EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
by and among
AVTEL COMMUNICATIONS, INC.,
ENERGY TRACS ACQUISITION CORP.
and
MATRIX TELECOM, INC.
August 31, 1999
TABLE OF CONTENTS
Page
ARTICLE 1 PURCHASE AND SALE OF THE COMMON STOCK..........................1
1.1. Purchase of the Common Stock...........................1
1.2. Purchase Price.........................................1
1.3. Payment of Purchase Price..............................2
1.4. Purchase Price Adjustment..............................2
ARTICLE 2 CONDITIONS PRECEDENT TO THE CLOSING............................3
2.1. Conditions Precedent to the Buyer's Obligation.........3
2.2. Conditions Precedent to the Company's and the
Seller's Obligation...................................5
ARTICLE 3 CLOSING........................................................7
3.1. Time and Place of Closing..............................7
3.2. Deliveries of the Buyer................................7
3.3. Deliveries of the Company and the Seller...............7
ARTICLE 4 WARRANTIES AND REPRESENTATIONS OF THE SELLER...................8
4.1. Warranties and Representations of the Seller with
respect to the Seller................................8
4.1.1. Title to Common Stock.......................8
4.1.2. Due Authorization and Execution.............9
4.1.3. Organization................................9
4.1.4. Consents, Violations and Authorizations.....9
4.1.5. Regulatory Compliance.......................9
4.2. Warranties and Representations of the Seller with
respect to the Company...............................10
4.2.1. Organization and Standing...................10
4.2.2. Capitalization..............................10
4.2.3. Consents, Violations and Authorizations.....10
4.2.4. Litigation and Compliance with Laws.........11
4.2.5. Subsidiaries, Investments...................12
4.2.6. Ownership and Use of Tangible Assets........12
4.2.7. Patents, Trademarks, and Other
Intellectual Property.....................13
4.2.8. Financial Statements........................15
4.2.9. Conduct Out of Ordinary Course..............15
4.2.10. Taxes.......................................16
4.2.11. Contracts and Other Agreements..............19
4.2.12. Employee Benefit Matters....................20
4.2.13. Labor Practices.............................22
4.2.14. Brokers; Agents.............................22
4.2.15. Permits and Licenses........................22
4.2.16. Material Suppliers..........................23
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TABLE OF CONTENTS
(continued)
Page
4.2.17. Insurance...................................23
4.2.18. Environmental Matters.......................23
4.2.19. Transactions with Related Parties...........25
4.2.20. Accounts Receivable.........................25
4.2.21. Banks.......................................25
4.2.22. Conflicts of Interest.......................25
4.2.23. Letters of Agency...........................26
4.2.24. No Undisclosed Liabilities..................26
4.2.25. Business Practices..........................26
4.2.26. Year 2000...................................26
4.2.27. Regulatory Compliance.......................27
4.2.28. AvTel Stock Options.........................27
4.2.29. Disclosure..................................27
4.3. Warranties Survive Closing.............................27
ARTICLE 5 WARRANTIES AND REPRESENTATIONS OF THE BUYER....................28
5.1. Warranties and Representations.........................28
5.1.1. Due Authorization and Execution.............28
5.1.2. Organization................................28
5.1.3. Consents, Violations and Authorizations.....28
5.1.4. Investment Representations..................29
5.1.5. Brokers; Agents.............................29
5.1.6. Financial Statements........................29
5.2. Warranties Survive Closing.............................29
ARTICLE 6 COVENANTS......................................................30
6.1. Covenants of the Seller with respect to Itself and
the Company..........................................30
6.1.1. Access......................................30
6.1.2. Records.....................................31
6.1.3. Conduct of the Business of the Company......31
6.1.4. Acquisition Proposals.......................33
6.1.5. Notice of Proceedings.......................34
6.1.6. Noncompetition and Nonsolicitation..........34
6.1.7. AvTel Stock Options.........................36
6.1.8. "Toll Free" Telephone Numbers...............36
6.1.9. MCI WorldCom Inc............................36
6.1.10. Matrix Communications Corporation...........36
6.2. Covenants of the Buyer.................................36
6.2.1. Coast Indemnity.............................36
6.2.2. Business Markets Customers..................37
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TABLE OF CONTENTS
(continued)
Page
6.2.3. Field Force Plan............................37
6.3. Mutual Covenants.......................................37
6.3.1. Cooperation.................................37
6.3.2. Records.....................................37
6.3.3. Regulatory Filings..........................37
6.3.4. Contract Assignments........................38
6.3.5. Reasonable Efforts..........................38
6.3.6. Closing.....................................38
ARTICLE 7 DISCLOSURE SCHEDULE............................................39
7.1. General................................................39
7.2. Disclosure Schedule....................................39
ARTICLE 8 NON-DISCLOSURE.................................................39
8.1. Non-Disclosure of Confidential Information.............39
8.2. Exceptions.............................................39
8.3. Enforcement............................................40
8.4. Ratification of Non-Disclosure Agreement...............40
ARTICLE 9 INDEMNIFICATION................................................40
9.1. Indemnification of the Buyer...........................40
9.2. Indemnification of the Seller..........................40
9.3. Procedure Relative to Indemnification..................40
9.4. Limits on Indemnification Claims.......................41
9.4.1. Basket......................................41
9.4.2. Maximum Amount of Indemnification...........42
9.5. Sole Remedy; Termination...............................42
ARTICLE 10 TAX MATTERS....................................................42
10.1. Section 338 Election...................................42
10.2. Tax Indemnification....................................43
10.3. Preparation of Tax Returns; Payment of Taxes...........44
10.4. Tax Proceedings........................................45
10.5. Payment of Indemnification.............................45
10.6. Assistance and Cooperation.............................45
10.7. Tax Sharing Agreements.................................46
10.8. Transfer Taxes.........................................46
10.9. Survival of Obligations................................46
10.10. Tax Refund.............................................47
10.11. Provisions of this Article to Control..................47
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 11 TERMINATION....................................................47
11.1. Termination............................................47
11.2. Effect of Termination..................................47
ARTICLE 12 MISCELLANEOUS..................................................48
12.1. Expenses...............................................48
12.2. Notices................................................48
12.3. Entire Agreement.......................................49
12.4. Assignment.............................................49
12.5. Binding Effect.........................................50
12.6. Section Headings.......................................50
12.7. Severability...........................................50
12.8. Applicable Law.........................................50
12.9. Counterparts...........................................50
12.10. Passage of Title.......................................50
12.11. Use of Terms...........................................50
12.12. Facsimile Copy.........................................50
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EXHIBITS
Exhibit 2.1(e) - Opinion of the Seller
Exhibit 6.1.6(b) - Nonsolicitation
Exhibit 6.3.4(i) - Assignment from the Company to the Seller
Exhibit 6.3.4(ii) - Assignment from the Seller to the Company
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into this August 31, 1999, by and among AvTel Communications, Inc.,
a Delaware corporation (the "Seller"), Energy TRACS Acquisition Corp., a
Delaware corporation (the "Buyer"), and Matrix Telecom, Inc., a Texas
corporation (including its subsidiaries, the "Company").
BACKGROUND
WHEREAS, the Seller owns 100% of the outstanding common stock of the
Company; and
WHEREAS, the Buyer desires to acquire from the Seller and the
Seller desires to sell to the Buyer, 100% of the common stock of the
Company (the "Common Stock"), on the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, the Buyer, the Seller and the Company, in
consideration of the mutual promises hereinafter set forth, do hereby
promise and agree as follows:
ARTICLE 1
PURCHASE AND SALE OF THE COMMON STOCK
1.1. Purchase of the Common Stock. Subject to the terms and
conditions set forth in this Agreement, the Seller shall sell to the Buyer,
and the Buyer shall purchase from the Seller at the Closing (as defined
below), all of the Common Stock.
1.2. Purchase Price. The Buyer shall pay or provide, as
appropriate, to the Seller, as consideration for the Common Stock, the
following (collectively, the "Purchase Price"):
(a) A credit in favor of the Seller (the "Credit")
against amounts that become due after the date hereof for long distance
wholesale traffic to be provided by the Company to the Seller (the "Long
Distance Services") pursuant to a rebiller service contract between the
Company and the Seller of even date herewith; provided, however, that the
amount of the Credit will not exceed Seventy-Five Thousand Dollars
($75,000) per month for a period not to exceed twenty-six (26) months
commencing with the Closing Date, not to exceed an aggregate of One Million
Six Hundred Fifty Thousand Dollars ($1,650,000); and
(b) Fifty Dollars ($50) per each additional Internet
service customer added to the Company's aggregate customer base, net of
one-half of the customers lost from the date hereof, within six (6) months
of the date hereof, up to an aggregate of One Million Dollars ($1,000,000)
(the "ISP Payment").
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1.3. Payment of Purchase Price. On the later of (i) the Closing
Date or (ii) the seven- month anniversary of the date hereof, the Buyer
shall pay to the Seller the ISP Payment portion of the Purchase Price by
wire transfer of immediately available funds and pursuant to the wire
transfer instructions set forth on Schedule 1.3.
1.4. Purchase Price Adjustment.
(a) Within thirty (30) days following the date hereof,
the Seller shall prepare, in accordance with generally accepted accounting
principles consistently applied ("GAAP") except as set forth on Schedule
4.2.8(ii), a balance sheet of the Company as of the date hereof (the
"Execution Date Balance Sheet"), together with a detailed analysis of each
balance sheet item, and including a computation of stockholder's equity net
of (i) the intercompany receivables identified in Section 2.1(g) and (ii)
the tax refund identified in Section 10.10, as of the date hereof (the
"Stockholder's Equity"), and provide a copy thereof to the Buyer.
(b) The Buyer shall have the right to review the books
and records of the Company for a period of sixty (60) days after receiving
the Execution Date Balance Sheet to verify and confirm the accuracy
thereof. If, after such review, the Buyer agrees with the Execution Date
Balance Sheet, the Buyer shall promptly (and in any event within sixty (60)
days after receiving the Execution Date Balance Sheet) notify the Seller of
its agreement. If, after such review, the Buyer objects to the Execution
Date Balance Sheet, the Buyer shall promptly (and in any event within sixty
(60) days after receiving the Execution Date Balance Sheet) provide the
Seller with a detailed statement indicating the basis for its objections,
and the Buyer and the Seller shall meet and confer in an effort to resolve
such disagreement in good faith.
(c) In the event that the Buyer and the Seller are unable
to resolve a disagreement with respect to the Execution Date Balance Sheet
within sixty (60) days following the date of the Buyer's objection (or such
longer period as the Buyer and the Seller may agree), the Stockholder's
Equity shall be determined by an independent firm of certified public
accountants (the "Accountants") as the Seller and the Buyer may agree. If
issues in dispute are submitted to the Accountants for resolution, (i) each
party will furnish to the Accountants such work papers and other documents
and information relating to the disputed issues as the Accountants may
request and are available to that party, and will be afforded the
opportunity to present to the Accountants any material relating to the
determination and to discuss the determination with the Accountants; (ii)
the determination by the Accountants of the Stockholder's Equity, as set
forth in a notice delivered to both parties by the Accountants, will be
binding and conclusive on the parties; and (iii) the fees of the
Accountants for such determination shall be paid equally by the parties.
(d) Within five (5) days after the determination of the
Stockholder's Equity pursuant to either the agreement of the parties or the
determination of the Accountants, the parties shall calculate the amount,
if any, by which the Stockholder's Equity is a larger negative number than
negative $4,356,078 (the "Purchase Price Reduction") or the amount, if any,
by which the Stockholder's Equity is a smaller negative number than
negative $4,356,078 (the
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"Purchase Price Increase"). The aggregate amount of the Credit (but not the
monthly limit thereon) that may be taken by the Seller against the costs of
the Long Distance Services shall be reduced by the amount of the Purchase
Price Reduction, with any residual amount due paid by the Seller to the
Buyer by wire transfer of immediately available funds and pursuant to the
wire transfer instructions set forth on Schedule 1.3. The aggregate amount
of the Credit (but not the monthly limit thereon) that may be taken by the
Seller against the costs of the Long Distance Services shall be increased
by the amount of the Purchase Price Increase.
ARTICLE 2
CONDITIONS PRECEDENT TO THE CLOSING
2.1. Conditions Precedent to the Buyer's Obligation. The
obligation of the Buyer to consummate the transactions contemplated herein
is subject to the satisfaction as of the Closing of each of the following
conditions:
(a) Except with regard to events that result from the
actions of any person or entity other than the Seller after the date
hereof, each of the representations and warranties of the Seller and the
representations and warranties of the Company made in this Agreement and
the statements contained in the Disclosure Schedule (as defined below) and
exhibits thereto shall be complete and correct in all material respects on
and as of the date hereof and on and as of the Closing Date; the Company
and the Seller shall have performed in all material respects the respective
covenants, agreements or obligations of the Company and the Seller
contained in this Agreement required to be performed on or prior to the
Closing Date; and the Seller shall have delivered to the Buyer a
certificate dated as of the Closing Date and signed by an authorized
officer of the Seller confirming the foregoing in a form reasonably
satisfactory to the Buyer.
(b) The Seller (or its ultimate parent entity) shall have
filed, if required by law, proper pre-merger notification forms with the
United States Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "DOJ") under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR Act"), and the
waiting period following the filing of proper pre-merger notification forms
by the Buyer (or its ultimate parent entity) and the Seller (or its
ultimate parent entity) shall have expired, whether pursuant to early
termination or by passage of time.
(c) All consents, licenses, permits, authorizations or
approvals from, filings with and notifications to any federal, state, local
or other governmental or regulatory body required to be made or obtained by
the Company and the Seller in connection with the consummation of the
transactions contemplated by this Agreement or necessary to operate the
Company shall have been made or obtained including, without limitation,
requirements under the HSR Act, and of the Federal Communications
Commission (the "FCC") or any state public utility commission ("PUC"). All
approvals, consents and waivers of third parties required to be obtained by
the Company and the Seller shall have been obtained. None of the approvals,
consents, permits, licenses, certificates, and authorizations given by any
state or local regulatory
3
authority to provide the telecommunications services currently provided by
the Company and to conduct its business as it is currently conducted (the
"PUC Authorizations") and none of the Company's approvals, consents,
permits, licenses, certificates, and authorizations given by the FCC or
similar federal governmental agency to provide the telecommunications
services currently provided by the Company and to conduct its business as
it is currently conducted (the "FCC Authorizations") shall have been
modified, amended, or otherwise altered, and each shall remain legal,
valid, binding, and in full force and effect.
(d) No injunction or order of any court or administrative
agency of competent jurisdiction shall be in effect as of the Closing Date
which restrains or prohibits the consummation of the transactions
contemplated by this Agreement nor shall any action, suit or proceeding
requesting such an injunction or order have been commenced or threatened in
writing by a party other than the Buyer.
(e) The Buyer shall have received from Seed, Xxxxxxx &
Xxxx, LLP, counsel for the Seller and the Company, an opinion, dated the
Closing Date, substantially in the form set forth as Exhibit 2.1(e).
(f) Except with regard to events that result from the
actions of any person or entity other than the Seller after the date
hereof, the Company shall not have suffered or incurred the loss,
termination, suspension or adverse modification to, or been threatened with
any such loss, termination suspension or adverse modification to, any
contract, certificate, license or permit necessary or required for the
Company to continue, both before and after the Closing Date, to operate and
conduct its business in the manner, and in the geographic areas, currently
conducted by it as of the date of this Agreement, except such as would not
have a Material Adverse Effect (as defined below).
(g) All intercompany receivables have been eliminated.
(h) The Company and the Seller shall have delivered to
the Buyer the documents, certificates, agreements and instruments required
under Section 3.3, each in a form reasonably acceptable to Buyer.
(i) The Seller and the Company shall have delivered all
customer letters of agency ("LOAs"), carrier selection authorizations ("PIC
Change Authorization") and third party verifications ("TPV") of the Company
since 1996 in their possession to the Buyer.
(j) The Seller and the Company shall have delivered all
Tax Returns (as defined below) of the Company since 1992 to the Buyer,
including all work papers and backup used to prepare and support such Tax
Returns.
(k) The Buyer shall have entered into a reasonably
acceptable arrangement with Sprint Communications Company L.P. within
thirty (30) days of the date hereof that addresses the outstanding balances
due as of this date and future rates for long distance telephone services.
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In the event that any of the foregoing conditions to the
Closing shall not have been satisfied prior to one (1) year from the date
hereof, the Buyer may elect to (i) terminate this Agreement without
liability to the Buyer, the Company or the Seller, provided that any such
termination shall be without prejudice to any claims by the Buyer for
intentional breach of this Agreement by the Company or the Seller or (ii)
waive all such unsatisfied conditions and consummate the transactions
contemplated herein despite such failure.
2.2. Conditions Precedent to the Company's and the Seller's
Obligation. The obligation of the Company and the Seller to consummate the
transactions contemplated herein is subject to the satisfaction as of the
Closing of each of the following conditions:
(a) Each of the representations and warranties of the
Buyer made in this Agreement shall be complete and correct in all material
respects as of the date hereof and on and as of the Closing Date, as though
made on and as of the Closing Date; the Buyer shall have performed in all
material respects the covenants, agreements and obligations of the Buyer
contained in this Agreement required to be performed on or prior to the
Closing; and the Buyer shall have delivered to the Seller a certificate
dated as of the Closing Date and signed by an authorized officer of the
Buyer confirming the foregoing in a form reasonably satisfactory to the
Seller.
(b) The Buyer shall have caused its ultimate parent
entity to file, if required by law, proper pre-merger notification forms
with the FTC and the DOJ under the HSR Act, and the waiting period
following the filing of proper pre-merger notification forms by the Buyer
and the Seller (or its ultimate parent entity) shall have expired, whether
pursuant to early termination or by passage of time.
(c) All consents, licenses, permits, authorizations,
approvals from, filings with and notifications to any federal, state, local
or other governmental or regulatory body required to be made or obtained by
the Buyer in connection with the consummation of the transactions
contemplated by this Agreement shall have been made or obtained including,
without limitation, requirements under the HSR Act, and of the FCC or any
PUC. All approvals, consents and waivers of third parties required to be
obtained by the Buyer in connection with the consummation of such
transactions shall have been obtained.
(d) No injunction or order of any court or administrative
agency of competent jurisdiction shall be in effect as of the Closing which
restrains or prohibits the consummation of the transactions contemplated
under this Agreement nor shall any action, suit or proceeding requesting
such an injunction or order have been commenced by a party other than the
Seller or the Company.
(e) The stockholders of the Seller shall have approved
this Agreement and the transactions contemplated hereby in accordance with
the Delaware General Corporation Law (the "DGCL") and Regulation 14A or
Regulation 14C promulgated under the Securities Exchange Act of 1934, as
amended. In the event that such approval is by the written consent of
stockholders, the Seller shall have been permitted by the Securities and
Exchange Commission
5
to provide non-consenting stockholders with an Information Statement on
Schedule 14C at least twenty (20) days prior to the Closing. All costs
associated with this Section 2.2(e) shall be borne by the Seller.
(f) The Seller shall have received on or prior to the
Closing Date a full release from Coast Business Credit, a division of
Southern Pacific Bank, a California corporation ("Coast"), of those
obligations of the Seller to Coast under the Loan and Security Agreement,
dated as of September 30, 1998, between the Seller, the Company and Coast
(the "Coast Loan Agreement") which are secured by assets of the Seller and
the Company.
(g) The Buyer shall have delivered to the Seller the
documents, certificates, agreements and instruments required under Section
3.2, each in a form reasonably acceptable to the Seller.
(h) The Seller shall have received from Xxxxxxx &
XxXxxxxx, counsel for the Buyer, an opinion, dated the Closing Date, in a
form reasonably satisfactory to the Seller.
In the event that any of the foregoing conditions to the
Closing shall not have been satisfied prior to one (1) year from the date
hereof, the Seller may elect to (i) terminate this Agreement without
liability to the Seller, the Company or the Buyer, provided that any such
termination shall be without prejudice to any claims by the Company or the
Seller for intentional breach of this Agreement by the Buyer or (ii) waive
any such unsatisfied conditions and consummate the transactions
contemplated herein despite such failure.
ARTICLE 3
CLOSING
3.1. Time and Place of Closing. The closing of the purchase and
sale contemplated herein (the "Closing") shall be held at the offices of
Xxxxxxx & XxXxxxxx, 000 Xxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxx Xxxx,
Xxxxxxxxxx, at 10:00 a.m. (Los Angeles time), on the fifth (5th) business
day following the date on which all the conditions precedent to the Closing
set forth in Article 2 have been satisfied or waived, or at such other time
or place as the Seller and the Buyer shall mutually agree, provided, that
on that day, there shall not be in effect any injunction, temporary
restraining order, or other order of a court or governmental or regulatory
authority of competent jurisdiction directing that the purchase and sale of
the Common Stock pursuant to this Agreement not be consummated. If such an
injunction or order is in effect on that day, the Closing shall take place
as soon as practicable after it is no longer in effect. The date on which
the Closing shall occur is hereinafter referred to as the "Closing Date."
3.2. Deliveries of the Buyer. At the Closing, the Buyer shall
deliver to the Seller the following:
(a) The payment of the Purchase Price in the manner specified
in Section 1.3.
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(b) A certificate from the Secretary of the Buyer, in a
form reasonably satisfactory to the Seller and its counsel, setting forth
the resolutions of the Board of Directors of the Buyer authorizing the
execution of this Agreement and all agreements, documents and instruments
to be executed and delivered by the Buyer in connection herewith (the
"Buyer Ancillary Documents") and the taking of any and all actions deemed
necessary or advisable to consummate the transactions contemplated herein
or therein.
(c) The certificate of the Buyer required to be delivered
pursuant to Section 2.2(a).
(d) Copies of the consents, approvals and other
documentation required pursuant to Section 2.2(c).
3.3. Deliveries of the Company and the Seller. At the Closing, the
Company and the Seller shall deliver to the Buyer the following:
(a) Certificates representing the Common Stock, duly
endorsed in blank or accompanied by an assignment duly executed in blank by
the Seller.
(b) The certificate of the Company and the Seller
required to be delivered pursuant to Section 2.1(a).
(c) Resignations of all of the officers and directors of
the Company and each person who is a trustee, custodian, or authorized
signatory under any employee benefit plan, bank account, depository account
or safe deposit box of the Company, effective as of the Closing.
(d) Constructive possession of the complete books and
records relating to the business of the Company including, without
limitation, minute books, stock ledgers, all keys or articles required for
access thereto and the combinations for all safes, vaults and other places
of safekeeping or storage of the Company.
(e) A certificate of the Secretary of the Company, in a
form reasonably satisfactory to the Buyer and its counsel, setting forth
the resolutions of the Board of Directors of the Company authorizing the
execution of this Agreement and all agreements, documents and instruments
to be executed and delivered by the Company or the Seller hereunder
(collectively, the "Seller Ancillary Documents") and the taking by the
Company of any and all actions deemed necessary or advisable to consummate
the transactions contemplated herein or therein.
(f) Copies of the consents, approvals and other
documentation required pursuant to Section 2.1(c).
(g) The Disclosure Schedule, pursuant to Article 7.
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(h) Such other documents or instruments as the Buyer may
reasonably request.
ARTICLE 4
WARRANTIES AND REPRESENTATIONS OF THE SELLER
4.1. Warranties and Representations of the Seller with respect to
the Seller. The Seller hereby warrants and represents to the Buyer, which
warranties and representations shall survive the Closing for the period set
forth in Section 4.3, that, except as set forth in the disclosure schedule
attached hereto (the "Disclosure Schedule"), which exceptions shall specify
the Sections to which they relate and be in reasonable detail, the
following statements are true on and as of the date hereof and will be true
on and as of the Closing Date with respect to the Seller:
4.1.1. Title to Common Stock. The Seller is the record
owner of and has good, valid and marketable (except due to applicable
federal and state law) title to the Common Stock free and clear of any and
all claims, liens, pledges, options, charges, security interests,
restrictions (except due to applicable federal and state law), encumbrances
or other rights of third parties of any kind or nature whatsoever affecting
its ability to transfer such Common Stock to the Buyer.
4.1.2. Due Authorization and Execution. The Seller has
the necessary corporate power and authority to enter into this Agreement
and the Seller Ancillary Documents and to consummate the transactions
contemplated hereby and thereby. The Board of Directors of the Seller has
duly authorized and approved the execution and delivery of this Agreement
and the Seller Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby. No other corporate proceedings are
necessary to authorize this Agreement and the Seller Ancillary Documents
and the consummation of such transactions, except that the consummation of
the transactions contemplated by this Agreement require the approval of the
stockholders of the Seller pursuant to the DGCL. This Agreement has been
duly and validly executed and delivered by the Seller and, assuming due
execution and delivery by the Buyer, constitutes a valid and binding
obligation of the Seller enforceable against it in accordance with its
terms, except as limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally or (b)
equitable principles (whether considered in an action at law or in equity).
4.1.3. Organization. The Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
own, operate and lease its properties and assets and carry on its business
as now conducted.
4.1.4. Consents, Violations and Authorizations. Except as
set forth on Schedule 4.1.4, the Seller is not party to or bound by any
lien, lease, permit, concession, franchise, license, instrument, mortgage,
indenture or other agreement, or any judgment, order, decree, statute, law,
ordinance, rule or regulation of any court or governmental entity
applicable
8
to it which would require it to obtain the authorization, consent or
approval of another (including the authorization, consent or approval of
governmental authorities) to the execution of this Agreement, the Seller
Ancillary Documents or the transactions contemplated hereby or thereby.
Neither the execution and delivery of this Agreement or the Seller
Ancillary Documents nor the consummation of the transactions contemplated
hereby or thereby shall violate any provision of the Certificate of
Incorporation or Bylaws of the Seller.
4.1.5. Regulatory Compliance. The Seller (i) is operating
in compliance in all material respects with all applicable federal and
state tariffs, laws, regulations and orders relating to the
telecommunications industry and (ii) has not received notice of any
violations of any tariffs or of laws, regulations and orders from any
governmental entity having authority to enforce such tariffs, laws,
regulations and orders, including but not limited to, (a) the
Communications Act of 1934, as amended by the Telecommunications Act of
1996 and (b) the Telephone Consumer Protection Act of 1991. The Seller has
no PUC Authorizations or FCC Authorizations.
4.2. Warranties and Representations of the Seller with respect to
the Company. The Seller hereby warrants and represents to the Buyer, which
warranties and representations shall survive the Closing for the period set
forth in Section 4.3, that, except as set forth in the Disclosure Schedule,
which exceptions shall specify the Sections to which they relate and be in
reasonable detail, the following statements are true on and as of the date
hereof with respect to the Company:
4.2.1. Organization and Standing. The Company is a
corporation duly formed, validly existing and in good standing under the
laws of the State of Texas. The Company has the corporate power and
authority to own or lease its properties and to carry on all business
activities which it now conducts. The Company is duly qualified and is in
good standing in each state and jurisdiction where such qualification is
necessary or required for the Company to conduct its business and offer
communications services, except for any state or jurisdiction where the
failure to be so qualified and in good standing could not reasonably be
expected to have a "material adverse effect." For the purposes of this
Agreement, a "Material Adverse Effect" shall mean any material adverse
effect on the financial condition, prospects, results of operations,
properties, assets or liabilities (absolute, accrued, contingent or
otherwise) of the business of the Company as currently conducted or of the
Company and its subsidiaries. Schedule 4.2.1 contains a complete and
correct list of all states in which the Company is qualified to do business
as a foreign corporation. The minutes of the meetings of the Board of
Directors of the Company and its shareholders (complete and correct copies
of which have been provided to the Buyer) are complete and correct in all
material respects. The Articles of Incorporation and Bylaws of the Company
(complete and correct copies of which have been provided to the Buyer) are
complete and correct and are in full force and effect without amendment or
modification.
4.2.2. Capitalization. Schedule 4.2.2 sets forth the
capitalization of the Company. All of the issued and outstanding Common
Stock (or other equity interests) of the Company are owned beneficially and
of record as set forth on Schedule 4.2.2. All of the Common Stock is duly
authorized, validly issued and outstanding, fully paid and nonassessable.
9
The Common Stock has not been issued in violation of, and is not subject
to, any preemptive or subscription rights. There are no outstanding
warrants, options, puts, agreements, subscriptions, convertible or
exchangeable securities or other commitments or rights pursuant to which
the Company is or may become obligated to issue, sell, purchase, return or
redeem any of its securities. All of the Common Stock has been issued in
compliance with all applicable federal and state securities laws or in
accordance with exemptions therefrom, except where the failure to so comply
would not have a Material Adverse Effect.
4.2.3. Consents, Violations and Authorizations. Except as
set forth on Schedule 4.2.3, the Company is not a party to or bound by any
contract, encumbrance, lease, permit, concession, franchise, license,
instrument, mortgage, indenture or other agreement or any judgment, order,
decree, statute, law, ordinance, rule or regulation of any court or
governmental entity applicable to it which would require it to obtain the
authorization, consent or approval of another (including the authorization,
consent or approval of governmental authorities) to the execution of this
Agreement and the Seller Ancillary Documents or the transactions
contemplated hereby or thereby. Neither the execution and delivery of this
Agreement or the Seller Ancillary Documents, nor the consummation of the
transactions contemplated hereby or thereby shall (a) violate any provision
of the Articles of Incorporation or Bylaws of the Company or (b) conflict
with, or result (immediately or upon the giving of notice or the passage of
time or both) in any violation of or default under, or give rise to a right
of modification, termination, cancellation or acceleration of any
obligation or to a loss of a benefit under, or result in the creation of
any claims, liens, pledges, options, charges, easements, security
interests, deeds of trust, mortgages, rights of way, easements,
encumbrances or rights of third parties of any kind or nature whatsoever
(collectively, an "Encumbrance") upon the Company or its assets under any
contract, lease, permit, concession, franchise, license, instrument,
mortgage, indenture or other agreement which the Company is party to,
beneficiary of, or bound by, or result in the violation or creation of any
Encumbrance upon the Company or its assets under any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Company. None of the execution, delivery or performance of this Agreement
or any of the Seller Ancillary Documents, or the consummation of the
transactions contemplated hereby or thereby requires any filing with or the
consent or approval of any third party, including but not limited to any
governmental body or entity other than (a) compliance with applicable
securities laws, (b) applications to the FCC and the state utility
regulatory commissions in states in which the Company offers services (such
commissions together with the FCC constitute a "Commission" or the
"Commissions"), (c) notifications to the FTC and the DOJ under the HSR Act,
and (d) approval of the Seller's stockholders.
4.2.4. Litigation and Compliance with Laws. Except as set
forth on Schedule 4.2.4, there is no claim, suit, action, investigation,
litigation, complaint proceeding (including, without limitation, arbitral
proceedings) or other legal or administrative proceeding pending or, to the
best knowledge of the Company and the Seller, threatened against the
Company and there are no complaints or reviews by any court, governmental
department, commission, agency, instrumentality or authority or any
arbitrator pending or, to the best knowledge of the Company and the Seller,
threatened against, relating to or affecting, the Company. There is no
judgment, order, writ, garnishment, levy, injunction, decree or award
10
(whether issued by a court, an arbitrator, a governmental body or agency
thereof or otherwise) to which the Company is party, or involving the
properties, assets or business of the Company, which is unsatisfied or
which requires continuing compliance therewith by the Company. During the
past five (5) years, there has not been nor is there now pending, any
claim(s) against any person in his or her capacity as either a director or
officer of the Company. The Company has complied with all existing foreign
and domestic laws, statutes, ordinances, codes, rules, regulations,
judgments, orders, writs or decrees of any federal, state, local or foreign
court or governmental or regulatory body or agency thereof (collectively,
"Laws") now applicable to its business, as presently conducted, including,
without limitation, (a) all environmental laws, and (b) all provisions of
Laws relating to labor relations, equal employment practices, fair
employment practices, entitlement, prohibited discrimination, terms and
conditions of employment, wages and hours, or other similar employment
practices or acts, except where the failure to comply with any such Laws
would not have a Material Adverse Effect. Neither the Seller nor the
Company has received any written notice that the Company has not complied
in all material respects with all applicable Laws to which the Company may
be subject or which are applicable to the operations, businesses or assets
of the Company.
4.2.5. Subsidiaries, Investments. Except as set forth on
Schedule 4.2.5, the Company has no subsidiaries and does not own, directly
or indirectly, any stock, partnership interest, joint venture interest or
other security, investment or interest in any other corporation,
organization or entity. Schedule 4.2.5 sets forth the state of
incorporation, foreign qualification and capital structure of each
subsidiary.
4.2.6. Ownership and Use of Tangible Assets.
(a) The Company has good title to or a valid
leasehold interest in all tangible personal property and assets which are
material to the operation of the Company as currently conducted free and clear
of all Encumbrances except those which would not have a Material Adverse Effect
on the Company's ability to use or enjoy beneficial ownership of the personal
property or assets. Such tangible personal property and assets are set
forth on Schedule 4.2.6(a).
(b) The Company does not own any real property.
Schedule 4.2.6(b) contains a complete list and description of all real
property leased by the Company or used by the Company in its operations
(collectively, the "Leased Real Property"), in each case indicating the
entity leasing or using such property and the persons or entities from whom
such property is being leased. The Leased Real Property constitutes all of
the real property interests leased or used in the operations of the Company
as currently conducted. With respect to all of the Leased Real Property,
the Company has good and valid leasehold title thereto free and clear of
all Encumbrances. The structures, plants, improvements, systems (including,
without limitation, heating, ventilation, air conditioning, electrical,
plumbing, fire sprinkler, lighting, elevator and other mechanical systems)
and fixtures located in or about the Leased Real Property have been
maintained in accordance with reasonable maintenance standards generally
followed in the industry. All other assets and property used in the
business of the Company, and all assets and property reflected in the
balance sheet of the Company dated
11
May 31, 1999 (the "Interim Balance Sheet") or acquired after the date of
the Interim Balance Sheet (other than assets or property sold or otherwise
disposed of by the Company in the ordinary course of its business
subsequent to such date) are in each case free and clear of all
Encumbrances. The buildings, machinery and equipment of the Company are in
good and serviceable condition, reasonable wear and tear excepted. The
Leased Real Property is being used by the Company in compliance with the
terms of its applicable lease or occupancy agreement.
(c) All tangible personal property of the
Company which is material to the Company's operations has been maintained in
accordance with reasonable maintenance standards generally followed in the
industry and is physically located at or about the places of business of the
Company. None of such tangible personal property is subject to any agreement,
arrangement or understanding for its use by any person other than the Company,
the presence of which would have a Material Adverse Effect.
(d) Schedule 4.2.6(d) sets forth a complete and
correct list of all tangible personal property leases to which the Company is a
party which involve annual lease payments of more than $3,000. Each such lease
is in full force and effect against the Company. All lease payments due to date
on any such lease have been paid, and the Company is not in default under
any such lease. There are no disputes or disagreements between the Company,
on the one hand, and any other party with respect to any such lease.
(e) Schedule 4.2.6(e) sets forth a complete
and correct list of all "toll free" telephone numbers used in connection with
the business of the Company.
4.2.7. Patents, Trademarks, and Other Intellectual
Property.
(a) Intellectual Properties. Except for
Third-Party Software (as defined below) and license agreements included in
shrink-wrapped software packages ("Shrink- Wrapped Licenses"), Schedule 4.2.7(a)
contains a list of all issued patents, registered and unregistered trademarks,
trade names and/or copyrights which are owned or used in the operation of the
Company's business by the Company and all applications therefor in which the
Company has an interest (collectively, the "Intellectual Properties"). The
Company has the sole right to use the Intellectual Properties as they are
currently being used by the Company, free and clear of all Encumbrances, except
for the Third-Party Software (as defined below) and as set forth on Schedule
4.2.7(a). No claims have been asserted or threatened in writing by any
person challenging the Company's ownership or use of any of the
Intellectual Properties which if successful, would have a Material Adverse
Effect. The conduct of the Company's business does not infringe or
otherwise violate the intellectual property rights of others. To the best
of the Company's and the Seller's knowledge, none of the Intellectual
Properties is being infringed by others. Each of the Intellectual
Properties is fully valid, subsisting, and enforceable, and there are no
restrictions and/or limitations on the transfer of any of the Intellectual
Properties as contemplated by this Agreement. The Company does not license
intellectual property from any third party, except for Third-Party Software
and Shrink-Wrapped Licenses.
12
(b) Company Software Products. The computer
software owned or developed by the Company (the "Company Software Products") is
not licensed or sold by the Company.
(c) Third-Party Software. Schedule 4.2.7(c)
contains a list of all computer software licensed to the Company (the
"Third-Party Software") under which any rights to use or distribute Third-Party
Software have been granted to the Company other than Shrink-Wrapped Licenses.
All such license agreements are enforceable in accordance with their terms
against the licensors (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium, and similar laws
affecting creditors' rights, and, with respect to the remedy of specific
performance, equitable doctrines applicable thereto). Schedule 4.2.7(c)
also sets forth the amount of royalties payable, if any, by the Company
with respect to such Third-Party Software. All such royalties have been
paid by the Company when and as due and there are no royalty payments
outstanding.
(d) Source Code Escrow. The Company has not
delivered source code for any Company Software Product to be held in escrow.
(e) Disclosures.
(i) The Company has the right to
possess, use and modify all Company Software Products and to use Third-Party
Software products in all jurisdictions in which any Company Software Product
(or such Third-Party Software) is in use. The Company does not manufacture,
reproduce (except for internal use), license or sell the Company Software
Products. The Company has neither done anything nor, with respect to the United
States, permitted anything to be done to cause such rights to be owned or
possessed by any third party. The Company has not received nor is otherwise
aware of any claim that any Company Software Product or any Third-Party Software
infringes the rights of others.
(ii) There is no pending claim or
litigation and to the best of the Company's and the Seller's knowledge, there
is no threatened claim or litigation contesting the right to use, sell, license
or dispose of any Company Software Product nor, to the best of the Company's
and the Seller's knowledge, is there any fact or alleged fact which would
reasonably serve as a basis for any such claim.
(iii) The Company is in material compliance
with the terms and conditions of all license agreements governing the use and
distribution of Third-Party Software.
(iv) All Third-Party Software used by
the Company for its internal business operations (including product development
and testing) is licensed for use only on computer equipment located at the
Company's sites or on computers under control of the Company's employees.
13
(v) The Company has taken commercially
reasonable steps to safeguard and maintain the secrecy and confidentiality of
all trade secrets and proprietary or confidential business and technical
information included in the Intellectual Property Rights.
(vi) All documents and materials
containing trade secrets or proprietary or confidential business or technical
information of the Company (including without limitation unpublished source
code for the Company Software Products) are presently located at one of the
premises identified as Leased Real Property on Schedule 4.2.6(b) and, to the
best of the Company's and the Seller's knowledge, have not been used, divulged
or appropriated for the benefit of any person other than the Company, or to
the detriment of the Company.
4.2.8. Financial Statements. Schedule 4.2.8(i) contains
complete and correct copies of the consolidated financial statements of the
Company for the fiscal periods ended December 31, 1997 and December 31,
1998 (the "Historical Financial Statements") and the balance sheet and
statement of operations of the Company at and for the period ended May 31,
1999 (the "Interim Financial Statements" and, collectively with the
Historical Financial Statements, the "Financial Statements"). The Financial
Statements are prepared in accordance with the books and records of the
Company. Except as set forth on Schedule 4.2.8(ii), the balance sheet
contained in the Interim Financial Statements is complete and correct, was
prepared in accordance with GAAP, was consistently prepared and fairly
presents the financial condition of the Company on such date. The
Historical Financial Statements were consolidated into the audited
consolidated financial statements of the Seller, which financial statements
were prepared in accordance with GAAP. There has been no material adverse
change in the capitalization, assets or liabilities of the Company since
the date of the Interim Financial Statements, other than changes in the
ordinary course of business consistent with past practice and changes for
which the Purchase Price has been adjusted pursuant to Section 1.4.
4.2.9. Conduct Out of Ordinary Course. Except as set
forth on Schedule 4.2.9, the Company has, since the date of the Interim
Balance Sheet, conducted its business in the normal and ordinary course and
has not since such date: (i) other than in the ordinary course of business,
mortgaged, pledged or subjected to, or agreed to mortgage, pledge or
subject to, any lien, any of the assets or business of the Company, except
as contemplated in this Agreement, (ii) sold, transferred, leased to others
or otherwise disposed of or agreed to sell, transfer, lease or otherwise
dispose of any of the assets of the Company having an aggregate value of
more than $10,000; (iii) suffered any damage, destruction or loss (whether
or not covered by insurance) which would have a Material Adverse Effect;
(iv) other than in the ordinary course of business, borrowed, or agreed to
borrow, funds in excess of $10,000; (v) directly or indirectly paid, or
agreed to pay, any severance or termination pay to any employee or
otherwise granted any general or specific increase in the salary,
commission rate or other compensation payable to any employee, director,
independent contractor, governor or officer which was not accrued at such
date; (vi) issued, or agreed to issue, any securities of the Company; (vii)
declared, paid, made or agreed to declare, pay or make any dividends,
distributions, redemptions, equity repurchases or other transactions with
respect to any securities of the Company; (viii) had any change in its
accounting principles, methods or practices or any change in its
depreciation or amortization policies or rates or any change in any
assumption underlying or methods of calculating any bad
14
debt, contingency or other reserves related to the business of the Company;
(ix) had any change in the relationship or course of dealing with any of
its suppliers, customers, distributors, lenders or creditors that has had
or could reasonably be expected to have a Material Adverse Effect; (x) had
any labor disputes or disturbances, other than grievances, or attempts to
organize the employees of the Company for the purpose of collective
bargaining, which have had or could reasonably be expected to have a
Material Adverse Effect; (xi) amended or terminated any contract, permit or
other agreement related to its assets or business, or by which it or any of
its assets or properties used or useable in connection with its business is
subject, except as expressly required by this Agreement provided that the
Company may have amended or terminated any contracts, permits or other
agreements which have a value in the aggregate of less than $10,000; (xii)
cancelled any indebtedness or waived or released any right or claim of the
Company related in any way to the Company's business with an aggregate
value in excess of $10,000; (xiii) made any capital expenditure or incurred
any obligation to make any capital expenditure in connection with the
conduct of the Company's business in excess of an aggregate of $10,000 or
other than in the ordinary course consistent with past practices; (xiv)
failed to pay or satisfy when due any material obligation of the Company,
except where such failure would not have a Material Adverse Effect on the
Company; (xv) assigned, sold or transferred any of its Intellectual
Properties or other intangible assets; (xvi) satisfied or discharged any
material lien or paid any material obligation or liability, other than
obligations or liabilities incurred in the ordinary course of business, an
obligation or liability included in the Interim Balance Sheet, current
liabilities incurred since such date in the ordinary course of business,
liabilities incurred in carrying out the transactions contemplated by this
Agreement and obligations and liabilities under, and pursuant to the terms
of, the contracts and agreements listed in the Disclosure Schedule; (xvii)
made any loan to any person or entity other than loans to its employees; or
(xviii) had any other change or taken any other action not in the ordinary
course of business which has had or could reasonably be expected to have a
Material Adverse Effect.
4.2.10. Taxes.
(a) Definitions. For purposes of this Section
4.2.10, the following terms shall have the following meanings:
The terms "Tax" and "Taxes" shall mean and
include any and all United States, state, local, foreign income, alternative,
minimum, acc`umulated earnings, personal holding company, franchise, capital
stock, profits, windfall profits, gross receipts, sales, use, utility, value
added, transfer, registration, stamp, premium, excise, customs duties,
severance, environmental (including taxes under Section 59A of the Internal
Revenue Code of 1986, as amended (the "Code"), real property, personal
property, escheat, ad valorem, occupancy, license, occupation, employment,
payroll, social security, disability, unemployment, workers' compensation,
withholding, or other taxes, assessments, surcharges, social security
obligations, deficiencies, fees, customs duties or other governmental
charges from time to time imposed by or required to be paid to any
governmental authority or quasi-governmental authority in support of
statutory or regulatory programs (including penalties and additions to tax
thereon, penalties for failure to file a return or report, and interest on
any of the foregoing).
15
The term "Tax Return" shall mean and
include any return, declaration, report, claim for refund, or information
return or statement filed relating to Taxes, including any schedule or
attachment thereto, and any amendment thereof.
(b) Warranties and Representations. Except as
set forth on Schedule 4.2.10(b):
(i) All Tax Returns which the Company
was required to file or in which the Company was required to have been included
for any period ending on or before the Closing Date (including, without
limitation, sales, payroll, employee withholding, social security and
unemployment Tax Returns) have been, or will be, filed when due and when filed
were or will be complete and correct in all material respects.
(ii) All Taxes due and owing by the
Company (whether or not shown on any Tax Return) have been paid and any Taxes
that become due and owing by the Company before the Closing Date (whether or
not shown on any Tax Return) will be paid, other than Taxes which are not
delinquent and subject to a late payment penalty.
(iii) All Taxes that the Company is
required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid or accrued, reserved against and entered on
the books of the Company.
(iv) There are no liens on any of the
assets of the Company as a result of any Tax liabilities except for Taxes not
yet due and payable.
(v) There is no claim or issue (other
than a claim or issue that has been finally settled) concerning any liability
for Taxes of the Company pending or threatened by any taxing authority.
(vi) There are no agreements or
applications by the Company for an extension of time for the assessment or
payment of any Taxes or for the filing of any Tax Return, or waivers of a
statute of limitations by the Company in respect of Taxes.
(vii) There are no Tax sharing, Tax
indemnity or Tax allocation agreements or other similar arrangements with
respect to or involving the Company.
(viii) The Company is taxed as a
corporation for federal, state and local income tax purposes.
(ix) The Company is not a party to any
agreement, contract, other arrangement that would result, separately or in the
aggregate, in the requirement to pay any "excess parachute payment" within the
meaning of Section 280G of the Code which will be in effect following the
Closing.
16
(x) No Tax assessment or deficiency
which has not been paid has been made or proposed against the Company, nor are
any of the Tax Returns now being or, to the best knowledge of the Company and
the Seller, threatened to be examined or audited, and no consents waiving or
extending any applicable statutes of limitations for the Tax Returns, or any
Taxes required to be paid thereunder, have been filed. The Company shall
promptly notify the Seller of any notice of pending action or proceeding
involving Taxes relating to the Seller between the date of this Agreement and
the Closing Date. All Tax deficiencies determined as a result of any past
completed audit have been satisfied. The Seller has delivered to the Buyer
complete and correct copies of all audit reports and statements of
deficiencies with respect to any tax assessed against or agreed to by the
Company for the three (3) most recent taxable periods for which such audit
reports and statements of deficiencies have been received by the Company.
(xi) To the best knowledge of the Company
and the Seller, there is no proposal for increasing the assessed value of any
of the Company's properties for tax purposes, and there are no pending
proceedings or public improvements which would result in the levy of any special
tax or assessment against any of the Company's properties.
(xii) The Company has delivered to the
Buyer complete and correct copies of all state, local and foreign income or
franchise Tax Returns filed by the Company for the three most recent taxable
years for
which such Tax Returns have been filed immediately preceding the date of
this Agreement. Other than with respect to Taxes shown on Tax Returns
described in this subsection, the Company is not subject to any Tax imposed
on net income in any jurisdiction or by any Taxing Authority.
(xiii) No powers of attorney or other
authorizations are in effect that grant to any person the authority to represent
the Company in connection with any Tax matter or proceeding, and any such powers
of attorney or other authorizations shall be revoked as of the Closing Date.
4.2.11. Contracts and Other Agreements.
(a) Schedule 4.2.11(a) sets forth a complete
and correct list of all of the following to which the Company is a party or by
which it is bound (collectively, the "Contracts"):
(i) any lease, license or right to use,
real or personal property;
(ii) any license agreement or other
agreements of the Company providing in whole or in part for the use of any
patents, trademarks, trade names, service marks, copyrights, inventions, trade
secrets or other proprietary know-how or other intellectual property, whether
the Company is the licensor or the licensee thereunder, and all settlements,
consents or forbearance to xxx agreements relating thereto;
(iii) any contract, arrangement or
understanding which is material to the business of the Company;
17
(iv) any note, bond, indenture, credit
facility, mortgage, security agreement or other instrument or document relating
to or evidencing indebtedness for money borrowed by, or extensions of credit to,
or a security interest or mortgage in the assets of, the Company;
(v) any indemnity or guaranty issued by
the Company during the past three years (other than customary product warranties
provided by the Company in the ordinary course of business);
(vi) any contract, arrangement or
understanding materially restricting the right, or limiting the freedom of the
Company to engage in any business activity or compete with any business or in
any geographical area;
(vii) any material contract, arrangement
or understanding by the Company with customers or distributors, other than
standard LOAs that provide for basic service authorization.
(viii) any power of attorney given by the
Company, which is currently in effect, to any person, firm or corporation for
any purpose whatsoever;
(ix) any collective bargaining agreements
with any unions, guilds, shop committees or collective bargaining groups;
(x) any contracts or agreements with
current officers, other employees, consultants or advisors other than contracts
which by their terms are cancelable by the Company with notice of not more than
ninety (90) days;
(xi) each material contract for the
future purchase of materials, services, supplies or equipment;
(xii) each contract and agreement with
Affiliates (as defined below);
(xiii) partnership, joint venture or other
similar arrangements or agreements to which the Company is a party; or
(xiv) agreements pursuant to which the
Company acquired (by merger, consolidation or acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization, entity
or division thereof.
(b) Except as set forth on Schedule 4.2.11(b),
with respect to the Contracts, (i) each Contract is in full force and effect
against the Company; (ii) the Company is not in default under any Contract
which would have a Material Adverse Effect; and (iii) there are no disputes or
disagreements between the Company and any other party with respect to any
such Contract which would have a Material Adverse Effect.
18
(c) For the purposes of this Agreement, the
term "Affiliate" means, with respect to any person, any of the following:
(i) any person directly or indirectly
controlling, controlled by or under common control with such Person,
(ii) any officer, director, general
partner, member or trustee of such person or
(iii) any person who is an officer,
director, general partner, member or trustee of any person described in clauses
(i) or (ii) of this sentence. For purposes of this definition, the terms
"controlling," "controlled by" or "under common control with" shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person or entity, whether through the
ownership of voting securities, by contract or otherwise or the power to
elect at least fifty percent (50%) of the directors, managers, general
partners or persons exercising similar authority with respect to such
person or entities.
4.2.12. Employee Benefit Matters. The Company has no
employees, but obtains the services of the Seller's employees pursuant to
an informal agreement whereby the cost of such employees is reflected on
the Company's statement of operations through the intercompany account.
Schedule 4.2.12 sets forth all of the employment or consulting contracts,
bonus, deferred or incentive compensation, profit sharing, retirement,
vacation, sick leave, medical, dental, vision, accidental death and
dismemberment insurance, disability, sick pay, holiday pay, stock purchase,
stock bonus, restricted stock, or other stock-based plans or severance
plans, programs, arrangements and policies, as well as all "employee
pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA) (collectively,
the "Plans") sponsored or contributed to by the Company or by any trade or
business, whether or not incorporated (an "ERISA Affiliate") that together
with the Company would be deemed a "single employer" within the meaning of
Section 414 of the Code for the benefit of an employee or former employee
of the Company or any ERISA Affiliate or an independent contractor or
consultant with respect to any such entity. Each such Plan is in
compliance, and has been administered in accordance with the applicable
provisions of ERISA and the Code and all other applicable laws, rules and
regulations and the terms of the Plan, in all material respects. None of
the Plans are subject to Title IV of ERISA. All contributions required to
be made with respect to all Plans and the payment of all costs of
administering those Plans required to be paid on or prior to the date
hereof have been timely made. All amounts properly accrued to date as
liabilities of the Company or an ERISA Affiliate under or with respect to
each Plan (including administrative expenses and incurred but not reported
claims) for the current plan year of the Plan have been recorded on the
books of the Company or an ERISA Affiliate (whichever is applicable). The
Company has delivered to the Buyer a complete and correct copy of: (a) each
Plan and any related funding agreements (e.g., trust agreements or
insurance contracts), including all amendments (and the Disclosure Schedule
includes a description of any such amendment that is not in writing); (b)
the current draft of the Summary
19
Plan Description and Summary of Material Modifications (if applicable) of
each Plan; (c) the most recent Internal Revenue Service determination
letter (if applicable) for each Plan, which determination letter reflects
all amendments that have been made to the Plan; and (d) the two (2) most
recent Form 5500s that were filed on behalf of the Plan, including the
actuarial report (if applicable). The Internal Revenue Service has issued a
favorable determination letter with respect to each Plan that is intended
to qualify under Code Section 401(a), and no event has occurred (either
before or after the date of the letter) that would disqualify the Plan.
Neither the Company nor any ERISA Affiliate maintains any Plan that
provides (or will provide) medical or death benefits to one or more former
employees (including retirees), other than benefits that are required to be
provided pursuant to Code Section 4980B or state law continuation coverage
or conversion rights. There are no investigations, proceedings, or
lawsuits, either currently in progress or, to the best knowledge of the
Company and the Seller, threatened, relating to any Plan, by any
administrative agency, whether local, state or federal. There are no
pending or threatened lawsuits or other claims (other than routine claims
for benefits under the Plan and those relating to qualified domestic
relations orders) against or involving (i) any Plan, or (ii) any Fiduciary
of such Plan (within the meaning of Section 3(21)(A) of ERISA) brought on
behalf of any participant, beneficiary, or Fiduciary thereunder nor is
there any reasonable basis for any such claim. Neither the Company nor any
ERISA Affiliate has any intention or commitment, whether legally binding or
not, to create any additional Plan, or to modify or change any existing
Plan so as to materially increase benefits to participants or the cost of
maintaining the Plan. No statement, either oral or written, has been made
by the Company or an ERISA Affiliate (or by any agent of the Company or
ERISA Affiliate) to any Person regarding any Plan that is not in accordance
with the Plan that could have adverse economic consequences to the Buyer.
The benefits under all Plans are as represented, and have not been, and
will not be, materially increased subsequent to the date documents are
provided to the Buyer. Except as provided in the Disclosure Schedule, none
of the Plans provide any benefits that become payable or vested solely as a
result of the consummation of this transaction. None of the persons
performing services for the Company or any ERISA Affiliate have been
improperly classified as independent contractors, leased employees, or as
being exempt from the payment of wages for overtime.
4.2.13. Labor Practices. The Company's operations are not
unionized. Within the last three (3) years the Company has not experienced
any labor disputes, union organizational attempts or any work stoppage due
to labor disagreements in connection with its business. The Company is in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, the
non-compliance with which would not have a Material Adverse Effect. The
Company is not engaged in any unfair labor practices. There is no unfair
labor practice charge or complaint pending against the Company. There is no
labor strike, dispute, request for representation, petition for
certification of representative, slowdown or stoppage pending against or
affecting the Company. No grievance which might have a Material Adverse
Effect on the Company, nor any arbitration proceeding arising out of or
under collective bargaining agreements, is pending against the Company.
There are no administrative charges or court complaints against the Company
concerning alleged employment discrimination, breach of contract, wrongful
termination, fraudulent inducement, infliction of emotional distress or
other employment related matters
20
pending before the U.S. Equal Employment Opportunity Commission or any state or
federal court or agency.
4.2.14. Brokers; Agents. Neither the Seller nor the
Company has dealt with, retained, employed or used any agent, finder,
broker or other representative in any manner which could result in the
Company or the Buyer being liable for any fee or commission in the nature
of a finder's fee or originator's fee in connection with the subject matter
of this Agreement.
4.2.15. Permits and Licenses. Neither the Seller nor the
Company has received any written notice of, and neither the Seller nor the
Company has any knowledge of, any intention on the part of any government
authority to cancel, revoke or modify any permit, license, exemption,
franchise, qualification, rights-of-way, easement, municipal and other
approval, authorization, order, consent and other right from, and filing
with, any government authority of any jurisdiction worldwide relating to
the conduct of the Company's business (collectively, "Permits"), which
cancellation, revocation or modification would have a Material Adverse
Effect. All Permits are in full force and effect. Schedule 4.2.15(a)
contains a complete and correct list of all Permits which are necessary for
the lawful operation of the business of the Company. Schedule 4.2.15(b)
contains a complete and correct list of all carrier identification codes
used in connection with the business of the Company and the ownership
thereof.
4.2.16. Material Suppliers. Schedule 4.2.16 sets forth a
complete and correct list of all written supply contracts between the
Company and each supplier of goods and services to the Company who provided
goods and services to the Company which involved an aggregate value of
$10,000 or more during the year ended December 31, 1998 with such supplier.
The Disclosure Schedule also correctly identifies all currently outstanding
purchase orders of the Company for goods or services with an aggregate
value per supplier of $10,000 or more. No supplier identified in the
Disclosure Schedule has given the Company any notice terminating,
suspending or reducing in any material respect, or specifying an intention
to terminate, suspend or reduce in any material respect, or otherwise
reflecting a material adverse change in, the business relationship between
such supplier and the Company.
4.2.17. Insurance. Schedule 4.2.17 contains a complete
and correct list of all material insurance policies carried by, or
covering, the Company with respect to its businesses, together with, in
respect of each such policy, the name of the insurer, the policy number,
the expiration date thereof and each pending claim. Complete and correct
copies of each such policy have previously been provided to the Buyer. No
written notice of cancellation has been received by the Company with
respect to any such policy. All premiums due thereon have been paid in a
timely manner and the Company has complied in all material respects with
the terms and provisions of such policies. The Company has not been refused
any insurance with respect to any aspect of the operations of the business
nor has its coverage been limited by any insurance carrier to which it has
applied for insurance or with which it has carried insurance during the
last three years. There is no claim by the Company pending under any such
policies as to which coverage has been questioned, denied or disputed by
the underwriters of such policies.
21
4.2.18. Environmental Matters.
(a) For purposes of this Section 4.2.18,
"Environmental Laws" shall mean (i) all Federal, state or local statutes,
regulations, ordinances, orders or decrees regulating or otherwise affecting
the environment and/or the disposal of Hazardous Materials (as defined below)
and (ii) The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986; the Emergency Planning and Community Right-to-Know Act; the Resource
Conservation and Recovery Act; the Hazardous Materials Transportation Act
of 1974; the Federal Water Pollution Control Act; the Clean Air Act; the
Federal Insecticide, Fungicide and Rodenticide Act; the Safe Drinking Water
Act; the Toxic Substances Control Act; the Oil Pollution Act of 1990; any
laws regulating the use of health, safety, the environment, biological
agents or substances including medical or infectious wastes, each as
amended or supplemented.
(b) Operations of the Company or any of its
subsidiaries conducted at the Leased Real Property, any of the Company's or its
subsidiaries' previously owned real property and any real property previously
leased, licensed or otherwise operated by the Company or any of its subsidiaries
(each, a "Site") at all times during such ownership, lease, license or
operation complied with all Environmental Laws, except for noncompliance
that would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company and each Site are in compliance
with all, and the Company has no liability under any, Environmental Laws,
except where the failure to comply or any such liability would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. No Site is subject to (i) any federal, state, or local
investigation, (ii) any judicial or administrative proceeding alleging the
violation of or liability under any Environmental Law, or (iii) any
outstanding written order or agreement with any governmental authority or
private party relating to any Environmental Law. As used in this Section
4.2.18, the term "Hazardous Materials" means any hazardous or toxic
substances, materials and wastes listed in the United States Department of
Transportation Hazardous Materials Table (49 C.F.R. 172.101) or by the
United States Environmental Protection Agency (the "EPA") as a hazardous
substance (40 C.F.R. Part 302) and amendments thereto, or such substances,
materials and wastes which are regulated under any applicable local, state
or Federal law, including without limitation, any material waste or
substance which is: (i) petroleum; (ii) asbestos; (iii) polychlorinated
biphenyls; (iv) defined as a "hazardous waste," "extremely hazardous
waste," "restricted hazardous waste" or "hazardous material" under
applicable state laws and regulations; (v) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. ss.
1251, et seq. (33 U.S.C. ss. 1321) or U.S.C. ss. 1317; (vi) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901, et seq. (42 U.S.C. ss. 6903); or (vii)
defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C.
Section 9601, et seq. (42 U.S.C. Section 9601).
(c) No Hazardous Materials have been generated,
stored, released, discharged, used, treated, or transported from any Leased Real
Property, except in compliance with applicable Environmental Laws.
22
(d) Neither the Seller nor the Company has received
notice from any third party including, without limitation, any Federal, state
or local governmental authority: (a) that the Company has been identified by the
EPA as a potentially responsible party under CERCLA with respect to a site
listed on the National Priorities List, 40 C.F.R. Part 000 Xxxxxxxx X
(1986); (b) that any Hazardous Materials which the Company has generated,
transported or disposed of has been found at any site at which a Federal,
state or local agency or other third party has conducted or has ordered
that the Company conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (c) that the Company
is or shall be named a party to any claim, action, cause of action,
complaint (contingent or otherwise), legal or administrative proceeding
arising out of any third party's incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous
Materials.
(e) The Company has been issued, and has
maintained through the date hereof, all required Federal, state and local
permits, licenses, certificates and approvals with respect to the Leased Real
Property and/or its operations thereat relating to (a) air emissions; (b)
discharges to surface water or groundwater; (c) noise emissions; (d) solid or
liquid waste disposal; and (e) the use, generation, storage, transportation or
disposal of Hazardous Materials, except where the failure to obtain or
maintain any such permits, licenses, certificates and approvals would not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.2.19. Transactions with Related Parties. Set forth on
Schedule 4.2.19 is a complete and correct list and description of all
transactions with an aggregate value of $1,000 per individual engaged in
since December 1, 1997 between the Company and any director, manager,
officer, employee or stockholder of the Company, or any of their respective
spouses or children, any trust of which any such person is the grantor,
trustee or beneficiary, any corporation of which any such person or party
is a stockholder, employee, manager, officer or director, or any
partnership or other person in which any such person or party owns an
interest.
4.2.20. Accounts Receivable. All accounts receivable of
the Company reflected in the Interim Balance Sheet or existing at the date
hereof (the "Accounts") represent amounts due for services performed or
sales actually made in the ordinary course of business and properly reflect
the amounts due. The bad debt reserves, allowances and anticipated customer
discounts and credits reflected in the Interim Balance Sheet are adequate
as of the date thereof. All material Accounts existing and remaining unpaid
on the effective date of this Agreement will be collectible by the Buyer in
the ordinary course of business consistent with past practice.
4.2.21. Banks. Schedule 4.2.21 contains a complete and
correct list setting forth the name of each bank in which any Company has
an account, line of credit, credit facility or safe deposit box, the names
of all persons authorized to draw thereon or to have access thereto, and
the name of each person holding a power of attorney from the Company.
4.2.22. Conflicts of Interest. Except as set forth on
Schedule 4.2.22, since December 1, 1997 none of the Seller nor any director,
officer or employee of the Company or
23
any relative of any of them has (a) loaned to or guaranteed the loan of a
third party to the Company or borrowed any money from the Company or (b)
any interest in any property, real or personal whether owned or leased,
tangible or intangible, including but not limited to, software, inventions,
patents, trade names or trademarks used in connection with or pertaining to
the business of the Company or any lender, supplier, customer, sales
representatives or distributor of the Company; provided, however, that such
director, officer or employee or relative thereof shall not be deemed to
have such interest solely by virtue of the ownership of less than five
percent of any stock or indebtedness of any publicly held company, the
stock or indebtedness of which is traded on a recognized stock exchange.
4.2.23. Letters of Agency.
(a) The Company has obtained a valid LOA, PIC
Change Authorization or TPV from each end user whose automatic number
identification the Company services.
(b) All LOAs, PIC Change Authorizations and
TPVs of the Company as of the date hereof were obtained in accordance with
applicable law and were valid as of such date. No LOA, PIC Change Authorization
or TPV is carrier-specific.
4.2.24. No Undisclosed Liabilities. As of the date of the
Interim Balance Sheet, the Company has not had any material liabilities or
obligations (absolute, accrued, contingent or otherwise and known or
unknown), that are not shown on the Interim Financial Statements. Since the
date of the Interim Balance Sheet, the Company has not assumed, incurred or
received notice of any liabilities or obligations (absolute, accrued,
contingent or otherwise and known or unknown), except liabilities or
obligations (absolute, accrued, contingent or otherwise and known or
unknown) assumed or incurred in the ordinary course of business and
consistent with prior practice not otherwise reflected in any adjustment to
the Purchase Price pursuant to Section 1.4.
4.2.25. Business Practices. The Company has not engaged
in (i) cramming, or the unauthorized addition of services or charges
(including, but not limited to, voicemail, Internet service or 900 number
charges) to a phone xxxx, (ii) slamming, or the changing of a customer's
designated long-distance provider without permission, (iii) sliding, or the
changing of a customer's designated local toll carrier without permission,
or (iv) any other type or practice of phone-related fraud.
4.2.26. Year 2000. Except as set forth on Schedule
4.2.26, all computer hardware and software that is currently used by the
Company is Year 2000 compliant. "Year 2000 compliant" means that such
computer hardware and software is designed to accurately receive, provide
and process date/time data from, into and between the years 1999 and 2000,
to the extent that the computer hardware, software and related systems of
others, used in combination with the Company's computer hardware and
software, properly exchanges date/ time data with it. As to any computer
hardware or software acquired from third parties, the representation set
forth above is to the best knowledge of the Company and the Seller, which
24
knowledge is based solely on the representations of such third parties to
the Company or the Seller. Set forth on Schedule 4.2.26 is a summary
description of the Company's Year 2000 compliance program and a statement
of the Company's progress in meeting such program's compliance schedule and
goals as of the date hereof.
4.2.27. Regulatory Compliance. The Company (i) is
operating in compliance in all material respects with all applicable
federal and state tariffs, laws, regulations and orders relating to the
telecommunications industry (ii) has not received notice of any violations
of its tariffs or of laws, regulations and orders from any governmental
entity having authority to enforce such tariffs, laws, regulations and
orders, including but not limited to, (a) the Communications Act of 1934,
as amended by the Telecommunications Act of 1996 and (b) the Telephone
Consumer Protection Act of 1991; and (iii) has complied in all material
respects with all applicable rules and regulations, including those of the
local exchange carriers providing it with access services, in determining
and designating the percentage of interstate usage in ordering interstate
and intrastate access services. Schedule 4.2.27 sets forth each of the
Company's PUC Authorizations and each of the Company's FCC Authorizations.
None of the PUC Authorizations or FCC Authorizations has been modified,
amended, or otherwise altered, and each remains legal, valid, binding, and
in full force and effect.
4.2.28. AvTel Stock Options. Except pursuant to Section
6.1.7, the Company has no obligation, financial or otherwise, with respect
to the grant, vesting or exercise of any option or options to purchase the
capital stock of AvTel, any of its Affiliates or any third party.
4.2.29. Disclosure. No representation or warranty of the
Seller herein and no statement, information or certificate furnished or to
be furnished by the Seller or its counsel, accountants or other agents
pursuant hereto or in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they
were made, not misleading.
4.3. Warranties Survive Closing. The warranties and
representations of the Seller herein contained shall be complete and
correct on the date hereof and on the Closing Date, and shall survive the
Closing for a twenty-four (24) month period following the Closing Date
except (i) all representations and warranties with respect to Section
4.2.10 (Taxes) shall survive the Closing Date until ninety (90) days after
the later of: (A) the final settlement of any alleged tax deficiencies, or
(B) the expiration of the applicable statute of limitations, together with
any extensions or waivers thereof approved by the Seller, (a "Survival
Date") (ii) all representations and warranties with respect to Section
4.2.10 (Litigation), Section 4.2.18 (Environmental Matters) and Section
4.2.27 (Regulatory Compliance) shall survive the Closing Date until ninety
(90) days after the expiration of the applicable statute of limitations,
together with any extensions or waivers thereof approved by the Seller
(each, a "Survival Date") and (iii) any claim based on an inaccuracy of a
representation or the breach of a warranty which is known by the Seller to
be false at the time such representation or warranty is made (a "Fraud
Claim") shall survive the Closing Date until ninety (90) days after the
expiration of the applicable statute of limitations, together with any
extensions or waivers thereof approved by the Seller (a "Survival
25
Date"); provided, however, that if the Buyer provides written notice to the
Seller as specified in Section 9.3 of any claim for which the Buyer seeks
indemnification pursuant to Article 9, prior to the applicable Survival
Date, the claim so made shall survive the Closing until resolved. Any claim
not so made in writing prior to the applicable Survival Date shall be
deemed to have been waived by the Buyer and no other party shall have
further liability therefor. Notwithstanding the above, there shall be no
time limit on claims or actions brought for breach of any warranty or
representation made in Section 4.1.
ARTICLE 5
WARRANTIES AND REPRESENTATIONS OF THE BUYER
5.1. Warranties and Representations. The Buyer hereby warrants and
represents to the Seller, which warranties and representations shall
survive the Closing for the period set forth in Section 5.2, that the
following statements are true on and as of the date hereof and will be true
on and as of the Closing Date:
5.1.1. Due Authorization and Execution. The Buyer has the
necessary corporate power and authority to enter into this Agreement and
the Buyer Ancillary Documents and to consummate the transactions
contemplated hereby and thereby. The Board of Directors of the Buyer and,
if required, the stockholders of the Buyer, have duly authorized and
approved the execution and delivery of this Agreement and the Buyer
Ancillary Documents and the consummation of the transactions contemplated
hereby and thereby. No other corporate proceedings are necessary to
authorize this Agreement and the Buyer Ancillary Documents and the
consummation of such transactions. This Agreement has been duly and validly
executed and delivered by the Buyer and, assuming due execution and
delivery by the Seller, constitutes a valid and binding obligation of the
Buyer enforceable against it in accordance with its terms, except as
limited by (a) bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to creditors' rights generally or (b) equitable
principles (whether considered in an action at law or in equity).
5.1.2. Organization. The Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
own, operate and lease its properties and assets and carry on its business
as now conducted.
5.1.3. Consents, Violations and Authorizations. The Buyer
is not party to or bound by any lien, lease, permit, concession, franchise,
license, instrument, mortgage, indenture or other agreement, or any
judgment, order, decree, statute, law, ordinance, rule or regulation of any
court or governmental entity applicable to it which would require it to
obtain the authorization, consent or approval of another (including the
authorization, consent or approval of governmental authorities) to the
execution of this Agreement, the Buyer Ancillary Documents or the
transactions contemplated hereby or thereby. Neither the execution and
delivery of this Agreement or the Buyer Ancillary Documents nor the
consummation of the transactions
26
contemplated hereby or thereby shall violate any provision of the
Certificate of Incorporation or Bylaws of the Buyer.
5.1.4. Investment Representations. The Common Stock to be
purchased by the Buyer pursuant to this Agreement is being acquired by the
Buyer for investment only, for its own account, and not with a view to any
public distribution thereof. The Buyer has such knowledge and experience in
business matters as to be capable of evaluating the merits and risks in
purchasing the Common Stock. The Buyer is an "accredited investor" as
defined in Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act"). The Buyer acknowledges that the Common Stock has not
been registered under the Securities Act or the securities laws of any
state (collectively, the "Securities Laws"), and has been issued in
reliance upon exemptions from the registration requirements of the
Securities Laws. The Buyer understands that any transfer or disposition of
the Common Stock may only be made pursuant to an effective registration
under applicable Securities Laws or pursuant to an exemption from the
registration requirements of the Securities Laws. The Buyer further
acknowledges that neither the Seller nor the Company has any obligation to
register the Common Stock. The Buyer understands that any certificates
representing the Common Stock may bear an appropriate legend consistent
with the foregoing.
5.1.5. Brokers; Agents. The Buyer has not dealt with any
agent, finder, broker or other representative in any manner which could
result in the Seller being liable for any fee or commission in the nature
of a finder's or originator's fee in connection with the subject matter of
this Agreement or the Buyer Ancillary Documents.
5.1.6. Financial Statements. The Buyer has delivered to
the Seller complete and correct copies of the balance sheet and income
statement of the Buyer for the fiscal period ended December 31, 1998 (the
"Buyer Historical Financial Statements") and the balance sheet and income
statement of the Buyer for the period ended June 30, 1999 (the "Buyer
Interim Financial Statements" and, collectively with the Buyer Historical
Financial Statements, the "Buyer Financial Statements"). The Buyer
Financial Statements are prepared in accordance with the books and records
of the Buyer. The balance sheet contained in the Buyer Interim Financial
Statements is complete and correct, was consistently prepared and fairly
presents the financial condition of the Buyer on such date. The Buyer
Historical Financial Statements were consolidated into the audited
consolidated financial statements of Platinum Equity Holdings, LLC ("PEH"),
which financial statements were prepared in accordance with GAAP.
5.2. Warranties Survive Closing. The warranties and
representations of the Buyer herein contained shall be complete and correct
on the date hereof and on the Closing Date and shall survive the Closing
for a twenty-four (24) month period following the Closing Date, except any
claim based on an inaccuracy of a representation or the breach of a
warranty which is known by the Buyer to be false at the time such
representation or warranty is made shall survive the Closing Date until
ninety (90) days after the expiration of the applicable statute of
limitations; provided, however, that if the Seller provides written notice
to the Buyer as specified in Section 9.3 of any claim for which the Seller
seeks indemnification pursuant to Article 9, prior to the expiration of
such twenty-four (24) month period, the claims so made shall survive the
27
Closing until resolved. Any claim not so made in writing prior to
twenty-four (24) months subsequent to the Closing Date shall be deemed to
have been waived by the Seller and no other parties shall have further
liability therefor.
ARTICLE 6
COVENANTS
6.1. Covenants of the Seller with respect to Itself and the
Company. The Seller covenants and agrees with respect to itself and the
Company as follows:
6.1.1. Access. Prior to the Closing, the Company will (i)
give the Buyer and its representatives, employees, counsel and accountants
reasonable access to the properties, books and records of the Company, (ii)
furnish the Buyer and its designated representatives with financial and
operating data and other information with respect to the Company for the
purpose of permitting the Buyer, among other things, to (a) conduct its due
diligence review, (b) review the financial statements of the Company and
(c) prepare for the consummation of the transactions contemplated by this
Agreement, and (iii) provide to Buyer complete and correct copies of each
written Contract (and any amendments thereto). Without limiting the
foregoing, the Seller and the Company will permit the Buyer and its counsel
and accountants to have access during normal business hours to examine and
make copies of all work papers and schedules of the Company and its
accountants. In connection therewith, the Buyer shall be permitted to
discuss the business affairs and financial statements of the Company with
the Company's counsel and accountants, to review the work papers of such
accountants regarding the Company, and in the presence of management of the
Company and after prior consultation with such management, to interview the
employees of the Company regarding continued employment and to discuss with
the appropriate employees of the Company such matters regarding the
business and assets of the Company as the Buyer may deem necessary or
appropriate. The Buyer and the Seller agree that nothing in this Agreement
shall be interpreted or construed as limiting, waiving, terminating or
otherwise affecting that Non-Disclosure Agreement between the Buyer and the
Seller dated June 9, 1999. The Buyer and the Seller acknowledge that the
terms of such Non- Disclosure Agreement remain in full force and effect. In
the event, at any time prior to Closing, the Buyer receives notice from a
third party of information that the Buyer believes indicates that the
Seller is in breach of any representation or warranty in this Agreement,
the Buyer shall give immediate notice to the Seller, who shall then have
the opportunity to cure any such breach prior to Closing. Notwithstanding
any failure by the Buyer to provide such notice, or anything herein to the
contrary, any information learned or deemed to be learned by the Buyer in
its due diligence or pursuant to this Section 6.1.1 shall not limit or
reduce its right to the indemnity of Article 9 with respect to the breach
of any of the representations and/or warranties of the Seller or the
Company in this Agreement.
6.1.2. Records. On the Closing Date, the Company will
deliver to the Buyer all original records relating to the Company,
including such records that are in the possession of the Seller, provided
that the Seller shall have the right to make copies of any and all
materials
28
which it may deem necessary and shall have the continual right to have
access to such records in accordance with Section 6.2.3.
6.1.3. Conduct of the Business of the Company. The Seller
covenants and agrees that, between the date hereof and the Closing Date
(except as otherwise agreed in writing by the Buyer):
(a) the business of the Company will be
conducted in the ordinary course consistent with past practice;
(b) no amendment will be made to the Articles
of Incorporation or Bylaws of the Company;
(c) the Company will use reasonable efforts to
keep available the services of its employees and to preserve the goodwill of
the customers, suppliers and others having business relationships with the
Company;
(d) the Company shall promptly advise the Buyer
in writing of the commencement or threat of any suit, proceeding or
investigation against, relating to or involving the Company or which could
otherwise affect the assets or the businesses of the Company and which in
each case would, if not covered by insurance and if determined adversely to
the Company, have a Material Adverse Effect;
(e) the Company shall advise the Buyer of (i)
any material adverse change in the assets, liabilities or financial
condition of the Company and (ii) in any event, any condition or state of
facts which results in the failure to satisfy any of the conditions of the
Buyer's obligations hereunder;
(f) the Company shall not create or permit to
become effective any Encumbrance on the assets of the Company other than
Encumbrances created in the ordinary course of business;
(g) the Company will maintain its current
liability, casualty, property and other insurance coverage in full force and
effect;
(h) the Company will not issue any debt
securities or any additional shares of capital stock or any options, warrants
or other rights to purchase, or securities convertible into or exchangeable
for, shares of capital stock of the Company;
(i) the Company will not declare or pay any
dividends on or make any distributions (however characterized) in respect of
its Common Stock;
(j) the Company will not repurchase, redeem,
retire or otherwise acquire any shares of its Common Stock or split, combine or
reclassify its outstanding shares of its Common Stock;
29
(k) the Company will not make any change in the
accounting principles or practices reflected in the Interim Financial Statements
other than as required by GAAP or in the Company's methods of applying such
principles or processes;
(l) the Company shall not, directly or
indirectly, (i) incur any indebtedness for borrowed money, (ii) waive,
release, grant or transfer any rights of material value, except in the
ordinary course of business, (iii) transfer, lease, License, sell,
mortgage, pledge, dispose of, or encumber any asset of the Company with a
value exceeding $1,000 individually, and/or $5,000 in the aggregate, (iv)
purchase or acquire any material interest in any business or any securities
or assets of a business, (v) enter into any joint venture or partnership,
(vi) settle any material litigation, or (vii) accelerate payments on any
indebtedness;
(m) the Company will not, directly or
indirectly, (i) increase the compensation payable or to become payable
by it to any of its employees, officers, directors, managers or
consultants, (ii) adopt any additional, or make any payment or provision
with respect to any, or otherwise amend any, other than as required by
existing plans or agreements in the ordinary course of business and
consistent with past practice, stock option, bonus, profit sharing,
pension, group insurance, severance pay, deferred compensation or other
payment or employee compensation plan for the benefit of employees of the
Company, (iii) grant any stock options or stock appreciation rights, (iv)
enter into any new, or alter or amend any employment severance, consulting
or other compensation agreement with any director, manager, officer,
employee or Affiliate of the Company, (v) make any loan or advance to, or
enter into any written contract, lease or commitment with, any officer,
manager, employee or director of the Company, or (vi) enter into any
transactions with any Affiliate of the Company other than as contemplated
by this Agreement;
(n) capital expenditures (or commitments to
make such expenditures which are not terminable at the option of the
Company) shall be incurred by the Company in the ordinary course of
business in accordance with past practices but shall in no event exceed an
aggregate of $5,000;
(o) the Seller and the Company will promptly
advise the Buyer in writing of any facts or circumstances that could
give rise to a Material Adverse Effect or any breach of the representations
or warranties with respect to the Seller or the Company, or any breach of a
covenant contained herein;
(p) the Company shall not, directly or
indirectly, guaranty or otherwise become responsible for any obligation or
liability of any third party;
(q) the Company shall not enter into any
material contracts (or modify in a material way any such existing
contracts) for the purchase or sale of communication services unless such
contracts are first approved by the Buyer;
(r) the Company shall not, without the Buyer's
written consent, change any of its rate plans for its existing customers;
and
30
(s) the Company will not enter into any
agreement or commitment to do any of the foregoing.
6.1.4. Acquisition Proposals.
(a) Following the execution of this Agreement
and prior to the earliest to occur of (i) the termination of this
Agreement under Article 10 or (ii) the Closing Date, the Company, the
Seller and/or any of their respective managers, directors, partners,
officers, employees or other representatives or agents shall not, directly
or indirectly, communicate, solicit, initiate, encourage or participate
(including furnishing non-public information concerning the Company's
business, properties or assets) in any discussions or negotiations with
regard to any proposal to acquire, directly or indirectly, any shares of
the capital stock or Common Stock of the Company, to invest any funds in
the Company, whether such proposal, acquisition, investment or other
transaction involves a stock sale, a tender offer, exchange offer, merger
or other business combination involving the Company, or for the acquisition
of a substantial portion of the assets of the Company (an "Acquisition
Proposal"); provided, however, that the Seller and its directors and
officers may participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any person to do or
seek any of the foregoing to the extent that their fiduciary duties so
require. The Company will immediately communicate to the Buyer the identity
of such other party and the initial terms of any proposal it may receive
from any other party in respect of an Acquisition Proposal.
(b) If the Seller shall terminate this
Agreement in connection with its acceptance of an Acquisition Proposal,
the Seller shall pay to the Buyer Two Million Dollars ($2,000,000), plus
the net amount of money invested by the Buyer in the operations of the
Company through the date of termination plus the amount of the Purchase
Price paid through the date of termination (the "Investment") by wire
transfer of immediately available funds and pursuant to the wire transfer
instructions set forth on Schedule 1.3.
(c) The Seller shall have the right to review
the books and records of the Buyer and the Company for a period of
thirty (30) days after notification of the amount of the Investment to
verify and confirm the accuracy thereof. If, after such review, the Seller
agrees with the amount of the Investment, the Seller shall promptly pay the
Buyer pursuant to Section 6.1.4(b). If, after such review, the Seller
objects to the amount of the Investment, the Seller shall promptly (and in
any event within forty-five (45) days after notification of the amount of
the Investment) provide the Buyer with a detailed statement indicating the
basis for its objections, and the Buyer and the Seller shall meet and
confer in an effort to resolve such disagreement in good faith.
(d) In the event that the Buyer and the Seller
are unable to resolve a disagreement with respect to the amount of the
Investment within sixty (60) days following the date of the Seller's
objection (or such longer period as the Buyer and the Seller may agree),
the amount of the Investment shall be determined by the Accountants as the
Buyer and the Seller may agree. If issues in dispute are submitted to the
Accountants for resolution, (i) each party
31
will furnish to the Accountants such work papers and other documents and
information relating to the disputed issues as the Accountants may request
and are available to that party, and will be afforded the opportunity to
present to the Accountants any material relating to the determination and
to discuss the determination with the Accountants; (ii) the determination
by the Accountants of the amount of the Investment, as set forth in a
notice delivered to both parties by the Accountants, will be binding and
conclusive on the parties; and (iii) the fees of the Accountants for such
determination shall be paid equally by the parties.
6.1.5. Notice of Proceedings. The Company will, upon
becoming aware of any order or decree or any complaint praying for an order
or decree restraining or enjoining the consummation of this Agreement or
the transactions contemplated hereunder, or upon receiving any notice from
any governmental department, court, agency or commission of its intention
to institute an investigation into, or institute a suit or proceeding to
restrain or enjoin the consummation of this Agreement or such transactions,
or to nullify or render ineffective this Agreement or such transactions if
consummated, promptly notify the Buyer in writing of such order, decree,
complaint or notice.
6.1.6. Noncompetition and Nonsolicitation.
(a) Noncompetition. For a period commencing on
the date hereof and continuing through the third anniversary of the
date hereof, the Seller shall not, directly or indirectly, and shall not
permit any officer, employee or subsidiary (other than the Company) of the
Seller to, (i) engage in; (ii) own or control any interest in (except as a
passive investor of less than two percent (2%) of the capital stock or
publicly traded notes or debentures of a publicly held company); (iii) act
as an officer, director, partner, member, or joint venturer of; (iv) lend
credit or money for the purpose of establishing or operating; or (v) allow
such entity's name or reputation to be used by any firm, corporation,
partnership, limited liability company, trust or business enterprise (a
"Competitor") that is engaged in, directly or indirectly, the provision of
residential long distance telephone services within the Territory (as
defined below). Notwithstanding the foregoing, the Seller may acquire a
business which provides residential long distance telephone services in the
Territory if: (i) such services constitute less than thirty-five percent
(35%) of the value of the acquired business, (ii) the Seller fully divests
itself of such services within six (6) months of the date of acquisition;
provided, however, that the Buyer shall have a thirty (30) day right of
first refusal with regard to such services and (iii) the Seller does not
implement any new marketing programs with regard to such services. In
addition, the Seller shall not, directly or indirectly, and shall not
permit any officer, employee, controlling person or subsidiary (other than
the Company) of the Seller to, influence or attempt to influence any person
who is a contracting party with the Company as of the date of this
Agreement to terminate or amend any existing written or oral agreement of
them that relates to the residential long distance telephone services
business of the Company, except with regard to mass-market advertising
campaigns and to customers whose long distance telephone services will be
provided by the Company. The covenants and agreements contained in this
paragraph shall extend geographically throughout the United States (the
"Territory").
32
(b) Nonsolicitation. For a period commencing
on the date hereof and continuing through the third anniversary of the
date hereof, the Seller shall not, directly or indirectly, and shall not
permit any officer, employee or Affiliate (other than the Company) of the
Seller to, without the prior written consent of the Buyer, solicit the
employment of, or hire any person set forth in Exhibit 6.1.6(b).
(c) Covenants Reasonable as to Time and
Territory. The Seller has carefully considered the nature and extent of the
restrictions upon it under this Section 6.1.6, and hereby acknowledges and
agrees that the same are reasonable in time and territory.
(d) Injunction for Breach. The Seller
acknowledges and agrees that a monetary remedy for any breach of the
covenants in this Section 6.1.6 will be inadequate, and that the Buyer
shall be entitled to temporary and permanent injunctive relief against the
Seller, in addition to any other relief the Buyer may be entitled to,
without the necessity of proving actual damages.
(e) Unenforceability. It is the desire and
intent of the Buyer and the Seller that the provisions of this Section
6.1.6 be enforced to the fullest extent permissible under the laws and
public policies of each jurisdiction in which enforcement is sought.
Accordingly, if any provision of this Section 6.1.6 shall be adjudicated to
be invalid or unenforceable, such provision, without any action on the part
of any party hereto, shall be deemed amended to delete or to modify or to
restrict (including, without limitation, a reduction in duration,
geographical area or prohibited business activities) the portion
adjudicated to be invalid or unenforceable, such deletion or modification
to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made, and such
deletion or modification to be made only to the extent necessary to cause
the provision as amended to be valid and enforceable.
6.1.7. AvTel Stock Options. The Seller shall continue to
grant options to purchase the Seller's common stock pursuant to the New
Best Connections, Inc. Amended and Restated 1997 Option Plan (the "Field
Force Plan") to the Company's field force of independent sales agents and
to permit such options to vest. Such grants and vesting shall be in
accordance with the terms of the Field Force Plan and consistent with past
practice and shall continue until all Exercisable Options and Kickoff
Options (as those terms are defined in the Field Force Plan) have been
granted and vested. In consideration of the continued grants and vesting of
such options, and commencing on the date hereof, the Company shall pay the
Seller $15,000 per month through December 31, 1999. The Seller shall not
amend the Field Force Plan without the written consent of the Buyer other
than to ensure the continuing compliance of the Field Force Plan and the
awards thereunder with all laws, rules and regulations applicable thereto;
provided, however, that the Buyer shall cease to make any payments related
to the Field Force Plan upon any amendment of the Field Force Plan that
precludes the grant and/or the vesting of such options.
33
6.1.8. "Toll Free" Telephone Numbers. Following the
execution of this Agreement, the Seller covenants and agrees that the
Company shall have the sole and exclusive right to use the "toll free"
telephone numbers set forth on Schedule 4.2.6(e).
6.1.9. MCI WorldCom Inc. The Seller shall indemnify the
Buyer and the Company and hold them harmless from and against any and all
damages, losses, deficiencies, actions, judgments, costs, expenses, debts,
liabilities and obligations (including reasonable attorneys' and
accountants' fees) (collectively, "Claims") of or against the Buyer or the
Company resulting from or arising out of the relationship between DNS
Communications, Inc., formerly a subsidiary of the Company, and MCI
WorldCom Inc. (or any successor thereto).
6.1.10. Matrix Communications Corporation. The Seller
shall indemnify the Buyer and the Company and hold them harmless from and
against any and all Claims of or against the Buyer or the Company resulting
from or arising out of the dispute between the Company and Matrix
Communications Corporation (or any successor thereto).
6.2. Covenants of the Buyer. The Buyer covenants and agrees
as follows:
6.2.1. Coast Indemnity. Except with regard to actions of
the Seller following August 30, 1999, and subject to the limitations,
restrictions and conditions set forth in this Agreement, the Buyer shall
indemnify the Seller and hold it harmless from and against any and all
Claims of or against the Seller resulting from or arising out of the Coast
Loan Agreement in an amount not to exceed $2,750,000 plus any amount drawn
after the date hereof.
6.2.2. Business Markets Customers. Upon the Seller
obtaining regulatory approval, including, but not limited to, a waiver from
the FCC of its carrier selection rules with respect to customers whose
preselected carrier changes as a result of the transactions contemplated
hereby, and without additional consideration therefor, the Buyer shall
transfer to the Seller the Business Markets customers listed on the
schedule previously delivered by the Seller to the Buyer, plus all
additional Business Markets customers acquired between the date hereof and
the date such regulatory approval is obtained.
6.2.3. Field Force Plan. The Buyer shall provide to
the Seller all documentation reasonably required by the Seller to operate the
Field Force Plan.
6.3. Mutual Covenants. Each of the Company, the Seller and the
Buyer covenants and agrees as follows:
6.3.1. Cooperation. The Buyer, the Company and the Seller
shall cooperate with each other and shall cause their respective directors,
officers, managers, employees, agents, accountants and representatives to
cooperate with each other after the Closing to ensure the orderly
transition of the ownership of the Company and its business from the Seller
to the Buyer and to minimize any disruption to the business of the Company
that might result from the transactions contemplated hereby. At any time
prior to Closing, in the event that either party receives notice from a
third party of information that such party believes indicates that the
other
34
party is in breach of any representation or warranty in this Agreement,
such party shall give prompt notice to the other party.
6.3.2. Records. For a period of six (6) years after the
Closing, upon reasonable written notice, the Buyer and the Seller agree to
furnish or cause to be furnished to each other and their respective
representatives, counsel and accountants access, during normal business
hours, such information (including records pertinent to the Company)
relating to the Company as is reasonably necessary for financial reporting,
regulatory, tax and accounting matters, assistance in the preparation and
filing of any returns, reports or forms or the defense of any tax claim or
assessment; provided, however, that such access does not unreasonably
disrupt the normal operations of the Company. Without limiting the
foregoing, the Seller shall have access to and the right, at the Seller's
expense, to copy any books or records of the Company which relate to
matters or events prior to the Closing. The Seller shall be entitled, at
reasonable times and upon reasonable notice, to inspect and receive copies
of all accounting and sales records relating to the calculation of the ISP
Payment, whether maintained by the Company or the Buyer.
6.3.3. Regulatory Filings. The Buyer, the Company and the
Seller shall make reasonable efforts to ensure that all regulatory filings
associated with the transactions contemplated hereby shall be filed by the
appropriate party or parties within two (2) weeks of the date hereof.
6.3.4. Contract Assignments. The Buyer, the Company and
the Seller shall make reasonable efforts to ensure that (i) the contracts
set forth on Exhibit 6.3.4(i) are assigned from the Seller to the Company
and (ii) the contracts set forth on Exhibit 6.3.4(ii) are assigned from the
Company to the Seller. From the date hereof and until such time as the
assignment of a contract set forth on Exhibit 6.3.4(i) or Exhibit 6.3.4(ii)
is completed, the intended assignee shall be responsible for all
obligations and duties under such contract, and shall receive any profits
or losses associated with such contract.
6.3.5. Reasonable Efforts. Each party hereto agrees that,
from the date hereof to the Closing Date, it shall use reasonable efforts
to satisfy the conditions precedent to the Closing (including but not
limited to, any obligation to obtain regulatory approvals in connection
with the transactions contemplated hereby) to the extent that such
conditions are to be satisfied by such party. From time to time, as and
when requested by a party hereto, each party hereto shall execute and
deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such further or other
actions as such other parties may reasonably deem necessary or desirable to
consummate the transactions contemplated by this Agreement or the
agreements, documents or instruments associated herewith.
6.3.6. Closing.
(a) The Buyer, the Company and the Seller shall make reasonable
efforts to ensure that the Closing shall occur on or before December 31,
1999; provided, however, that to the extent that any regulatory approval
associated with the transactions
35
contemplated hereby has not been obtained by such date that would, together
with all such regulatory approvals that have not been obtained by such
date, have a Material Adverse Effect on the Company or the Buyer, the
Closing shall not occur until such regulatory approvals have been obtained,
such determination to be made by the Buyer in its sole and reasonable
discretion.
(b) If the Buyer determines that the Closing
shall occur prior to
obtaining all regulatory approvals associated with the transactions
contemplated hereby, the Seller shall indemnify the Buyer and the Company
and hold them harmless from and against any and all Claims resulting
therefrom.
ARTICLE 7
DISCLOSURE SCHEDULE
7.1. General. The schedules and information set forth in the
Disclosure Schedule shall specifically refer to the section of this
Agreement to which such schedule and information is responsive. Terms used
in the Disclosure Schedule and not otherwise defined therein shall have the
same meanings as are ascribed to such terms in this Agreement. Any
documents attached to the Disclosure Schedule are incorporated in their
entirety into the Disclosure Schedule.
7.2. Disclosure Schedule. The Seller shall deliver the Disclosure
Schedule to the Buyer on or prior to the date hereof.
ARTICLE 8
NON-DISCLOSURE
8.1. Non-Disclosure of Confidential Information. Except as may be
agreed to in writing by the Buyer, the Seller acknowledges and agrees that
the Seller shall not, and shall indemnify the Buyer and the Company in the
event that any of the Seller's Affiliates shall, at any time during the
five (5) year period following the Closing Date, make use of or disclose
any Confidential Information (as defined below) to anyone other than to
employees and representatives of the Buyer. For purposes of this Section
8.1, the term "Confidential Information" shall mean all proprietary
information of the Company relating to the Company, its customers, products
and services including, without limitation, the following: (i) all
technical information relating to the provision of goods or services by the
Company; (ii) information concerning pricing policies of the Company,
prices charged by the Company to its customers, the volume of orders of
such customers and all other information concerning the transactions of the
Company with its customers or proposed customers; (iii) the customer lists
of the Company; (iv) information concerning the marketing programs or
strategies of the Company; (v) financial information concerning the
Company; and (vi) information concerning salaries or wages paid to, the
work records of and other personal information relating to employees of the
Company.
8.2. Exceptions. The provisions of Section 8.1 shall not apply
to any information that (i) becomes available to the Seller without restriction
on disclosure by the Seller from a source
36
other than the Company who received the information not in violation of any
confidentiality restriction; (ii) is or becomes available on an
unrestricted basis to a third party from the Company or someone acting
under its control; (iii) is publicly known or becomes publicly known
through no fault of the Seller or (iv) is revealed pursuant to a statute,
regulation, or order of a court of competent jurisdiction requiring such
disclosure, provided the Seller promptly notifies the Buyer to allow the
Buyer to take appropriate protective measures. Section 8.1 shall not limit
the ability of the Seller or the Company to file tax returns or similar
documents or to produce financial statements and make filings with the
Securities and Exchange Commission as required without the consent of the
Buyer.
8.3. Enforcement. In addition to all other legal remedies
available to the Buyer for the enforcement of the covenants of this Article
8, the Seller hereby agrees that the Buyer shall be entitled to an
injunction by any court of competent jurisdiction to prevent or restrain
any breach or threatened breach hereof. The Seller further agrees that if
any of the covenants set forth herein shall at any time be adjudged invalid
to any extent by any court of competent jurisdiction, such covenant shall
be deemed modified to the extent necessary to render it enforceable.
8.4. Ratification of Non-Disclosure Agreement. The Buyer and the
Seller agree that nothing in this Agreement shall be interpreted or
construed as limiting, waiving, terminating or otherwise affecting that
Non-Disclosure Agreement between PEH and the Seller dated June 9, 1999. The
Buyer, the Seller and PEH each acknowledge and agree that the terms of such
Non-Disclosure Agreement remain in full force and effect and shall govern
all parties to this Agreement.
ARTICLE 9
INDEMNIFICATION
9.1. Indemnification of the Buyer. Subject to the limitations,
restrictions and conditions set forth in this Agreement, the Seller shall
indemnify the Buyer and the Company and hold them harmless from and against
any and all Claims of or against the Buyer or the Company resulting from or
arising out of (i) any misrepresentation or breach of any warranty made by
the Seller herein or in any Seller Ancillary Document not otherwise
reflected in any adjustment to the Purchase Price pursuant to Section 1.4
or (ii) any breach, default in performance or nonfulfillment of any
covenant or agreement which is to be performed by the Seller under this
Agreement or any of the Seller Ancillary Documents.
9.2. Indemnification of the Seller. The Buyer shall indemnify the
Seller and hold it harmless from and against any and all Claims of or
against the Seller resulting from or arising out of (i) any
misrepresentation or breach of warranty of the Buyer contained herein or in
any Buyer Ancillary Document, or (ii) any breach, default in performance or
nonfulfillment of any covenant or agreement which is to be performed by the
Buyer under this Agreement or any of the Buyer Ancillary Documents.
37
9.3. Procedure Relative to Indemnification.
(a) In the event that any party hereto shall claim that
it is entitled to be indemnified pursuant to the terms of this Article 9,
it (the "Claiming Party") shall so notify the party against which the claim
is made (the "Indemnifying Party") in writing of such claim promptly (i)
after discovery of the facts supporting the claim or (ii) receipt of a
written notice of any claim of a third party (a "Third-Party Claim") that
may reasonably be expected to result in a claim by such party against the
party to which such notice is given, as the case may be. Such notice shall
specify the breach of representation, warranty, covenant or agreement
claimed by the Claiming Party and the liability, loss, cost or expense
incurred by or imposed upon or expected to be incurred by or imposed upon
the Claiming Party on account thereof. If such liability, loss, cost or
expense is liquidated in amount, the notice shall so state. If the amount
is not liquidated, the notice shall so state and in such event a claim
shall be deemed asserted against the Indemnifying Party on behalf of the
Claiming Party, but no payment shall be made on account thereof until the
amount of such claim is liquidated and the claim is finally determined.
(b) The Indemnifying Party may, upon receipt of written
notice of a Third- Party Claim and at its expense, defend such claim in its
own name or, if necessary, in the name of the Claiming Party, unless the
aggregate potential liability of the Claiming Party exceeds the aggregate
potential liability of the Indemnifying Party (calculated assuming
indemnification by the Indemnifying Party with reference to the limitations
set forth in Section 9.4), in which event the Indemnifying Party shall only
have the right to defend the Third-Party Claim with the consent of the
Claiming Party, but shall have the right to participate at its expense in
the defense thereof. The Claiming Party will cooperate with and make
available to the Indemnifying Party such assistance and materials as may be
reasonably requested of it, and the Claiming Party shall have the right, at
its expense, to participate in the defense. The Indemnifying Party shall
have the right to settle and compromise such claim only with the consent of
the Claiming Party which consent shall not be unreasonably withheld.
(c) In the event the Indemnifying Party shall fail or not
have the right to assume the defense under Section 9.3(b), or shall notify
the Claiming Party that it shall refuse to conduct a defense against a
Third-Party Claim, then the Claiming Party shall have the right to conduct
a defense against such claim and shall have the right to settle and
compromise such claim. Once the amount of such claim is liquidated and the
claim is finally determined, the Claiming Party shall be entitled to pursue
each and every remedy available to it at law or in equity to enforce the
indemnification provisions of this Article 9 and, in the event such amount
is determined, or the Indemnifying Party agrees, that it is obligated to
indemnify the Claiming Party for such claim, the Indemnifying Party agrees
to pay all costs, expenses and fees, including all reasonable attorneys'
fees which may be incurred by the Claiming Party in defending such claim
and in attempting to enforce indemnification under this Article 9, whether
the same shall be enforced by suit or otherwise.
38
9.4. Limits on Indemnification Claims.
9.4.1. Basket. Except with respect to Claims for breaches
of representations or warranties contained in Section 4.1, Section 4.2.10
(Taxes), Section 6.3.5 (Closing) or a Fraud Claim, the Seller shall not be
required to provide indemnification under Section 9.1 unless the damages
for all such Claim(s) of indemnification shall exceed in the aggregate
$100,000 (the "Basket Amount"), but upon reaching such amount,
indemnification shall be from the first dollar to the full extent of all
damages.
9.4.2. Maximum Amount of Indemnification. Except with
respect to claims for breaches of representations or warranties which arise
as a result of a Fraud Claim or those representations or warranties
contained in Section 4.1, Section 4.2.4 (Litigation), Section 4.2.10
(Taxes) and Section 4.2.18 (Environmental Matters) for which there shall be
no limit, in no event shall the aggregate liability of the Seller with
respect to all claims of indemnification by the Buyer exceed the aggregate
amount of Eight Million Dollars ($8,000,000), plus or minus any Purchase
Price Increase or Purchase Price Decrease, as appropriate, pursuant to
Section 1.4, and minus any amount of the ISP Payment not received by the
Seller (the "Cap Amount").
9.5. Sole Remedy; Termination. The sole and exclusive monetary
remedy of the parties for any and all claims with respect to the
transactions contemplated herein, whether under or as a result of this
Agreement or otherwise, shall be the indemnity set forth in this Article 9,
as limited by the provisions set forth in this Article 9. Any Claim or
request for indemnification not submitted in writing prior to the
expiration of the applicable survival period of the warranty,
representation or covenant on which such Claim or request is based shall be
deemed to have been waived and no party shall have any further liability
with respect thereto.
ARTICLE 10
TAX MATTERS
10.1. Section 338 Election.
(a) The Buyer, in its sole discretion, shall determine
whether an election shall be made under Sections 338(g) and 338(h)(10) of
the Code and the Treasury Regulations promulgated under the Code (the
"Treasury Regulations") and any corresponding or similar elections under
state, local or foreign Tax law (collectively, a "Section 338(h)(10)
Election") with respect to the purchase and sale of the shares of the
Company hereunder. If the Buyer so determines that a Section 338(h)(10)
Election shall be made with respect to these shares, the Buyer shall notify
the Seller in writing on or before at any time prior to ninety (90) days
following the Closing of its determination and the Seller shall join with
the Buyer in making the Section 338(h)(10) Election in accordance with the
provisions of Section 10.1(b) through Section 10.1(d) below.
(b) If the Section 338(h)(10) Election will be made, the
Seller and the Buyer shall report, in connection with the determination of
income, franchise or other Taxes measured
39
by net income, the transactions being undertaken pursuant to this Agreement
in a manner consistent with the Section 338(h)(10) Election and this
Agreement. The Buyer shall be responsible for the preparation of two (2)
copies of all forms and documents required in connection with the Section
338(h)(10) Election (including Internal Revenue Service Form 8023). Once
the Buyer properly prepares documents and forms as may be required by
applicable Tax laws to complete and make properly the Section 338(h)(10)
Election and timely delivers two (2) copies of such forms and documents to
the Seller, the Seller shall execute both copies no later than thirty (30)
days following receipt of such forms and timely file one copy of such forms
and documents with its appropriate income tax return with the Internal
Revenue Service and return the other copy to Buyer for timely filing with
the Internal Revenue Service District Director.
(c) If the Section 338(h)(10) Election will be made, the
Buyer shall provide the Seller with a valuation statement reflecting, as of
the Closing Date, the fair market values of all of the assets and the
liabilities and obligations of the Company. The Seller shall file, and/or
shall cause to file, all Tax Returns and statements in connection therewith
in a manner consistent with such valuations and shall take no position
contrary thereto unless required to do so by applicable Tax laws. The
Seller shall have the right to review and approve (which approval shall not
be unreasonably withheld) any appraisal upon which such valuations are
based and any such forms and schedules relating to such valuations, prior
to the filing thereof. Any disputes regarding the valuation statement or
the preparation, execution or filing of the forms and documents required in
connection with making the Section 338(h)(10) Election shall be resolved in
an arbitration to be conducted by a Big Five accounting firm jointly
selected by the Buyer and the Seller (the "Selected Accounting Firm"),
whose fees shall be borne equally by the parties. Each of the parties to
this Agreement shall be bound by the decision of the Selected Accounting
Firm rendered in such arbitration.
(d) To the extent permitted by state, local or foreign
Tax laws, the principles and procedures of this Section 10.1 shall also
apply with respect to a Section 338(h)(10) Election under state, local or
foreign law. The Seller shall join with the Buyer in making any election
similar to the Section 338(h)(10) Election which is optional under any
state, local or foreign law, and shall cooperate and join in any election
made by the Buyer or the Company to effect such an election so as to treat
the transactions contemplated herein as a sale of assets for state, local
and foreign income Tax purposes, if so determined by the Buyer.
10.2. Tax Indemnification. The Seller shall be liable for, shall
pay or cause to be paid and shall indemnify and hold the Buyer and its
Affiliates, including, after the date hereof, the Company, and all of their
officers, directors and agents, harmless from and against any and all
losses, claims, damages, liabilities, costs, expenses (including reasonable
attorneys' fees and the cost and expenses of enforcing such indemnification
against the Seller), interest and penalties, if any, arising out of or
based upon or for or in respect of each of the following: any and all
income Taxes (or franchise or other Taxes measured by net income) with
respect to the Company for any taxable period (or any partial period)
ending on or before the date hereof; any and all income Taxes (or franchise
or other Taxes measured by net income) resulting solely from the Company
having been included in any consolidated, combined or unitary tax return
that
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included the Company for any taxable period (or portion thereof) ending on
or before the Closing Date pursuant to Treasury Regulation Section
1.1502-6(a) or any analogous or similar state, local or foreign law or
regulations (other than any liability arising under such Treasury
Regulation or analogous law by reason of the Company becoming a member of
the consolidated, combined or unitary group of which the Buyer is a
member); any and all other Taxes with respect to the Company for any Tax
period ending on or prior to the date hereof or with respect to periods
beginning before the Closing Date and ending after the date hereof to the
extent allocated to the Company or to the Seller pursuant to Section
10.3(c) hereof and not previously paid; any breach of representations in
Section 4.2.10; and any income or franchise taxes incurred by the Company
in connection with a Section 338(h)(10) Election.
10.3. Preparation of Tax Returns; Payment of Taxes.
(a) The Seller shall prepare or cause to be prepared and
file or cause to be filed all federal, state and local Tax Returns of the
Company required to be filed (taking into account any extensions) for
periods ending on or before the date hereof. The Seller shall pay the
amount of any Taxes shown due thereon to the appropriate Tax authorities
and shall provide the Buyer with adequate proof of such filing and payment
and with written confirmation that such Tax Returns have been prepared in a
manner that is consistent with the past income Tax practices and consistent
with the past Tax Returns of the Company. Following the date hereof, the
Buyer shall be responsible for properly and consistently preparing or
causing to be prepared all other federal, state and local income Tax
Returns required to be filed by the Company for periods which include the
date hereof and any such income Tax Returns will not be filed without the
Seller's approval, which approval will not be unreasonably withheld;
provided, however, that the Seller shall prepare and file or cause to be
filed federal and state income or franchise tax returns that would include
the Company in any consolidated, combined or unitary Tax Return of the
Seller.
(b) For federal income Tax purposes, the taxable year of
the Company ends as of the close of the Closing Date and, with respect to
all other Taxes, the Buyer and the Seller will, unless prohibited by
applicable law, close the taxable period of the Company as of the date
hereof. Neither the Buyer nor the Seller shall take any position
inconsistent with the preceding sentence on any Tax Return.
(c) In any case in which a Tax with respect to the
Company is assessed with respect to a taxable period which begins before
the date hereof and ends after the date hereof, the resulting Tax
obligation shall be allocated (i) to the Seller for the period up to and
including the date hereof, and (ii) to the Buyer for the period subsequent
to the date hereof. Any allocation of Taxes attributable to any period
beginning before and ending after the date hereof shall be made by means of
a closing of the books and records of the Company as of the close of the
date hereof, provided that exemptions, allowances, deductions (including,
but not limited to, depreciation and amortization deductions) or any Taxes
(such as property or similar Taxes) that are calculated on an annual basis
shall be allocated between the period ending on the date hereof and the
period after the date hereof in proportion to the number of days in each
such period. Any
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disagreements regarding the allocations shall be promptly resolved in an
arbitration conducted by the Selected Accounting Firm whose decision shall
be binding on the parties.
10.4. Tax Proceedings. In the event of a contest with a Taxing
Authority over Taxes for which indemnifying party is liable pursuant to
Section 10.2, the indemnifying party will be entitled to control, at its
expense, the proceedings with respect to such Taxes, but only if the
indemnifying party submits to the claiming party an executed acknowledgment
that it is liable for all Taxes (including interest and penalties)
resulting from such contest. Notwithstanding the preceding sentence, the
claiming party will in any event be entitled to control the proceedings
which relate to a consolidated or combined return filed by the claiming
party and its subsidiaries, as the case may be. If the claiming party is
not entitled to control the proceedings under the foregoing provisions, the
indemnifying party will provide, or cause to be provided, to the claiming
party copies of all correspondence received from the taxing authority in
connection with such proceedings. The party in control of the proceeding
under this Section 10.4 shall not enter into any agreement or compromise or
settlement of such contest that could affect a period that is the
responsibility of the noncontrolling party without the written consent of
the non-controlling party (which consent shall not be unreasonably
withheld). The party which is not entitled to control any such proceeding
shall be afforded a reasonable opportunity to participate in the defense
thereof at its own expense and shall reimburse the party entitled to
control such proceedings for any additional expenses incurred by such
controlling party as a result of the noncontrolling party's participation
in such proceeding.
10.5. Payment of Indemnification. Upon payment of any Taxes with
respect to which a party is entitled to receive indemnification hereunder,
such party shall submit an invoice to the indemnifying party stating that
such Taxes have been paid and giving in reasonable detail the particulars
relating thereto. The indemnifying party shall remit payment for such Taxes
promptly upon receipt of such invoice.
10.6. Assistance and Cooperation. The Seller and the Buyer shall:
(a) Assist (and cause its respective Affiliates to
assist) the other party in preparing any Tax Returns which such other party
is responsible for preparing and filing in accordance with Section 10.3
hereof;
(b) Cooperate fully in preparing for any audits of, or
disputes, contests or proceedings with, taxing authorities regarding any
Tax Returns which relate to the Company;
(c) Make available to the other and to any taxing
authority as reasonably requested all information, records and documents
relating to Tax liabilities which are attributable to the Company;
(d) Preserve all such information, records and documents
until the expiration of any applicable statutes of limitations or
extensions thereof and as otherwise required by law;
42
(e) Make available to the other, as reasonably requested,
personnel responsible for preparing or maintaining information, records and
documents in connection with Tax matters;
(f) Provide timely notice to the other in writing upon
receipt of notice of any pending or threatened Tax audits or assessments
relating to the Company for any period beginning prior to the Closing Date;
(g) Furnish the other with copies of all correspondence
received from any Taxing authority in connection with any Tax audit or
information request with respect to any period beginning prior to the
Closing Date;
(h) Keep confidential any information obtained pursuant
to this Section 10.6, except as may otherwise be necessary in connection
with the filing of Tax Returns or claims for refund or in conducting any
audit or other Tax proceeding; and
(i) Furnish the other with adequate information which
would enable the other party to determine its entitlement to, and the
amount of, any refund or credit to which either party reasonably believes
the other party may be entitled.
10.7. Tax Sharing Agreements. All Tax sharing and similar
agreements (other than the provisions of this Agreement) between the
Company and the Seller or any other corporation or corporations shall be
terminated as of the date hereof, and the Company shall not have any
liability from and after the date hereof under any such agreement.
10.8. Transfer Taxes. The Seller shall be liable for and shall pay
all excise, sales, use, transfer (including real property transfer or
gains), stamp, documentary, filing, recordation and other similar Taxes
which may be imposed in connection with the transactions contemplated by
this Agreement, together with any interest, additions or penalties with
respect thereto ("Transfer Taxes"). Each party hereto hereby agrees to file
all necessary documentation in connection with the payment and reporting of
Transfer Taxes.
10.9. Survival of Obligations. The obligations of the parties set
forth in this Article 10 shall be unconditional and absolute and shall
remain in effect without limitation as to time.
10.10. Tax Refund. Within three (3) business days of receipt
thereof, the Company shall promptly transfer to the Seller the tax refund
due to the Company in connection with the Seller's consolidated tax return
for 1998.
10.11. Provisions of this Article to Control. In the event of a
conflict between the provisions of this Article 10 and any other provisions
of this Agreement, the provisions of this Article 10 shall control.
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ARTICLE 11
TERMINATION
11.1. Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by the mutual written consent of the Buyer and the
Seller;
(b) by the Buyer, or the Seller;
(i) if any court or governmental body or agency
thereof shall have enacted, promulgated or issued any statute, rule,
regulation, ruling, writ or injunction, or taken any other action, restraining,
enjoining or otherwise prohibiting the transactions contemplated hereby; or
(ii) if the Closing shall not have occurred on
or before one (1) year from the date hereof; provided, however, that the right
to terminate this Agreement pursuant to this Section 11.1(b)(ii) shall not be
available to any party whose breach of any representation or warranty or
failure to perform or comply with any covenant or obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date.
11.2. Effect of Termination.
(a) Except as provided in Section 6.1.4, Section 11.2(b),
Section 11.2(c), Section 11.2(d), or Section 11.2(e) in the event of
termination of this Agreement, this Agreement shall forthwith become null
and void and there shall be no liability on the part of any party hereto,
except for the return of the amount of the Investment by the Seller to the
Buyer, Section 6.1.4, Section 12.1, Section 12.2 and Section 12.9 and this
Section 11.2, which shall remain in full force and effect and which shall
survive such termination, and provided that no such termination shall
relieve any party hereto from liability for any breach by such party of
this Agreement.
(b) In the event of termination of this Agreement due to
the Seller's breach of a warranty or representation under this Agreement,
the Seller shall pay to the Buyer the amount of the Investment by wire
transfer of immediately available funds.
(c) In the event of termination of this Agreement due to
the Seller's failure to perform or comply with a covenant or obligation
under this Agreement, the Seller shall pay to the Buyer the amount of the
Investment by wire transfer of immediately available funds, and the Seller
and the Buyer shall make reasonable efforts to sell the Company to a third
party. Upon such sale, if the purchase price actually obtained for the
Company (the "New Purchase Price") exceeds the Purchase Price set forth
herein, the Seller shall pay to the Buyer the difference between the New
Purchase Price and the Purchase Price by wire transfer of immediately
available funds.
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(d) In the event of termination of this Agreement due to
the Buyer's breach of a warranty or representation or failure to perform or
comply with a covenant or obligation under this Agreement, the Seller and
the Buyer shall make reasonable efforts to sell the Company to a third
party. Upon such sale, if the Purchase Price exceeds the New Purchase
Price, the Buyer shall pay to the Seller the difference between the
Purchase Price and the New Purchase price, net of the amount of the
Investment.
(e) In the event of termination of this Agreement due to
the failure to satisfy the condition set forth in Section 2.1(k), the
Seller shall pay to the Buyer the amount of the Investment by wire transfer
of immediately available funds, and the Seller and the Buyer shall make
reasonable efforts to sell the Company to a third party. Upon such sale, if
the New Purchase Price exceeds the Purchase Price set forth herein, the
Seller shall retain the difference thereof.
ARTICLE 12
MISCELLANEOUS
12.1. Expenses. Except as may be otherwise specifically provided
herein, the parties hereto shall pay their own legal fees and expenses
incurred in connection with the negotiation and consummation of the
transactions contemplated by this Agreement.
12.2. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be considered
to be given and received in all respects when hand delivered, when sent one
(1) business day after it is sent by prepaid express or courier delivery
service, when sent by facsimile transmission actually received by the
receiving equipment, or five (5) days after it is deposited in the United
States mail, certified mail, postage prepaid, return receipt requested (or
international equivalents thereof), in each case addressed as follows, or
to such other address as shall be designated by notice duly given:
If to the Buyer: Energy TRACS Acquisition Corp.
c/o Platinum Equity Holdings, LLC
Suite 2710
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxxxxx
With a copy to: Xxxxxxx & XxXxxxxx
Suite 1500
000 Xxxx Xxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
45
If to the Seller: AvTel Communications, Inc.
000 Xxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxx
With a copy to: Seed Xxxxxxx & Xxxx, LLP
Suite 200
0000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
12.3. Entire Agreement. This Agreement, the Disclosure Schedule,
the exhibits attached hereto and any agreements between or among the
parties hereto of even date herewith constitute the entire agreement among
the parties hereto relating to the subject matter hereof, and all prior
agreements, correspondence, discussions and understandings of the parties
(whether oral or written) are merged herein and superseded hereby, it being
the intention of the parties hereto that this Agreement and the instruments
and agreements contemplated hereby shall serve as the complete and
exclusive statement of the terms of their agreement together. No amendment,
waiver or modification hereto or hereunder shall be valid unless in writing
signed by an authorized signatory of the party or parties to be affected
thereby.
12.4. Assignment. This Agreement and the rights hereunder shall
not be assignable or transferable (i) by the Buyer without the prior
written consent of the Seller, except to an Affiliate of the Buyer or to a
financial institution in connection with a financing related to this
Agreement, or (ii) by the Seller without the prior written consent of the
Buyer. The duties and obligations of a party hereunder shall not be
delegable without the prior written consent of the other parties hereto.
12.5. Binding Effect. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns.
12.6. Section Headings. The headings in this Agreement are for
purposes of convenience and ease of reference only and shall not be
construed to limit or otherwise affect the meaning of any part of this
Agreement.
12.7. Severability. The parties agree that if any provision of
this Agreement shall under any circumstances be deemed invalid or
inoperative, this Agreement shall be construed with the invalid or
inoperative provision deleted, and the rights and obligations of the
parties shall be construed and enforced accordingly.
12.8. Applicable Law. This Agreement and all questions arising in
connection herewith shall be governed by and construed in accordance with
the internal laws of the State of California without regard to the
principles of conflicts of laws thereunder.
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12.9. Counterparts. This Agreement may be executed in one or more
original or facsimile counterparts, all of which shall be considered but
one and the same agreement, and shall become effective when one or more
such counterparts have been executed by each of the parties and delivered
to the other parties.
12.10. Passage of Title. Legal title, equitable title and risk of
loss with respect to the Common Stock will not pass to the Buyer until the
Common Stock is transferred at the Closing, which transfer, once it has
occurred, will be deemed effective as of the close of business in Los
Angeles on the Closing Date for all purposes.
12.11. Use of Terms. In this Agreement, (i) the words "hereof,"
"herein," "hereto," "hereunder" and words of similar import mean and refer
to this Agreement as a whole and not merely to the specific section or
clause in which the respective word appears, (ii) words importing gender
include the other genders as appropriate and (iii) any terms defined in
this Agreement may, unless the context otherwise requires, be used in the
singular or the plural depending on the reference. As used in this
Agreement, the terms "knowledge of the Company and the Seller" or "the
Company's and Seller's best knowledge," or words of similar import, shall
mean both actual knowledge and information that should have been known
after reasonable inquiry. Except as otherwise provided herein, terms used
in this Agreement with generally understood meanings in the
telecommunications industry shall have the meanings given to such terms in
the telecommunications industry.
12.12. Facsimile Copy. This Agreement may be executed in facsimile
copy with the same binding effect as an original.
47
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day, month and year first above written.
SELLER
AVTEL COMMUNICATIONS, INC.
By:
Name:
Title:
BUYER
ENERGY TRACS ACQUISITION CORP.
By:
Name:
Title:
COMPANY
MATRIX TELECOM, INC.
By:
Name:
Title:
48
GUARANTY OF PLATINUM EQUITY HOLDINGS, LLC
Platinum Equity Holdings, LLC hereby (i) agrees to the provisions
set forth in Section 8.4 and (ii) guarantees the obligations of the Buyer
(including any assignee of the Buyer) under Article 1, Section 6.2.1,
Article 9 and Section 11.2(d) and agrees that it will not cause the Buyer
to take any actions that would cause the Buyer to violate the terms of
Article 1, Section 6.2.1, Article 9 or Section 11.2(d).
By:
Name:
Title:
49
LIST OF OMITTED SCHEDULES TO STOCK PURCHASE AGREEMENT
4.1.4 Consents, Violations and Authorizations (AvTel)
4.2.1 Foreign Qualifications for Matrix
4.2.2 Capitalization
4.2.3 Consents, Violations and Authorizations (Matrix)
4.2.4 Litigation and Compliance with Laws
4.2.5 Subsidiaries & Investments
4.2.6(a) Tangible Personal Property and Assets
4.2.6(b) Ownership and Use of Tangible Assets
4.2.6(d) Tangible Personal Property Leases > $3,000
4.2.6(e) List of Toll Free Telephone Numbers Used by Company
4.2.7(a) Intellectual Properties
4.2.7(c) Computer Software Licenses and Royalties Payable
4.2.8(ii) Financial Statements
4.2.9 Conduct Out of Ordinary Course
4.2.10(b) Taxes 4.2.11(a)(i)- -(xiv) Contracts
4.2.11(b) List of Any Material Disputes or Defaults
4.2.12 Employee Benefit Matters
4.2.15(a) List of All Permits
4.2.15(b) List of All Carrier Identification Codes
4.2.16 Material Suppliers
4.2.17 List of All Material Insurance Policies
4.2.19 List of All Transactions Between the Company and any Director,
Officer Employee or Stockholder
4.2.21 List of each Bank Account, Line of Credit or Safety Deposit Box
and each Person Authorized to Draw and Power of Attorney
4.2.22 Conflicts of Interest
4.2.26 Description of the Year 2000 Compliance Program, the Progress
in meeting the Scheduled Goals, and a List of Software and
Hardware Items not Year 2000 Compliant
4.2.27 Regulatory Compliance
The Registrant agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request.
50
