as disclosed in
SCHEDULE 5.10 there has not been:
(a) Any change in the properties, assets, liabilities,
business, operations, financial condition or prospects of the Seller which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse with
respect to the Seller;
(b) Except for the endorsement of checks in the ordinary
course of business and the write-off of a receivable of Downcity, LLC in the
amount of not more than $6,500, any material contingent liability incurred by
the Seller as guarantor or otherwise with respect to the obligations of others
or any cancellation of any material debt or claim owing to, or waiver of any
material right of, the Seller;
(c) Any mortgage, encumbrance or lien placed on any of the
properties of the Seller which remains in existence on the date hereof or will
remain on the Closing Date except for liens permitted by any current agreement
of the Seller with respect to borrowed money;
(d) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any capital
assets of the Seller costing more than Ten Thousand Dollars ($10,000);
(e) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting any of the properties, assets or
business of the Seller;
(f) Any declaration, setting aside or payment or making of any
other distribution in respect of the membership interest of the Seller, any
direct or indirect redemption, purchase or other acquisition by the Seller of
its own membership interests, any issuance or sale of any securities convertible
into or exchangeable for debt or equity securities of the Seller or any grant,
issuance or exercise of options, warrants, subscriptions, preemptive rights,
agreements, arrangements or commitments of any kind for or relating to the
issuance, sale, registration or voting of any membership interest of any class
or other equity interests of the Seller;
(g) Any claim of unfair labor practices asserted against the
Seller; any change in the compensation (in the form of salaries, wages,
incentive arrangements or otherwise) payable or to become payable by the Seller
to any of its officers, members, managers, employees, agents or independent
contractors other than customary merit or cost of living increases in accordance
with its usual practices, or any bonus payment or arrangement made to or with
any of such officers, employees, agents or independent contractors; any entering
into any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any officer, member, manager,
employee agent or independent contractor of the Seller except for employment
14
arrangements providing for salary or wages of less than Eighteen Thousand
Dollars ($18,000) per annum and any oral agreement terminable at will by the
Seller;
(h) Any change with respect to the officers or management of
the Seller, any grant of any severance or termination pay to any officer or
employee of the Seller;
(i) Any payment or discharge of a material lien or liability
of the Seller which was not shown on the Financial Statements or incurred in the
ordinary course of business thereafter;
(j) Any obligation or liability incurred by the Seller to any
of its officers, members, managers or employees, or any loans or advances made
by the Seller to any of its officers, members, managers, or employees, except
normal compensation and expense allowances payable to such parties;
(k) Any change in accounting methods or practices, credit
practices or collection policies used by the Seller other than to comply with
new accounting pronouncements;
(l) Any other transaction entered into by the Seller other
than transactions in the ordinary course of business; or
(m) Any agreement or understanding whether in writing or
otherwise, that would result in any of the transactions or events or require the
Seller to take any of the actions specified in paragraphs (a) through (l) above.
5.11 BANKING RELATIONS. All of the arrangements which the Seller has
with any banking institution are described in SCHEDULE 5.11 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
5.12 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY
RIGHTS. All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Seller (the "Proprietary
Rights") are listed in SCHEDULE 5.12 attached hereto. All of the material
patents, registered trademarks and copyrights of the Seller and all of the
material patent applications, trademark registration applications and copyright
registration applications of the Seller have been duly registered in, filed in
or issued by the United States Patent and Trademark Office, the United States
Register of Copyrights or the corresponding offices of other countries
identified on said schedule. Except as set forth in SCHEDULE 5.12: (a) use of
said patents, trade names, trademarks, copyrights or other proprietary rights in
the ordinary course of business as presently conducted does not
15
require the consent of any other person and (b) the Seller has sufficient title
or adequate rights or licenses to use all material patents, trade names,
trademarks, copyrights, or other proprietary rights used by it in its business
as presently conducted free and clear of any attachments, liens, encumbrances or
adverse claims. The Seller has not received written notice that its present or
contemplated activities or products infringe any such patents, trade names,
trademarks or other proprietary rights of others. Except as set forth in
SCHEDULE 5.12: (i) no other person has an interest in or right or license to
use, or the right to license others to use, any of said patents, patent
applications, trade names, trademarks, copyrights or other proprietary rights;
(ii) there are no written claims or demands of any other person pertaining
thereto and no proceedings have been instituted, or are pending or threatened,
which challenge the rights of the Seller in respect thereof; (iii) none of the
patents, trade names, trademarks, copyrights or other proprietary rights listed
in said schedule is subject to any outstanding order, decree, judgment or
stipulation, or is being infringed by others; and (iv) no proceeding charging
the Seller with infringement of any adversely held patent, trade name, trademark
or copyright has been filed or is threatened to be filed.
5.13 TRADE SECRETS AND CUSTOMER LISTS. The Seller has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products and services presently sold, manufactured, licensed, under
development or produced by it, including products licensed from others. Any
payments required to be made by the Seller for the use of such trade secrets,
inventions, customer lists and secret processes are described in SCHEDULE 5.13.
The Seller is not using or in any way making use of any confidential information
or trade secrets of any third party, including without limitation, a former
employer of any present or past employee of the Seller.
5.14 CONTRACTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 5.14 (complete and accurate copies of which have
been delivered to the Buyer), the Seller is not a party to or subject to:
(i) any plan or contract providing for bonuses,
pensions, options, membership interest purchases, deferred compensation,
retirement payments, profit sharing, severance or termination pay, collective
bargaining or the like, or any contract or agreement with any labor union;
(ii) any employment contract or contract for services
which requires the payment of Ten Thousand Dollars ($10,000) or more annually or
which is not terminable at will by the Seller without liability for any penalty
or severance payment;
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(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the ordinary
course for less than One Thousand Dollars ($1,000 each);
(iv) any other contracts or agreements creating any
obligation of One Thousand Dollars ($1,000) or more with respect to any such
contract;
(v) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a particular product
from a supplier;
(vi) any contract or agreement which by its terms
does not terminate or is not terminable by the Seller or any successor or assign
within six (6) months after the date hereof without payment of a penalty;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of business;
(viii) any contract with any sales agent or
distributor of products of the Seller;
(ix) any contract containing covenants limiting the
freedom of the Seller or any of the Members to compete in any line of business
or with any person or entity;
(x) any contract or agreement for the purchase of any
fixed asset for a price in excess of One Thousand Dollars ($1,000) whether or
not such purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee)
(excluding shrink wrapped, off-the-shelf software products); provided that a
complete list of all software currently owned, licensed or used by the Seller
and set forth in SCHEDULE 5.14 shall satisfy the disclosure obligation of the
Seller for purposes hereof;
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing of money
and any related security agreement;
(xiii) any contract or agreement with any officer,
employee, member or manager of the Seller or with any persons or organizations
controlled by or Affiliated with any of them;
(xiv) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
17
(xv) any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any voting
agreements, or other similar arrangements or any membership interest purchase or
repurchase agreements or membership interest restriction agreements.
(b) To the Seller's knowledge, all material contracts,
agreements, leases and instruments to which the Seller is a party or by which
the Seller is obligated are valid and are in full force and effect and
constitute legal, valid and binding obligations of the Seller and the other
parties thereto, enforceable in accordance with their respective terms. Neither
the Seller nor any other party to any contract, agreement, lease or instrument
of the Seller is in default in complying with any provisions thereof, and to the
Seller's knowledge, no condition or event or facts exists which, with notice,
lapse of time or both would constitute a default thereof on the part of either
of the Seller, or on the part of any other party thereto in any such case that
could have a material adverse effect on the properties, assets, financial
condition or prospects of the Seller. SCHEDULE 5.14 indicates whether any of the
agreements, contracts, commitments or other instruments and documents described
therein requires consent or approval to be transferred to the Buyer as a result
of the transactions contemplated herein.
5.15 LITIGATION. SCHEDULE 5.15 hereto lists all currently pending and
to Seller's knowledge threatened litigation and governmental or administrative
proceedings or investigations to which the Seller is a party. Except for matters
described in SCHEDULE 5.15, there is no litigation or governmental or
administrative proceeding or investigation pending or threatened against the
Seller which may have an adverse effect on the properties, assets, business,
financial condition or prospects of the Seller or any of the Members or which
would prevent or hinder the consummation of the transactions contemplated by
this Agreement.
5.16 COMPLIANCE WITH LAWS. The Seller has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the Seller, and except as set forth in SCHEDULE 5.16
hereto, the Seller is currently in compliance in all material respects with all
such statutes, ordinances, orders, rules or regulations, and there is no valid
basis for any claim that such parties are not in compliance with any such
statute, ordinance, order, rule or regulation.
5.17 INSURANCE. SCHEDULE 5.17 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Seller has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and
18
operate) of coverage; and (e) a description of any retroactive premium
adjustments or other loss-sharing arrangements. With respect to each such
insurance policy: (i) the policy is legal, valid, binding, enforceable, and in
full force and effect; (ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby, (iii) neither the
Seller, nor any other party to the policy is in breach or default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy; and (iv) no party to the policy has repudiated any provision
thereof. Since its formation, the Seller has been covered by insurance in scope
and amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period.
5.18 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, product liability, warranty or other similar claims against the
Seller alleging that any of its products or services are defective or fail to
meet any product or service warranties except as disclosed in SCHEDULE 5.18
hereto. The Seller has not received notice of any statements, citations,
correspondence or decisions by any Governmental Entity stating that any product
manufactured, marketed or distributed at any time by the Seller (the "Products")
is defective or unsafe or fails to meet any product warranty or any standards
promulgated by any such Governmental Entity. There have been no recalls ordered
by any such Governmental Entity with respect to any Product. There is no (i)
fact relating to any Product that may impose upon the Seller a duty to recall
any Product or a duty to warn customers of a defect in any Product, (ii) latent
or overt design, manufacturing or other defect in any Product, or (iii)
liability for warranty or other claim or return with respect to any Product
except in the ordinary course of business consistent with the past experience of
the Seller for such kind of claims and liabilities.
5.19 FINDER'S FEES. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Seller.
5.20 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 5.20 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Seller to conduct the Business. The Seller has obtained all the Approvals,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
5.20, none of the Approvals is subject to termination by their express terms as
a result of the execution of this Agreement by the Seller, and no further
Approvals will be required in order to continue to conduct the business
currently conducted by the Seller subsequent to the Closing. Except as disclosed
in SCHEDULE 5.20, the Seller is not subject to nor bound by any agreement,
judgment, decree or order which may materially and adversely affect the
properties, assets, business, financial condition or prospects of the Seller.
5.21 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in
SCHEDULE 5.21 hereto, no officer, employee, member or manager of the Seller and
none of their
19
respective parents, grandparents, spouses, children, siblings or grandchildren
owns directly or indirectly on an individual or joint basis any material
interest in, or serves as an officer or director or in another similar capacity
of, any competitor, supplier or customer of the Seller or any organization,
person or entity with whom the Seller is doing business.
5.22 LISTS OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) SCHEDULE 5.22 hereto contains a list of all current
members and managers of the Seller and a list of all employees and consultants
of the Seller who, individually, have received or are scheduled to receive base
salary from the Seller during the current fiscal year of Eighteen Thousand
Dollars ($18,000) or more. In each case such schedule includes the current job
title and current base salary of each such individual.
(b) SCHEDULE 5.22 sets forth a true and complete list of all
suppliers of the Seller to whom the Seller made payments aggregating Ten
Thousand Dollars ($10,000) or more during the most recent complete fiscal year,
showing, with respect to each, the name, address and dollar volume involved.
5.23 EMPLOYEES; LABOR MATTERS. As of the date hereof, the Seller
employed the number of full-time employees and part-time employees described on
SCHEDULE 5.23. The Seller is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in SCHEDULE 5.23, upon
termination of the employment of any of said employees, the Seller will not be
liable to any of said employees for so-called "severance pay" or any other
payments. Except as set forth in SCHEDULE 5.23 attached hereto or as required by
law, the Seller does not have a policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment. The Seller is in compliance with all applicable laws
and regulations respecting labor, employment, fair employment practices, terms
and conditions of employment, and wages and hours. No charges of employment
discrimination or unfair labor practices have been brought against the Seller,
nor are there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations existing, pending or threatened against or
involving the Seller. There are no grievances, complaints or charges that have
been filed against the Seller under any dispute resolution procedure (including,
but not limited to, any proceedings under any dispute resolution procedure under
any collective bargaining agreement). No collective bargaining agreements are in
effect or are currently being or are about to be negotiated by the Seller. The
Seller has not received written notice of pending or threatened changes with
respect to the management or key supervisory personnel of the Seller.
5.24 CUSTOMERS. SCHEDULE 5.24 sets forth any customer who accounted for
more than 5% of the sales of the Seller for the most recent complete fiscal year
of the Seller (collectively, the "Customers"). No Customer has given notice to
the Seller of its
20
intention to terminate, to cancel or otherwise materially and adversely modify
its relationship with the Seller or to decrease materially or limit its usage or
purchase of the services or products of the Seller.
5.25 Y2K. Except as disclosed on SCHEDULE 5.25, the Seller has taken
all commercially reasonable action to assess, evaluate, test and correct all of
the hardware, software, embedded microchips and other processing capabilities of
computer and telecommunication systems it uses, either directly or indirectly,
including but not limited to computerized services provided by third parties
such as billing and payroll services, to ensure that such systems will be able
to function accurately and without interruption or ambiguity using date
information before, during and after January 1, 2000.
5.26 EMPLOYEE BENEFITS.
(a) The Seller has never maintained or been a party to any
Employee Benefit Plan.
(b) The Seller has never contributed, or ever has been
required to contribute to any Employee Benefit Plan which is in Employee Pension
Benefit Plan.
(c) The Seller has no never contributed to, or ever has been
required to contribute to any Multiemployer Plan or has any liability (including
withdrawal liability) under any Multiemployer Plan.
(d) The Seller does not maintain or contribute to, nor has
ever maintained or contributed to, nor has ever been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Internal Revenue Code Section 4980B).
5.27 ENVIRONMENT, HEALTH, AND SAFETY.
(a) To Seller's knowledge, (without any independent
investigation) the Seller has complied with all Environmental, Health and Safety
Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against them
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, the Seller has obtained and been in compliance with all of
the terms and conditions of all permits, licenses, and other authorizations
which are required under, and have complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all Environmental, Health, and
Safety Laws.
(b) To Seller's knowledge, (without any independent
investigation) the Seller has no Liability (and the Seller has not handled or
disposed of any substance, arranged for the disposal of any substance, exposed
any employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner
21
that could form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Seller
giving rise to any liability) for damage to any site, location, or body of water
(surface or subsurface), for any illness of or personal injury to any employee
or other individual, or for any reason under any Environmental, Health, and
Safety Law.
(c) To Seller's knowledge, (without any independent
investigation) all properties and equipment used in the Seller have been free of
asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
5.28 DISCLOSURE. This Agreement, including the Schedules hereto
prepared by the Seller, together with the other information furnished to the
Buyer by the Seller in connection herewith, do not contain an untrue statement
of material fact or omit to state a material fact necessary to make the
statements herein and therein, in light of the circumstances under which they
were made, not misleading.
6. COVENANTS OF THE SELLER AND THE COMPANY. The Seller and the Members
jointly and severally covenant and agree as set forth in this SECTION 6.
6.1 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, the Members will cause the Seller to do and the Seller and the
Members will do the following, unless the Buyer shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course
consistent with past practices, refrain from changing or introducing any method
of management or operations except in the ordinary course of business and in a
manner consistent with past practices and will not use any cash generated by the
Seller other than to pay ordinary course business expenses (including Member's
salaries) consistent with past practices;
(b) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing or selling any capital asset of the Seller and from mortgaging,
pledging, subjecting to a lien or otherwise encumbering any of its properties or
assets;
(c) refrain from incurring or modifying any contingent
liability as a guarantor or otherwise with respect to the obligations of others,
and from incurring or modifying any other contingent or fixed obligations or
liabilities except in the ordinary course of business and in a manner consistent
with past practices;
(d) refrain from making any change in the Seller's formation
documents, operating agreement or authorized or issued membership interest or
from acquiring any securities issued by any other business organization other
than short-term investments in the ordinary course of business;
22
(e) refrain from declaring, setting aside or paying any
dividend, making any other distribution in respect of the Seller's membership
interest, making any direct or indirect redemption, purchase or other
acquisition of the Seller's membership interest, issuing, granting, awarding,
selling, pledging, disposing of or encumbering or authorizing the issuance,
grant, award, sale, pledge, disposition or encumbrance of any membership
interest of, or securities convertible or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any membership
interest of the Seller or entering into any agreement or commitment with respect
to any of the foregoing;
(f) refrain from making any change in the compensation payable
or to become payable to any of its officers, members, managers, employees or
agents, except for scheduled increases in salary or wages in the ordinary course
of business that are consistent with past practices, or granting any severance
or termination pay to, or establishing, adopting or entering into any agreement
or arrangement providing for severance or termination pay to, or entering into
or amending any employment, or other agreement or arrangement with, any officer,
member, manager, or other employee of the Seller or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, membership interest option or purchase, insurance,
pension, retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing
arrangements or modifying, amending or terminating any of its contracts except
in the ordinary course of business, or waiving, releasing or assigning any
material rights or claims;
(h) use reasonable efforts to prevent any change with respect
to its management and supervisory personnel or banking arrangements;
(i) maintain its business organization and preserve the
goodwill of and business relationships with all suppliers, customers and others
having business relations with it, and to maintain its properties and
facilities, including those held under leases, in as good a working order and
condition as on the date hereof, ordinary wear and tear excepted;
(j) maintain at all times all insurance of the kind, in the
amount and with the insurers set forth in SCHEDULE 5.17 or equivalent insurance
with any substitute insurers approved by the Buyer;
(k) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
(l) refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions; and
23
(m) refrain from using any cash generated by the Business
other than to pay ordinary recurring expenses; and
(n) permit the Buyer and its authorized representatives
(including without limitation the Buyer's attorneys, accountants, and pension
consultants) to have full access to all of its properties, assets, books,
records, business files, executive personnel, tax returns, contracts and
documents and furnish to the Buyer and its authorized representatives such
financial and other information with respect to its business or properties as
Buyer may from time to time reasonably request.
6.2 CONSENTS AND APPROVALS. The Seller shall use all commercially
reasonable efforts to obtain or cause to be obtained prior to the Closing Date
all necessary consents and approvals to the performance of the obligations of
the Seller and the Members under this Agreement, including, without limitation,
the consents and authorizations described in SCHEDULE 5.14, and such other
authorizations, waivers, approvals, consents and permits as set forth in
SCHEDULE 6.2 as may be necessary to transfer to the Buyer and/or to retain in
full force and effect without penalty subsequent to the Closing Date all
contracts, permits, licenses and franchises of or applicable to the Business.
6.3 EXCLUSIVE DEALING. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to SECTION 10 the
Seller shall not permit any officer, member, manager, employee or agent to,
directly or indirectly, (i) take any action to solicit, initiate submission of
or encourage, proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a portion of
the assets of the Seller, or any equity interest in the Seller or any merger or
business combination with the Seller (an "Acquisition Proposal"), (ii)
participate in any discussions or negotiations regarding an Acquisition Proposal
with any person or entity other than Buyer and its representatives, or (iii)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do any of the foregoing.
6.4 NO SALES OF MEMBERSHIP INTERESTS. Between the date of this
Agreement and the Closing Date, the Seller shall not sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any membership
interests owned beneficially or of record by the Members, nor grant any right of
any kind to acquire, dispose of, vote or otherwise control in any manner such
membership interests; provided, however, that notwithstanding anything to the
contrary stated herein, any transferee, executor, heir, legal representative,
successor or assign of the Members shall be bound by this Agreement.
6.5 NOTIFICATION OF CERTAIN MATTERS. The Seller shall give prompt
notice to the Buyer of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Seller and the Members contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (ii)
any material failure of the Seller or the Members to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by
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such person hereunder. The delivery of any notice pursuant to this SECTION 6.5
shall not be deemed to (i) modify the representations or warranties hereunder of
the party delivering such notice, (ii) modify the conditions set forth in
SECTION 8 or elsewhere or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
6.6 AMENDMENT OF SCHEDULES. The Seller and the Members agree that, with
respect to the representations and warranties contained in this Agreement, the
Seller and the Members shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described on the
Schedules. The Seller and the Members understand and agree that, as of the
Closing Date, they will be required to execute a "bring-down" certificate which
shall state that all representations and warranties in this Agreement are true
and correct as of the Closing Date. To the extent that any such representation
and warranty is qualified by disclosure on a schedule which changes after the
date hereof and prior to Closing, the Seller and the Members agree to notify the
Buyer of such changes in writing and to summarize all such changes via the
bring-down certificate on the Closing Date. Notwithstanding the foregoing
sentence, the truth and accuracy of any and all representations and warranties
of the Seller and the Members as of the date of this Agreement and as of the
Closing Date shall be a precondition to the consummation of this transaction by
the Buyer, and Buyer shall not be deemed to have consented to any amendment or
supplement to a Schedule prepared by the Seller and the Members after the date
hereof or to have waived any of its rights or remedies for breach hereof, with
respect to any matter hereafter arising or discovered that constitutes or
reflects an event or occurrence that would be reasonably likely to have a
material adverse effect on the Seller or the Members, unless the Buyer
acknowledges and consents in writing to such amendment or supplement.
6.7 FURTHER ASSURANCES. The Seller and the Members hereto agree to
execute and deliver, or cause to be executed and delivered, such further
instruments or documents or take such other action as may be reasonably
necessary or convenient to carry out the transactions contemplated hereby.
6.8 EMPLOYEES. As of the Closing Date, the Seller shall have terminated
all of its employees and the Buyer shall have hired certain of such former
employees as it may, in its sole discretion, need to operate the Business,
provided, however, that the Buyer shall have no obligation to hire any such
employees (other than pursuant to the Employment Agreements).
7. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE PARENT. As of
the date hereof, the Buyer and the Parent hereby represents and warrants to the
Seller as set forth in this SECTION 7.
7.1 ORGANIZATION OF THE BUYER. Each of Buyer and the Parent is a
corporation duly organized, validly existing and in good standing under the laws
of its respective
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state of incorporation with full corporate power and authority to conduct its
businesses in the manner as now conducted.
7.2 AUTHORITY. All necessary corporate action has been taken by the
Buyer and the Parent to authorize the execution, delivery and performance of
this Agreement and each agreement, document and instrument to be executed and
delivered by the Buyer and the Parent pursuant to this Agreement. This Agreement
and each agreement, document and instrument to be executed and delivered by the
Buyer and the Parent pursuant to this Agreement constitutes, or when executed
and delivered by the Buyer and the Parent will constitute, valid and binding
obligations of the Buyer and the Parent enforceable in accordance with their
respective terms.
7.3 NO CONFLICTS. The execution, delivery and performance by the Buyer
and the Parent of this Agreement and each such other agreement, document and
instrument: (i) does not and will not violate any provision of the Buyer or the
Parent's respective Certificate of Incorporation or bylaws; and (ii) will not
result in a breach of, constitute a default under, accelerate any obligation
under, or give rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Buyer or the Parent
is a party or by which the property of the Buyer and the Parent is bound or
affected, or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of the
Buyer and the Parent, except where such breach, default, acceleration or right
of termination would not have a material adverse effect on the properties,
assets, business, financial condition or prospects of the Buyer and the Parent,
and would not result in the creation or imposition of any mortgage, pledge,
lien, security interest or other charge or encumbrance on any of the assets of
the Buyer and the Parent.
7.4 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or to the knowledge of the
Buyer or the Parent threatened against the Buyer or the Parent which may have an
adverse effect on the properties, assets, business, financial condition or
prospects of the Buyer or the Parent or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
7.5 COMPLIANCE WITH LAWS. Neither the Buyer nor the Parent has not
received any notice of a violation or alleged violation of applicable statutes,
ordinances, orders, rules and regulations promulgated by any federal, state,
municipal or other governmental authority, which violation or alleged violation
would have a material adverse effect on the business of the Buyer or the Parent.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER. The
obligations of the Buyer and the Parent to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment, prior to or at
the Closing, of the conditions set forth in this SECTION 8.
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8.1 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date, the
Buyer shall have had sufficient time to review the management-prepared balance
sheets of the Seller as of the last day of the month ended immediately prior to
the Closing Date and the management-prepared statements of income, cash flow and
members' equity for the period then ended, disclosing no material change in the
financial condition of the Seller or the results of its operations from the
Balance Sheet Date, and the Buyer shall be satisfied in all respects with such
financial information.
8.2 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial position or business of the Seller shall have
occurred and the Seller shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, since the
Balance Sheet Date, which change, loss or damage materially affects or impairs
the ability of the Seller to conduct its business; and the Buyer shall have
received on the Closing Date a certificate signed by the Manager of the Seller
to such effect.
8.3 DUE DILIGENCE AND REGULATORY REVIEW. The Buyer and KPMG LLP shall
have completed to its satisfaction a due diligence investigation of the Seller
and its prospects, business, assets, contracts, rights, liabilities and
obligations, including a review of the practices and procedures of the Seller
with respect to compliance with contracts and federal, state and local laws and
regulations governing the operations of the Seller. Such review shall be
satisfactory in all respects to the Buyer, in its sole discretion.
8.4 OPINION OF COUNSEL. The Buyer shall have received an opinion from
counsel to the Seller and the Members, dated the Closing Date, in form and
substance satisfactory to the Buyer, to the effect that:
(a) the Seller has been duly organized and is legally existing
under the laws of the State of Connecticut.
(b) the authorized and outstanding membership interests of the
Seller is as represented by the Members in this Agreement and each membership
interest has been duly and validly authorized and issued, is fully paid and
nonassessable and was not issued in violation of the preemptive rights of any
member;
(c) to the knowledge of such counsel (which knowledge may be
based on a certificate of the Members and the Seller), the Seller does not have
any outstanding options, warrants, calls, conversion rights or other commitments
of any kind to issue or sell any of its membership interests;
(d) this Agreement has been duly authorized, executed and
delivered by the Seller and the Members and constitutes a valid and binding
agreement of the Seller and the Members enforceable against them in accordance
with its terms except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar laws
relating to or affecting the rights of creditors.
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(e) to the knowledge of such counsel (which knowledge may be
based on a certificate of the Members and the Seller), except to the extent set
forth on SCHEDULE 5.15, there are no claims, actions, suits or proceedings (i)
pending, or (ii) threatened against or affecting the Seller or any of the
Members, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(f) no notice to, consent, authorization, approval or order of
any court or governmental agency or body or to the knowledge of such counsel
(which knowledge may be based on a certificate of the Members and the Seller) of
any other third party is required in connection with the execution, delivery or
consummation of this Agreement by the Seller and the Members or for the transfer
to the Buyer of the Assets;
(g) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Seller's Articles of
Organization or the operating agreement of the Seller or to the knowledge of
such counsel (which knowledge may be based on a certificate of the Members and
the Seller) of any lease, instrument, license, permit or any other agreement to
which the Seller is a party or by which the Seller or its members are is bound;
and
(h) any other matters incident to the matters set forth herein
as reasonably required by the Buyer to which counsel is able to opine.
8.5 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Seller shall have
delivered to the Buyer a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Seller arising since the Balance Sheet
Date; (ii) showing all material contracts and agreements, together with copies
thereof, entered into by the Seller since the Balance Sheet Date and (iii) all
outstanding payables of the Seller which the Seller shall satisfy in accordance
with SECTION 3.3(b).
8.6 LEGAL EXISTENCE CERTIFICATES; CERTIFIED COPY OF THE ARTICLES OF
ORGANIZATION. The Seller shall have delivered to the Buyer certificates, dated
as of a date no earlier than thirty (30) days prior to the Closing Date, duly
issued by the Secretary of State of Connecticut and the Department of Revenue
Services of the State of Connecticut and of any other state in which the Seller
is authorized to do business, showing that the Seller is legally existing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for the Seller for all periods prior to the dates of such certificates
have been filed and paid. The Seller shall also have delivered to the Buyer
prior to the Closing a recent copy of the Seller's Articles of Organization and
all amendments thereto duly certified by the Secretary of State of Connecticut.
8.7 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Seller and the Members contained in SECTION 5 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect
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as though made on and as of the Closing Date; the Members shall, on or before
the Closing Date, have performed and satisfied all agreements and conditions
hereunder which by the terms hereof are to be performed and satisfied by the
Seller and the Members on or before the Closing Date; and the Seller and the
Members shall have delivered to the Buyer a certificate dated the Closing Date
signed by the Seller and Members to the foregoing effect.
8.8 APPROVALS AND CONSENTS. The Seller shall have made all filings with
and notifications of governmental authorities, regulatory agencies and other
entities required to be made by them in connection with the execution and
delivery of this Agreement, the performance of the transactions contemplated
hereby and the continued operation of the Business subsequent to the Closing
Date, and the Seller and the Buyer shall have received all required
authorizations, waivers, consents and permits to permit the consummation of the
transactions contemplated by this Agreement, in form and substance reasonably
satisfactory to the Buyer, from all third parties, including, without
limitation, approvals required under federal and state securities laws and/or
the securities and Exchange Commission, state "Blue Sky" laws, other applicable
governmental authorities and regulatory agencies, lessors, lenders and contract
parties, required in connection with this Agreement or the Seller's permits,
leases, licenses and franchises, to avoid a breach, default, termination,
acceleration or modification of any material agreement, contract, instrument,
mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award as a result of the execution or
performance of this Agreement, or otherwise in connection with the execution and
performance of this Agreement.
8.9 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Buyer make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
8.10 PROCEEDINGS SATISFACTORY TO THE BUYER. All proceedings to be taken
by the Seller and the Members in connection with the consummation of the Closing
on the Closing Date and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transaction contemplated hereby reasonably requested by the Buyer shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.
8.11 EMPLOYMENT AGREEMENTS. The Employment Agreements shall be executed
by the Buyer and the respective Members.
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8.12 ESCROW AGREEMENT. The Escrow Agreement shall be executed by the
Seller and the Members.
8.13 NAME CHANGE, TELEPHONE NUMBERS AND POST OFFICE BOX ADDRESSES. The
Seller will have executed and delivered all such documents for filing as may be
required to change the Company name of the Seller and any and all fictitious
business names to other name(s) bearing no similarity thereto, including but not
limited to duly executed amendments to the Articles of Organization of the
Seller. From and after the Closing Date, neither the Seller nor the Members
shall use such names or any names similar thereto, and shall sign such consents
and take such other action as the Buyer may request in order to permit the Buyer
to use the Seller's name and transfer telephone numbers and post office boxes
addresses, if any.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER. The
obligations of the Seller to consummate this Agreement and the transactions
contemplated hereby are subject to the fulfillment, prior to or at the Closing
Date, of the following conditions (any one or more of which may be waived in
whole or in part by the Seller):
9.1 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Buyer contained in SECTION 7 shall be true and correct in
all material respects on and as of the Closing Date, with the same effect as
though made on and as of the Closing Date; the Buyer shall, on or before the
Closing Date, have performed and satisfied all agreements and conditions
hereunder which by the terms hereof are to be performed and satisfied by the
Buyer on or before the Closing Date; and the Buyer shall have delivered to the
Seller a certificate signed by the President of the Buyer and dated as of the
Closing Date certifying to the foregoing effect.
9.2 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Seller make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
9.3 EMPLOYMENT AGREEMENTS. The Employment Agreements shall be executed
by the Buyer and the respective Members.
9.4 ESCROW AGREEMENT. The Escrow Agreement shall be executed by the
Buyer.
10. TERMINATION OF AGREEMENT; EFFECT OF TERMINATION.
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10.1 TERMINATION. This Agreement may be terminated any time prior to
the Closing Date solely by:
(a) mutual consent of the Seller and the Members and the board
of directors of the Buyer;
(b) either by the Seller on the one hand, or by the Buyer on
the other hand, if
(i) the transactions contemplated by this Agreement
to take place at the Closing shall not have been consummated by December 30,
1999], unless the failure of such transactions to be consummated is due to the
willful failure of the party seeking to terminate this Agreement to perform any
of its obligations under this Agreement to the extent required to be performed
by it prior to or on the Closing Date; or
(ii) if a material breach or default shall be made by
the other party in the observance of or in the due and timely performance of any
of the covenants or agreements contained herein, and the curing of such default
shall not have been made on or before the Closing Date.
10.2 LIABILITIES IN THE EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
10.3 TIME IS OF THE ESSENCE. Time is of the essence with respect to the
termination provisions of this SECTION 10, unless waived by the Buyer.
11. NON-COMPETITION. For a period of three (3) years from and after the
Closing Date, the Seller and the Members shall not directly or indirectly, (i)
seek, obtain or accept a "Competitive Position" in the "Restricted Territory"
with a "Competitor" of the Company (as such terms are hereafter defined), or
(ii) solicit, directly or indirectly, any customers, clients, accounts,
officers, employees, agents or representatives of the Seller, Buyer, the Parent,
or its Affiliates.. For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged, wholly or partly, in the business of
selling internet access service, web site design or web hosting services or in
any related business which the Buyer, the Parent and/or their Affiliates are
engaged in or actively plan to engage in during the term of this covenant; the
"Restricted Territory" means the Xxx Xxxxxxx xxxxxx, Xxx Xxxx, Xxx Xxxxxx,
Xxxxxxxxxxxx and Delaware and any other states which the Buyer, the Parent or
its Affiliates are doing business; a "Competitive Position" means any employment
with any Competitor of the Company or self-employment whereby Seller or the
Member(s) will use or are likely to use any Confidential Information (as defined
herein), or whereby the Member(s) has duties for such Competitor that are the
same or substantially similar to those performed by such
31
Member for the Seller prior to the Closing and/or under the terms of such
Member's employment agreement with the Buyer. Nothing contained in this SECTION
10 is intended to prevent the Members or the Seller from investing in stock or
other securities listed on a national securities exchange or actively traded on
the over the counter market or any corporation engaged, wholly or partly, in the
sale of telecommunications products or services; provided, however, that the
Member(s) and members of such Member's immediate family shall not, directly or
indirectly, hold more than a total of two percent (2%) of all issued and
outstanding stock or other securities of any such corporation. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this Section is invalid or unenforceable, the parties hereto agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
12.1 THE SELLER AND THE MEMBERS. The Seller and the Members recognize
and acknowledge that they have had in the past, currently have and in the future
may have access to certain confidential information ("Buyer's Confidential
Information") relating to the Business and the Buyer and its Affiliates,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Seller
and the Buyer and its Affiliates. The Seller and the Members agrees that they
will not use or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of the Seller and its Affiliates who
need to know such information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
and (b) following the Closing, such information may be disclosed by the Seller
as is required in the course of performing his or her duties for the Buyer
unless (i) such information becomes known to the public generally through no
breach by the Seller or the Members of this covenant, (ii) disclosure is
required by law or the order of any governmental authority under color of law or
is necessary in order to secure a consent or approval to consummate the
transactions contemplated hereby, provided, that prior to disclosing any
information pursuant to this clause (ii), the Seller or the Members shall give
prior written notice thereof to the Buyer and subject to the limitations of such
law or order of governmental authority provide the Buyer with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the same prior disclosure set forth immediately above
is given. In the event of a breach or threatened breach by the Seller or the
Members of the provisions of this Section, the Buyer shall be entitled to an
injunction restraining the Seller from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Buyer from pursuing any other
32
available remedy for such breach or threatened breach, including but not limited
to the recovery of damages. In the event that the transactions contemplated
herein are not consummated, the Seller and the Members shall return to the Buyer
within a reasonable time all documents containing confidential information about
the Buyer.
12.2 THE BUYER. The Buyer recognizes and acknowledges that it had in
the past and currently has access to certain confidential information ("Seller's
Confidential Information") relating to the Business, such as operational
policies, customer lists, and pricing and cost policies, that are valuable,
special and unique assets of the Business. The Buyer agrees that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not use or disclose such confidential information to its
own benefit except in furtherance of the transactions contemplated by this
Agreement or disclose Seller's Confidential Information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to the Seller and to authorized representatives of the Seller or the
Buyer who need to know such information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, unless (i) such information becomes known to the public
generally through no breach by the Buyer of this covenant, (ii) disclosure is
required by law or the order of any governmental authority under color of law or
is necessary in order to secure a consent or approval to consummate the
transactions contemplated hereby, provided, that prior to disclosing any
information pursuant to this clause (ii), the Buyer shall give prior written
notice thereof to the Seller and provide the Seller with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the same prior disclosure set forth immediately above
is given. In the event of a breach or threatened breach by the Buyer of the
provisions of this Section, the Seller shall be entitled to an injunction
restraining the Buyer from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Seller from
pursuing any other available remedy for such breach or threatened breach,
including but not limited to the recovery of damages. In the event that the
transactions contemplated herein are not consummated, the Buyer shall return to
the Seller within a reasonable time all documents containing confidential
information relating to the Seller, the Members and the Business.
12.3 SURVIVAL. The obligations of the parties under this SECTION 12
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
13. INDEMNIFICATION.
13.1 INDEMNIFICATION BY THE SELLER AND THE MEMBERS. The Seller and the
Members, jointly and severally, on behalf of themselves and their respective
successors, executors, administrators, estates, heirs and permitted assigns,
agree subsequent to the Closing Date to indemnify and hold harmless the Buyer
and its respective officers, directors, employees and agents (individually, a
"Buyer Indemnified Party" and
33
collectively, the "Buyer Indemnified Parties") from and against and in respect
of all losses, liabilities, obligations, damages, deficiencies, actions, suits,
proceedings, demands, assessments, orders, judgments, fines, penalties, costs
and expenses (including the reasonable fees, disbursements and expenses of
attorneys, accountants and consultants) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Buyer Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Seller or the Members in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such
representations or warranties (collectively, "Buyer Representation and Warranty
Claims");
(b) any breach of any covenant or agreement made by the Seller
or the Members in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such covenant or
agreement; or
(c) with respect to taxes of the Seller incurred with respect
to any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor. The term "Pre-Closing Tax Period" shall
mean all taxable periods ending on or before the Closing Date and the portion
(ending on the Closing Date) of any taxable period that includes (but does not
end on) the Closing Date.
Claims under clauses (a) through (c) of this SECTION 13 are hereinafter
collectively referred to as "Buyer Indemnifiable Claims". Neither the Members
nor the Seller shall be obligated to indemnify any Buyer Indemnified Party
unless and until the cumulative amount of losses exceeds Ten Thousand Dollars
($10,000) (the "Indemnity Threshold") whereupon the full amount of such losses
shall be recoverable in accordance with the terms hereof. Notwithstanding the
foregoing sentence, the Indemnity Threshold shall not apply to liability arising
from (i) any matter relating to the Purchase Price adjustments set forth in
Section 3.3 or (ii) fraud.
13.2 NOTICE; DEFENSE OF CLAIMS.
Promptly after receipt by a Buyer Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Buyer Indemnified Party shall give notice thereof in writing to
the Seller and the Members, but the omission to so notify the Seller and the
Members promptly will not relieve the Seller from any liability except to the
extent that the Seller shall have been prejudiced as a result of the failure or
delay in giving such notice. Such notice shall state the information then
available regarding the amount and nature of such claim, liability or
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expense and shall specify the provision or provisions of this Agreement under
which the liability or obligation is asserted. If within twenty (20) days after
receiving such notice the Seller and the Members give written notice to the
Buyer Indemnified Party stating that (i) it would be liable under the provisions
hereof for indemnity in the amount of such claim if such claim were successful
and (ii) that it disputes and intends to defend against such claim, liability or
expense at its own cost and expense, then counsel for the defense shall be
selected by the Seller and the Members (subject to the consent of the Buyer
Indemnified Party which consent may not be unreasonably withheld) and the Buyer
Indemnified Party shall not be required to make any payment with respect to such
claim, liability or expense as long as the Seller and the Members are conducting
a good faith and diligent defense at their own expense; provided, however, that
the assumption of defense of any such matters by the Seller and the Members
shall relate solely to the claim, liability or expense that is subject or
potentially subject to indemnification. The Seller and the Members shall have
the right, with the consent of the Buyer Indemnified Party, which consent shall
not be unreasonably withheld, to settle any Buyer Indemnified Claims by third
parties which are susceptible to being settled provided its obligation to
indemnify the Buyer Indemnified Party therefor will be fully satisfied. The
Seller and the Members shall keep the Buyer Indemnified Party apprised of the
status of the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the Buyer Indemnified Party with all documents
and information that the Buyer Indemnified Party shall reasonably request and
shall consult with the Buyer Indemnified Party prior to acting on major matters,
including settlement discussions. Notwithstanding anything herein stated, the
Buyer Indemnified Party shall at all times have the right to fully participate
in such defense at its own expense directly or through counsel; provided,
however, if the named parties to the action or proceeding include both the
Seller and the Buyer Indemnified Party and representation of both parties by the
same counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for the Buyer Indemnified Party shall
be paid by the Seller and the Members. If no such notice of intent to dispute
and defend is given by the Seller and the Members, or if such diligent good
faith defense is not being or ceases to be conducted, the Buyer Indemnified
Party shall, at the expense of the Seller and the Members, undertake the defense
of (with counsel selected by the Buyer Indemnified Party), and shall have the
right to compromise or settle (exercising reasonable business judgment), such
claim, liability or expense. If such claim, liability or expense is one that by
its nature cannot be defended solely by the Seller and/or Members, then the
Buyer Indemnified Party shall make available all information and assistance that
the Seller and/or the Members may reasonably request and shall cooperate with
the Seller in such defense.
14. PARENT STOCK. The Parent Stock to be issued to the Seller hereunder
shall be subject to this SECTION 14.
14.1 LOCK-UP. In addition to applicable federal and state securities
laws restricting the public sale of the Parent Stock to be issued to the Seller
hereunder, the Seller and the Members hereby irrevocably agree that (i) for a
period of one year after the Closing Date they will not offer, pledge, sell or
otherwise transfer directly or indirectly, any of the Parent Stock or enter into
any agreement that transfers, in whole or in part, any
35
of the economic consequences of ownership of the shares of Parent Stock received
hereunder and (ii) for a period of two years after the Closing Date, they will
not offer, pledge, sell or otherwise transfer, directly or indirectly, or enter
into any agreement which transfers, in whole or in part, the economic
consequences of ownership of more than fifty percent (50%) of the shares of
Parent Stock received hereunder (each such restrictions adjusted for any stock
splits, recapitalizations, mergers or other similar events). The Seller and the
Members agree that the foregoing shall be binding upon the Seller, the Members
and their respective successors, assigns, heirs, and personal representatives.
14.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Seller and the Members
acknowledge and agree that the shares of Parent Stock to be delivered to the
Seller pursuant to this Agreement have not been and will not be registered under
the Securities Act of 1933, as amended (the "Act") and therefore may not be
resold without compliance with the Act. The Sellers and Members represent and
warrant that the Parent Stock to be acquired by the Seller and the Members
pursuant to this Agreement is being acquired solely for their own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Seller and
the Members covenant, warrant and represent that none of the shares of Parent
Stock issued to the Seller will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all of the applicable provisions of the Act and the rules and regulations
of the Securities and Exchange Commission and applicable state securities laws.
14.3 ABLE TO BEAR RISK; SOPHISTICATED INVESTORS; INFORMATION STATEMENT.
The Seller and each of the Members jointly and severally represent and warrant
that they are able to bear the economic risk of an investment in Parent Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment. Each of the Members represents and warrants that such Member is
an "accredited investor" within the meaning of Regulation D of the Act. They
further represent and warrant that they (i) fully understand the nature, scope
and duration of the limitations on transfer contained in this Agreement; (ii)
have received a copy of the Company's information statement dated November 30,
1999 and the supplement dated December 8, 1999 (collectively, the "Information
Statement"); and (iii) have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits and risks of the
proposed investment and therefore have the capacity to protect their own
interests in connection with the acquisition of the Parent Stock. The Seller and
each of the Members represent and warrant that they have had an adequate
opportunity to ask questions and receive answers from the officers of the Parent
concerning any and all matters relating to the acquisition of Parent Stock as
contemplated by this Agreement including, without limitation, information
regarding the business of the Parent and its Affiliates and information
disclosed in the Information Statement. The Seller and each of the Members have
asked any and all questions in the nature described in the preceding sentence
and all questions have been answered to their satisfaction.
14.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Seller and/or the Members hereunder will bear legends
substantially in
36
the form set forth below and containing such other information as the Parent may
deem appropriate. References in such legend to "THE COMPANY" shall refer to the
Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY) OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH REGISTRATION
IS NOT REQUIRED.
THESE SHARES ARE FURTHERMORE SUBJECT TO A LOCK-UP AGREEMENT CONTAINED
IN SECTION 14 OF THAT CERTAIN ASSET PURCHASE AGREEMENT WITH THE COMPANY
DATED AS OF _________________ PURSUANT TO WHICH THE HOLDER OF THIS
CERTIFICATE HAS AGREED NOT TO OFFER, PLEDGE, SELL OR OTHERWISE TRANSFER
DIRECTLY OR INDIRECTLY THE SECURITIES REPRESENTED BY THIS CERTIFICATE
UNTIL ________________________. A COPY OF THE LOCK-UP AGREEMENT MAY BE
OBTAINED BY CONTACTING THE SECRETARY OF THE COMPANY.
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
15. PUBLICITY; SECURITIES LAWS. The Seller and the Members acknowledge
that the Buyer is a subsidiary of a publicly held company that is therefore
subject to certain disclosure requirements under federal securities laws. The
Seller, the Members and their representatives shall not directly or indirectly,
make any public comment, statement or communication with respect to, or
otherwise disclose or permit the disclosure of the existence of discussions
regarding, the Agreement between the parties or any of the terms, conditions or
other aspects of the Agreement. The Seller further understands that this
Agreement represents information concerning the Buyer which has not been
previously disclosed to the public and which may be material, all as determined
in accordance with applicable laws, rules and regulations of the United States
and the several states concerning securities (collectively, the "Securities
Laws"). The Seller and the Members agree not to take any action in connection
with this Agreement in violation of the Securities Laws, including but not
limited to trading in the common stock of the Parent while in possession of
material non-public information.
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16. EXPENSES. Each party shall be responsible for its own
transaction-related fees and expenses incurred in connection with this Agreement
(including without limitation legal, accounting, and consulting fees and
expenses); provided, however, that in the event of a breach of the Agreement by
any party hereunder, the non-breaching party shall be entitled to recover all of
its reasonable costs incurred in pursuing the transactions contemplated by this
Agreement, including without limitation, legal and accounting fees and expenses.
17. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement and the
schedules and exhibits attached hereto constitute the entire agreement between
the parties pertaining to the subject matter contained in it and supersedes all
prior and contemporaneous agreement, representations and understandings of the
parties. No supplement, modification, or amendment of this Agreement will be
binding unless executed in writing by all of the parties. No waiver of any of
the provisions of this Agreement will be effective unless in writing; no waiver
will constitute a waiver of any other provision; and no waiver of a breach of
any provision of this Agreement will operate to waive any subsequent breach.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or Liability of any third persons to any party to this
Agreement, nor will any provision give any third persons any right of
subrogation or action against any party to this Agreement.
20. SUCCESSORS AND ASSIGNS. No assignment or transfer of the Seller or
the Members of their respective rights shall be made without the prior written
consent of the Buyer, which consent may be withheld in its sole discretion. This
Agreement will be binding on, and will inure to the benefit of, the parties to
it and their respective heirs, executors, administrators, permitted successors
and assigns.
21. FURTHER ASSURANCES. The Members from time to time will execute and
deliver and cause the Seller to execute and deliver such additional documents
and instruments and take such additional actions as may be necessary to carry
out the transactions contemplated by this Agreement. If requested by the Buyer,
the Seller and the Members will prosecute or otherwise enforce in its own name
for the benefit of the Buyer any claims, rights or benefits that are transferred
to the Buyer under this Agreement and that require prosecution or enforcement in
the Seller's name. Any prosecution or enforcement of claims, rights or benefits
under this SECTION 21 will be solely at the Buyer's expense unless the
prosecution or enforcement is made necessary by a breach of this Agreement by
the Seller.
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22. SURVIVAL. All representations, warranties, covenants and agreements
of the parties contained in this Agreement, or in any instrument, certificate,
or opinion provided for in it, shall survive the Closing (even if the damaged
party knew or had reason to know of any misrepresentation or breach of warranty
at the time of Closing) and continue in full force and effect forever thereafter
(subject to any applicable statutes of limitation or repose).
23. NOTICES. Any notice, consent, approval or other communication
required or permitted hereunder will be in writing and will be given (i) by
delivery in person, (ii) by certified mail, return receipt requested, postage
prepaid, (iii) by commercial overnight courier, fees prepaid, or (iv) by
facsimile transmission (with telephone confirmation of receipt), as follows:
(a) If to the Seller and/or the Members:
Cyberzone, LLC
Xxxxx 000
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx, CEO
Phone: (000) 000-0000
Fax: (000) 000-0000
Xxxx Xxxxxxx and Xxxxxxxxx Xxxxxx
000 Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Phone: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxx, LLP
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
(b) If to the Buyer:
BOL Acquisition Co. VII, Inc.
X.X. Xxx 0000
Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, President
Phone: (000) 000-0000
Fax: (000) 000-0000
39
With a copy to:
Xxxxx & Xxxxxxx, LLP
000 Xxxxx Xxxx Xxxxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
or to such other address for any of the above as may be designated by notice to
the others. Any such notice or other communication will be considered to have
been given (i) on the date of delivery in person, (ii) on the fifth day after
mailing by certified mail, provided that receipt of delivery is confirmed in
writing, or (iii) on the first business day following delivery to a commercial
overnight courier, or (iv) on the day of facsimile transmission provided that
the giver of the notice obtains telephone confirmation of receipt promptly.
24. ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES. Each party
hereto agrees that any dispute regarding this Agreement (except for a dispute
regarding Disputed Amounts under SECTION 3.3(a)) shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
forty-five (45) mile radius of Hartford, Connecticut and the arbitrator(s) shall
apply Connecticut law. Judgment upon any award rendered by the arbitrator(s)
shall be final and may be entered in any court of competent jurisdiction.
Notwithstanding the foregoing, the parties shall have the absolute right to
obtain equitable remedies in any state court of competent jurisdiction in the
State of Connecticut or in any United States District Court in the State of
Connecticut. Each party irrevocably submits to and accepts the exclusive
jurisdiction of each of such courts and waives any objection (including any
objection to venue or any objection based upon the grounds of forum non
conveniens) which might be asserted against the bringing of any such action,
suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party and/or parties in any litigation or arbitration.
25. GOVERNING LAW. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and construed
in accordance with the laws of the State of Connecticut without reference to its
laws governing conflicts of law.
26. PARENT GUARANTY. The Parent guarantees the Buyer's obligations
under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
SELLER:
CYBERZONE, LLC
By: /s/ Xxxx Xxxxxxx
--------------------------------------
Xxxx Xxxxxxx, Chief Executive Officer
MEMBERS:
/s/ Xxxx Xxxxxxx
-----------------------------------------
Xxxx Xxxxxxx
/s/ Xxxxxxxxx Xxxxxx
-----------------------------------------
Xxxxxxxxx Xxxxxx
BUYER:
BOL ACQUISITION CO. VII, INC.
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Xxxx X. Xxxxx, President
PARENT:
XXXXXXXXXXXXX.XXX, INC.
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Xxxx X. Xxxxx, President
41
