EXHIBIT 1
ASSET PURCHASE AGREEMENT
BY AND AMONG
GATEWAY.REALTY.NEW JERSEY.LLC,
FIBERNET TELECOM GROUP, INC.
AND
LOCAL FIBER, LLC
DECEMBER 31, 2003
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ASSET PURCHASE AGREEMENT
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This Asset Purchase Agreement (the "Agreement") is entered into as of
December 31, 2003 by and among GATEWAY.REALTY.NEW JERSEY.LLC, a New Jersey
limited liability company (the "Seller"), FIBERNET TELECOM GROUP, INC., a
Delaware corporation (the "Parent"), and LOCAL FIBER, LLC, a New York limited
liability company and wholly owned subsidiary of Parent (the "Purchaser").
WHEREAS, the Seller is engaged in the business of providing colocation
services at its carrier point facility located at 000 Xxxxxx Xxxxxx, Xxxxxx, Xxx
Xxxxxx 00000 (the "Business"); and
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, substantially all of the assets of the
Seller used in the Business, and the Purchaser is willing to assume certain
liabilities of the Seller relating to the Business, all upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations and warranties herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the respective meanings set forth
below:
"Action" means any claim, demand, action, cause of action, chose in action,
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right of recovery, right of set-off, suit, arbitration, inquiry, proceeding or
investigation by or before any Court or Governmental Authority.
"Affiliate" means, with respect to a specified Person, any other Person
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which, directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person, and without limiting
the generality of the foregoing, includes, with respect to the specified Person:
(a) any other Person which beneficially owns or holds, directly or indirectly,
5% or more of the outstanding voting securities or other securities convertible
into voting securities of such Person, (b) any other Person of which the
specified Person beneficially owns or holds, directly or indirectly, 5% or more
of the outstanding voting securities or other securities convertible into voting
securities, or (c) any member, manager or director of such Person. For purposes
of this Agreement, beneficial ownership has the meaning in accordance with Rule
13d-3 under the Exchange Act.
"Agreement" has the meaning set forth in the introductory paragraph to this
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Agreement.
"Ancillary Agreements" means the Xxxx of Sale and the Assumption Agreement.
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"Assumed Liabilities" has the meaning set forth in Section 2.2.
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"Assumption Agreement" has the meaning set forth in Section 2.2.
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"Xxxx of Sale" has the meaning set forth in Section 2.1.
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"Business" has the meaning set forth in the recitals to this Agreement.
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"Business Day" means any day other than a Saturday, Sunday or other day on
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which banks are required or authorized to be closed in New York City.
"Closing" has the meaning set forth in Section 2.3.
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"Closing Date" has the meaning set forth in Section 2.3.
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"Closing Price" shall mean, with respect to a Trading Day, the closing
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price of the Parent Common Stock on such Trading Day. The closing price for
each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported on the Nasdaq SmallCap Market on which
the shares of Parent Common Stock are admitted to trading or, if the shares of
Parent Common Stock are not admitted to trading on the Nasdaq SmallCap Market,
the last quoted price or, if not so quoted, the average of the high bid and low
asked prices on either the Nasdaq National Market, any national securities
exchange or in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or such other
system then in use, or, if on any such date the shares of Parent Common stock
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Parent Common Stock selected by the Board of Directors of the Parent.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Consents" has the meaning set forth in Section 4.6(c).
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"Contract" means any binding contract, plan, undertaking, understanding,
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agreement, license, lease, note, mortgage or other binding commitment, whether
written or oral.
"Court" means any court or arbitration tribunal of the United States, any
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domestic state, or any foreign country, and any political subdivision thereof.
"Copyrights" mean all copyrights (registered or otherwise) and
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registrations and applications for registration thereof, and all rights therein
provided by multinational treaties or conventions.
"Damages" has the meaning set forth in Section 8.2.
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"Database" means all data and other information recorded, stored,
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transmitted and retrieved in electronic form.
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"Disclosure Schedule" has the meaning set forth in Article IV.
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"Documents" means this Agreement together with the Ancillary Agreements,
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the Schedules and Exhibits hereto and thereto, the Disclosure Schedule and the
other agreements, documents and instruments executed in connection herewith.
"Environmental Laws" shall mean any federal, state or local or foreign Law
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or judgment relating to releases, discharges, emissions or disposals to air,
water, land or groundwater of Hazardous Materials; to the use, handling or
disposal of polychlorinated biphenyls, asbestos or urea formaldehyde or any
other Hazardous Material; to the treatment, storage, disposal or management of
Hazardous Materials; to exposure to toxic, hazardous or other controlled,
prohibited or regulated substances; and to the transportation, release or any
other use of Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601, et seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C.
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6901, et seq. ("RCRA"), the Toxic Substances Control Act, 15 U.S.C. 2601, et
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seq. ("TSCA"), the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal Water
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Pollution Control Act, 33 U.S.C. 1251, et seq., the Safe Drinking Xxxxx Xxx, 00
X.X.X. 000x, et seq., the Hazardous Materials Transportation Act, 49 U.S.C.
1802, et seq. ("HMTA"), and the Emergency Planning and Community Right to Know
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Xxx, 00 X.X.X. 00000, et seq. ("EPCRA"), and other comparable federal, state,
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local and foreign Laws and all rules, regulations and guidance documents
promulgated pursuant thereto or published thereunder.
"Environmental Permits" means all Permits required under any Environmental
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Law.
"Excluded Assets" has the meaning set forth in Section 2.1(b).
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"Excluded Liabilities" has the meaning set forth in Section 2.2.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"Financial Statements" has the meaning set forth in Section 4.14.
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"GAAP" means United States generally accepted accounting principles and
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practices in effect from time to time.
"Governmental Authority" means any governmental, or legislative agency or
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authority (other than a Court) of the United States, any domestic state, or any
foreign country, and any political subdivision or agency thereof, and includes
any authority having governmental or quasi-governmental powers, including any
administrative agency or commission.
"Gross Revenues" shall mean the monthly recurring revenues from the
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colocation operations of the Business in accordance with GAAP, as in effect on
the Closing Date, pursuant to the revenue codes identified on Schedule A, or
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successors thereto.
"Hardware" means all mainframes, midrange computers, personal computers,
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notebooks, servers, switches, printers, modems, drives, peripherals and any
component of any of the foregoing.
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"Hazardous Substance" means any Hazardous Substance, as defined in CERCLA,
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and any other chemical, compound, product, solid, gas, liquid, pollutant,
contaminant or material which is regulated under any Environmental Law, and
includes, without limitation, asbestos or any substance containing asbestos,
polychlorinated biphenyls and petroleum (including crude oil or any fraction
thereof).
"Indebtedness" means, with respect to any Person, (a) all indebtedness of
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such Person, whether or not contingent, for borrowed money, (b) all obligations
of such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the Seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases, (f) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all obligations of such
Person to purchase, redeem, retire, decease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of redeemable preferred stock, at the
liquidation preference, without duplication, plus accrued and unpaid dividends,
(h) all Indebtedness of others referred to in clauses (a) through (f) above
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (1) to pay
or purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (2) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (3) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are
rendered), or (4) otherwise to assure a creditor against loss and all
Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness.
"Information System" means any combination of Hardware, Software and/or
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Database(s) employed primarily for the creation, manipulation, storage,
retrieval, display and use of information in electronic form or media.
"Intellectual Property" means (a) inventions, whether or not patentable,
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whether or not reduced to practice or whether or not yet made the subject of a
pending Patent application or applications, (b) ideas and conceptions of
potentially patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not yet made the
subject of a pending Patent application or applications, (c) Patents, (d)
Trademarks, (e) Copyrights, (f) Software, (g) trade secrets and confidential,
technical or business information (including ideas, formulas, compositions,
inventions, and conceptions of inventions whether patentable or unpatentable and
whether or not reduced to practice), (h) whether or not confidential, technology
(including know-how and show-how), manufacturing and production
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processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information, (i) copies
and tangible embodiments of all the foregoing, in whatever form or medium, (j)
all rights to obtain and rights to apply for Patents, and to register Trademarks
and Copyrights, (k) all rights under the License Agreements and any licenses,
registered user agreements, technology or materials transfer agreements, and
other agreements or instruments with respect to items in (a) to (k) above; and
(l) all rights to xxx and recover and retain damages and costs and attorneys'
fees for present and past infringement of any of the Intellectual Property
rights hereinabove set out.
"Interim Financial Statements " has the meaning set forth in Section 4.14.
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"Interim Financial Statement Date" has the meaning set forth in Section
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4.14.
"IRS" shall mean the United States Internal Revenue Service.
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"Law" means all laws, statutes, ordinances and Regulations of any
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Governmental Authority, including all decisions of Courts having the effect of
law in each such jurisdiction.
"Leased Real Property" means the real property leased by the Seller as
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tenant, together with, to the extent leased by the Seller, all buildings and
other structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of the
Seller attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Liabilities" means any and all debts, liabilities, charges, assessments
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and obligations of every kind or nature whatsoever, whether accrued or fixed,
absolute or contingent, matured or unmatured, known or unknown or determined or
determinable, including, without limitation, those arising under any Law
(including, without limitation, any Environmental Law), Action or Order,
Liabilities for Taxes and those Liabilities arising under any Contract.
"License Agreements" has the meaning set forth in Section 4.26(b).
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"Liens" means any mortgage, pledge, security interest, attachment,
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encumbrance, lien (statutory or otherwise), option, conditional sale agreement,
right of first refusal, first offer, termination, participation or purchase, or
charge of any kind (including any agreement to give any of the foregoing).
"Litigation" means any suit, action, arbitration, cause of action, claim,
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complaint, criminal prosecution, investigation, inquiry, demand letter,
governmental or other administrative proceeding, whether at law or at equity,
before or by any Court, Governmental Authority, arbitrator or other tribunal.
"Material Adverse Effect" means any circumstance, change in, or effect on,
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the Business or the Seller that, individually or in the aggregate with any other
circumstances, changes in, or effects on, the Seller or the Business (a) is, or
could reasonably be expected to be, materially adverse to the business,
operations, assets or liabilities (including, without limitation, contingent
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liabilities), results of operations or the condition (financial or otherwise) of
the Business, or (b) could reasonably be expected to materially adversely affect
the ability of the Purchaser to operate or conduct the Business in the manner in
which it is currently operated or conducted by the Seller; provided, however,
that in determining whether a Material Adverse Effect has occurred, any
circumstance, change or effect, which occurs subsequent to the date hereof, to
the extent it is attributable to (i) any adverse change in financial or
securities markets or in economic or regulatory conditions, including acts of
war (whether or not declared), armed hostilities and terrorism, (ii) matters
affecting companies in the same or similar industries to the Business, provided
the Business is not disproportionately and adversely affected, or (iii) the
execution, public announcement, closing or existence of this Agreement, shall
not be considered in determining whether a Material Adverse Effect has occurred.
"Material Contract" shall have the meaning given to it in Section 4.6(a).
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"Order" shall mean any judgment, order, writ, injunction, ruling,
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stipulation, determination, award or decree of or by, or any settlement under
the jurisdiction of, any Court or Governmental Authority.
"Parent" has the meaning set forth in the introductory paragraph to this
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Agreement.
"Parent Common Stock" means the common stock, par value $.001 per share, of
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the Parent.
"Patents" mean all national (including the United States) and multinational
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statutory invention registrations, patents, patent registrations and patent
applications, including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations, and all rights therein
provided by multinational treaties or conventions and all improvements to the
inventions disclosed in each such registration, patent or application.
"Permits" means any licenses, permits, pending applications, consents,
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certificates, registrations, approvals and authorizations.
"Permitted Liens" means (a) Liens for unpaid taxes that are not yet
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delinquent, (b) the interests of lessors under operating leases, (c) Liens
arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers or suppliers, incurred in the ordinary course
of business and which Liens are for sums not yet delinquent, and (d) Liens
arising from deposits made in connection with obtaining worker's compensation or
other unemployment insurance.
"Person" means any natural person, corporation, limited liability company,
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unincorporated organization, partnership, association, joint stock company,
joint venture, trust or any other entity.
"Purchase Price" has the meaning set forth in Section 3.1.
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"Purchased Assets" has the meaning set forth in Section 2.1.
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"Purchaser" has the meaning set forth in the introductory paragraph to this
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Agreement.
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"Purchaser Indemnified Persons" has the meaning set forth in Section 7.2.
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"Receivables" means any and all accounts receivable, notes, book debts and
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other amounts due or accruing due to the Seller in connection with the Business,
whether or not in the ordinary course, together with any unpaid financing
charges accrued thereon and the benefit of all security for such accounts,
notes, debts and other amounts.
"Registration Rights Agreement" has the meaning set forth in Section
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6.2(j).
"Regulation" shall mean any rule or regulation of any Governmental
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Authority.
"SEC" shall mean the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
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"Seller" has the meaning set forth in the introductory paragraph to this
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Agreement.
"Seller Indemnified Persons" has the meaning set forth in Section 7.3.
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"Shares" has the meaning set forth in Section 3.2(b).
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"Software" means any and all (a) computer programs, including any and all
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software implementations of algorithms, models and methodologies, whether in
source code or object code, (b) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (c)
descriptions, flow-charts and other work product used to design, plan, organize
and develop any of the foregoing, (d) the technology supporting any Internet
site(s) operated by or on behalf of Seller, and (e) all documentation, including
user manuals and training materials, relating to any of the foregoing.
"Subsidiary" or "Subsidiaries" of a specified Person means any other Person
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in which such Person owns beneficially, directly or indirectly, more than 50% of
the outstanding voting securities or other securities convertible into voting
securities, or which may effectively be controlled, directly or indirectly, by
such Person.
"Survival Date" has the meaning set forth in Section 7.1.
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"Tangible Personal Property" has the meaning set forth in Section 4.21(a).
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"Tax" or "Taxes" means any and all federal, state, local, or foreign taxes,
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fees, levies, duties, tariffs, imposts, and other charges of any kind (together
with any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any Governmental Authority or other
taxing authority, including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, disability, social
security, workers' compensation, unemployment compensation or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs' duties, tariffs and similar charges, whether computed on a
separate or consolidated, unitary or combined basis or in any other manner,
whether disputed or
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not, and including any obligation to indemnify or otherwise assume or succeed to
the Tax liability of any other Person.
"Tax Returns" means returns, reports and information statements, including
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any schedule or attachment thereto, with respect to Taxes required to be filed
with the IRS or any other Governmental Authority or other taxing authority or
agency, domestic or foreign, including consolidated, combined and unitary tax
returns.
"Third Party Claim" has the meaning set forth in Section 7.6.
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"Trading Day" means a day on which the Nasdaq SmallCap Market on which
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shares of Parent Common Stock are admitted to trading is open for the
transaction of business or, if the shares of Parent Common Stock are not
admitted to trading on the Nasdaq SmallCap Market, a day on which the trades on
the Nasdaq National Market, any national securities exchange or the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, are
reported or, if on any such date the shares of Parent Common stock are not
quoted by any such organization, the last Business Day on which trades occurred.
"Trademarks" mean all trademarks, service marks, trade dress, logos, trade
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names and corporate names, whether or not registered, including all common law
rights, and registrations and applications for registration thereof, including,
but not limited to, all marks registered in the United States Patent and
Trademark Office, the Trademark Offices of the States and Territories of the
United States of America, and the Trademark Offices of other nations throughout
the world, and all rights therein provided by multinational treaties or
conventions.
ARTICLE II
PURCHASE AND SALE
2.1 Assets.
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(a) Purchased Assets. Effective upon the Closing, the Purchaser
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agrees to purchase, acquire and accept, and the Seller agrees to sell, assign,
transfer, convey and deliver, upon the terms herein and subject and pursuant to
the covenants, conditions, representations and warranties contained in this
Agreement, all of the Seller's right, title and interest in, to and under those
assets, properties, rights, contracts, Actions and interests of the Seller that
exist as of the Closing that are used in the Business, including, without
limitation, those specifically identified on Schedule 2.1(a) to this Agreement,
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other than the Excluded Assets (as hereinafter defined) (the assets being
purchased hereunder being referred to herein as the "Purchased Assets"). On the
Closing Date, the Seller shall deliver to the Purchaser the xxxx of sale,
substantially in the form of Exhibit A attached hereto (the "Xxxx of Sale"), and
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such other deeds, endorsements, assignment and assumption agreements, and other
good and sufficient instruments of conveyance and transfer as the Purchaser may
reasonably request, to vest in the Purchaser all the right, title and interest
of the Seller in, to and under any or all of the Purchased Assets, free and
clear of all Liens, except Liens relating solely and directly to one or more of
the Assumed Liabilities.
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(b) Excluded Assets. Notwithstanding anything contained in
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Section 2.1(a) to the contrary, the Seller is not selling, and the Purchaser is
not purchasing, any assets, properties, rights, contracts, Actions or interests
expressly listed on Schedule 2.1(b) hereof (all such excluded assets,
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properties, rights, contracts, Actions and interests, the "Excluded Assets"),
all of which Excluded Assets are being retained by the Seller.
2.2 Liabilities. Effective upon the Closing, subject to the terms and
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conditions hereof, the Purchaser will assume and become responsible for only
those liabilities and obligations of the Seller set forth on Schedule 2.2 hereof
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(the "Assumed Liabilities"). Other than the Assumed Liabilities, the Purchased
Assets shall be conveyed to the Purchaser free and clear of, and the Purchaser
shall not assume or become liable to pay, perform or discharge, any Liabilities
of the Seller (the "Excluded Liabilities"). The parties hereto acknowledge and
agree that it is not intended that either the Purchaser or the Parent is or will
be deemed to be a successor-in-interest to the Seller. On the Closing Date, the
Purchaser and the Seller shall execute and deliver the assignment and assumption
agreement, substantially in the form of Exhibit B attached hereto (the
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"Assumption Agreement").
2.3 Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., Chrysler Center, 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx at 10:00 A.M., on the second Business Day after all of the conditions
set forth in Section 7.1 and 7.2 herein shall have been fulfilled or waived
(other than conditions that can be satisfied only by the delivery of
certificates, opinions or other documents at the Closing), or at such other time
and place or on such other date as the Purchaser and Seller may agree upon (such
date on which the Closing occurs, the "Closing Date").
2.4 Consent of Third Parties. (a) This Agreement shall not constitute
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an agreement to transfer, convey or assign any Purchased Asset, if a transfer,
conveyance or assignment, or an attempt to make a transfer, conveyance or
assignment, without the consent or approval of a third party would constitute a
breach or violation thereof or in any way adversely affect the rights of the
transferee, conveyee or assignee thereof until such consent is obtained.
(b) Seller and Purchaser shall cooperate with each other to effect any
commercially reasonable arrangement designed to provide Purchaser the economic
benefit of, and to permit it to assume the liabilities and obligations under,
any Purchased Asset, for which the consent to such transfer hereunder is not
obtained prior to the Closing.
(c) Schedule 2.4(c) sets forth all consents or approvals necessary for
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the sale, conveyance, assignment, transfer and delivery of the Purchased Assets
which shall be obtained by the Seller as a condition precedent to the Closing
pursuant to Section 7.1 hereof. Seller shall be responsible for any and all
expenses relating to obtaining such consents.
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ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. As consideration for the purchase of the Purchased
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Assets (the "Purchase Price"), upon the terms and subject to the conditions set
forth in this Agreement, the Purchaser will (i) deliver to the Seller, or cause
the delivery of, cash and Parent Common Stock with an aggregate value of
$3,805,000.00 (the "Purchase Price") in accordance with Section 3.2 below and
subject to adjustment in accordance with the terms and conditions of this
Agreement; and (ii) assume the Assumed Liabilities.
3.2 Payment of Purchase Price. At the Closing, the Purchaser shall pay
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the Seller the Purchase Price as follows:
(a) Delivery of $170,000.00 in immediately available funds by
wire transfer, bank check or certified check;
(b) Delivery of 2,908,000 shares of Parent Common Stock (the
"Shares"), of which 1,000,000 Shares shall be delivered to the Escrow Agent
to be held in escrow pursuant to the terms of the Escrow Agreement as
provided in Section 8.4 hereof; and
(c) Delivery of the Assumption Agreement.
3.3 Purchase Price Adjustment. The Purchase Price shall be subject to
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adjustment after the Closing as follows:
(a) The Seller may be entitled to receive additional shares
of Parent Common Stock (the "Additional Shares") as additional
consideration (the "Additional Consideration") in accordance with the
provisions of this Section 3.3 based upon the Gross Revenues, on an
annualized basis, of a particular month during the twenty-four-month period
immediately following the Closing Date (the "Earn-Out Period"), as follows:
(i) Within ten business days after the delivery of the
quarterly profit and loss statement pursuant to Section 7.4(d), if the
Seller desires to designate a particular month of the quarterly period
covered by such statement, then the Seller shall so notify Parent in
writing (the "Revenue Notice") of such month (the "Revenue Month"). If
Seller fails to notify Parent in writing within the ten business day
period pursuant to this Section 3.3(a)(i), then Seller's right to
designate the Revenue Month shall be forfeited with respect to such
quarterly period. Seller shall not be entitled to designate any month
that has been previously forfeited.
(ii) Within two weeks of receipt of Seller's written notice
designating the Revenue Month, Parent shall present the Seller with a
certification (the "Revenue Certification") signed by the Chief
Financial Officer of the Parent with respect thereto and with respect
to the amount equal to the product of (i) twelve and (ii) the Gross
Revenues for the Revenue Month (the "Annualized
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Revenues"). Such certification shall be accompanied by a detailed
statement setting forth the relevant information upon which the
calculation of such Gross Revenues is based, including, without
limitation, the names of each licensee and the licensee fees and other
revenues paid or payable, including any bad debt reserve established
in respect of any applicable receivables, by such licensee in respect
of the applicable month.
(iii) In the event Parent does not receive a Revenue Notice
with respect to the last calendar quarter of the Earn-Out Period, the
Parent shall determine the Gross Revenues for the final month of the
Earn-Out Period for purposes of determining the Annualized Revenues
pursuant to Section 3.3(a)(ii).
(b) In the event the Annualized Revenues as reflected on the
Revenue Certification are equal to or less than $2,076,000, then the
Purchaser shall be under no obligation to pay, and the Seller shall not
have a right to receive, any Additional Consideration.
(c) In the event the Annualized Revenues as reflected on the
Revenue Certification are greater than $2,076,000 (the amount by which such
Annualized Revenues exceed $2,076,000 being herein referred to as the
"Increased Revenues"), then the Purchaser shall be obligated to pay, and
the Seller shall have a right to receive Additional Consideration in the
amount equal to two and one-fifth (2.2) times the Increased Revenues.
(d) The Additional Consideration shall be paid by delivery to
the Seller of a number of Additional Shares determined by dividing the
amount of Additional Consideration to which the Seller is entitled as
determined in accordance with Section 3.3(c) hereof by the average Closing
Price of a share of Parent Common Stock for the 10 Trading Day period
immediately preceding the commencement of the month following the Revenue
Month (the "Undisputed 10 Day Average"), if the Revenue Certification is
not disputed by the Seller. Such Additional Shares shall be issued as soon
as reasonably practicable and the Parent shall submit written instructions
to its transfer agent to issue such shares no later than two (2) Business
Days after the final determination of the Additional Consideration, if any,
to which the Seller is entitled.
(e) In the event the Seller disputes or disagrees with the
calculation as presented in the Revenue Certification, then the
determination of Gross Revenues shall be calculated by an independent
auditor chosen by the Seller and approved by Parent, such approval shall
not be unreasonably withheld. In the event the Revenue Certification is
disputed by the Seller, and (i) the calculation of Gross Revenues by the
independent auditor is less than 101% of the amount of the Gross Revenues
contained in the Revenue Certification, the Additional Consideration to be
paid shall be a number of Additional Shares as determined by dividing the
amount of Additional Consideration to which the Seller is entitled to as
determined in accordance with Section 3.3(c) hereof by the greater of (A)
the Undisputed 10 Day Average and (B) the 10 Trading Day period immediately
preceding the date the calculation of Gross Revenues is presented by the
independent
11
auditor pursuant to this Section 3.3(e) (the "Disputed 10 Day Average") and
in either case, the cost of such determination by such independent auditor
shall be borne by the Seller, or (ii) the calculation of Gross Revenues by
the independent auditor is greater than or equal to 101% and less than or
equal to 110% of the amount of the Gross Revenues contained in the Revenue
Certification, the Additional Consideration to be paid shall be a number of
Additional Shares as determined by dividing the amount of Additional
Consideration to which the Seller is entitled to as determined in
accordance with Section 3.3(c) hereof by the Undisputed 10 Day Average and
the cost of such determination by such independent auditor shall be borne
equally by the Seller and the Purchaser or (iii) the calculation of Gross
Revenues by the independent auditor pursuant to this Section 3.3(e) hereof
is greater than 110% of the amount of the Gross Revenues contained in the
Revenue Certification, the Additional Consideration to be paid shall be a
number of Additional Shares as determined by dividing the amount of
Additional Consideration to which the Seller is entitled to as determined
in accordance with Section 3.3(c) hereof by the lesser of (X) the
Undisputed 10 Day Average and (Y) the Disputed 10 Day Average and in either
case the cost of such determination by such independent auditor shall be
borne by the Purchaser. In either event, such Additional Shares shall be
issued as soon as reasonably practicable and the Parent shall submit
written instructions to its transfer agent to issue such shares no later
than two (2) Business Days after the final determination of the Additional
Consideration, if any, to which the Seller is entitled. The determination
of Gross Revenues by such independent auditor pursuant to this Section
3.3(e) shall be binding upon the parties.
(f) The issuance of the Additional Shares, if any, pursuant
to Section 3.3(d) or 3.3(e) shall be subject to the Parent's right of
set-off as contained in Section 8.5 hereof.
(g) Notwithstanding any other provision herein, the Parent
shall not be obligated to issue Additional Shares, pursuant to Section
3.3(d) or 3.3(e), to the extent that the issuance of such Additional Shares
would exceed that number of shares of Parent Common Stock which the Parent
may issue in connection with the acquisition of the Purchased Assets (the
"Exchange Cap") without breaching the Parent's obligations to receive
stockholder approval prior to such issuance under the rules or regulations
of The Nasdaq Stock Market, Inc., except that such limitation shall not
apply in the event that the Parent (a) obtains the approval of its
stockholders as required by applicable rules of The Nasdaq Stock Market,
Inc. for issuances of Parent Common Stock in excess of such amount (the
"Shareholder Approval") or (b) obtains a written opinion from outside
counsel to the Parent that such approval is not required, which opinion
shall be reasonably satisfactory to the Seller; provided, however, that
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notwithstanding anything herein to the contrary, the Parent, will issue
such number of shares of Parent Common Stock pursuant to Section 3.3(b)
and, if applicable, Section 3.3(d) or Section 3.3(e) up to the Exchange
Cap. In addition, if applicable, Parent shall use its reasonable commercial
efforts to include and recommend for approval such proposal for the
Shareholder Approval in its next annual proxy statement filed after the
determination is made that such Shareholder Approval is necessary.
12
3.4 Purchase Price Allocation. The Purchase Price shall be
---------------------------
allocated among the Purchased Assets as set forth on Schedule 3.4 hereto (the
------------
"Allocation Schedule"). The Purchaser and the Seller each agree (a) to reflect
the Purchased Assets on their respective books for tax reporting purposes in
accordance with the Allocation Schedule, (b) to file all Tax Returns and
determine all Taxes (including, without limitation, for purposes of Section 1060
of the Code) in accordance with and based upon the Allocation Schedule, and (c)
not to take any position inconsistent with such Allocation Schedule in any audit
or judicial or administrative proceeding or otherwise.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth in the Disclosure Schedule delivered to the Purchaser
simultaneously with the execution hereof with specific reference to the Section
or Subsection of this Agreement to which the information stated in such
disclosure relates (the "Disclosure Schedule") (provided that any Section of the
Disclosure Schedule or any Subsection thereof shall each be deemed to include
all disclosures set forth in other Sections or Subsections of the Disclosure
Schedule as and to the extent the context of such disclosures makes it
reasonably clear, if read in the context of such other Section or Subsection,
that such disclosures are applicable to such other Sections or Subsections), the
Seller, represents and warrants to each of the Purchaser and Parent as follows:
4.1 Organization and Qualification. The Seller is (i) a limited
--------------------------------
liability company duly formed, validly existing and in good standing under the
laws of the State of New Jersey, and (ii) duly licensed or qualified to transact
business as a foreign limited liability company and in good standing in those
jurisdictions where its failure to be so qualified would have a Material Adverse
Effect.
4.2 Subsidiaries. The Seller has no Subsidiaries and does not own,
------------
directly or indirectly, any equity or other ownership interests of any Person.
4.3 Organizational Documents and Corporate Records. True, correct and
-----------------------------------------------
complete copies of each of (a) the Articles of Organization of the Seller, as
amended and in effect on the date hereof, (b) all letters, understandings,
arrangements or other correspondence relating to or concerning the ownership and
organization of the Seller or management of the operations of the Business by
any Persons and (c) the minute books of the Seller have been previously
delivered to the Purchaser. Such minute books contain accurate records of all
meetings and written consents to actions of the members and managers of the
Seller from the date of its formation to the date hereof. The Seller is in
compliance with, and not in default or violation of, its Articles of
Organization. The Seller does not have an operating agreement pursuant to which
it operates. Set forth on Schedule 4.3 is the identity of all of the members of
------------
the Seller, and their respective membership interests, and that except as
otherwise identified on Schedule 4.3, there are no other members of the Seller,
or any other individual or entity that has any membership, capital account
profit and loss or other equity interest in the Seller.
4.4 Authorization; Enforceability. The Seller has the limited liability
-----------------------------
company power and authority to own, hold, lease and operate its properties and
assets and to carry on the
13
Business as currently conducted. The Seller has the limited liability company
power and authority to execute, deliver and perform this Agreement and the other
Documents. The execution, delivery and performance of this Agreement and the
other Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the Seller, and no other
action on the part of the Seller is necessary in order to give effect to such
authorization or approval. This Agreement and each of the other Documents to be
executed and delivered by the Seller have been (or, when executed and delivered
by the Seller, will be) duly executed and delivered by, and constitute the
legal, valid and binding obligations of, the Seller, enforceable against the
Seller, in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought.
4.5 No Violation or Conflict. The execution and delivery by the Seller
-------------------------
of this Agreement and the other Documents to be executed and delivered by the
Seller, the consummation by the Seller of the transactions contemplated by this
Agreement and the other Documents, or the performance by the Seller of this
Agreement and the other Documents required by this Agreement to be executed and
delivered by the Seller at the Closing, will not (a) conflict with or violate
the Articles of Organization of the Seller, (b) conflict with or violate any
Law, Order or Permit applicable to the Seller or by which the Purchased Assets
are bound or affected, or (c) result in any breach or violation of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair the Seller's rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
Lien on any of the Purchased Assets pursuant to any Contract to which the Seller
is a party or by which the Seller or any of the Purchased Assets are bound or
affected.
4.6 Contracts.
---------
(a) Schedule 4.6(a) lists each of the Material Contracts to which the
----------------
Seller is a party or by which it or any of its properties or assets may be bound
which is or would reasonably be expected to become material to the Business, any
of the Purchased Assets or any of the Assumed Liabilities. For purposes hereof
the term "Material Contract" means:
(i) each Contract, invoice, or purchase order for the
purchase or lease of materials or personal property from any supplier or
for the furnishing of services to the Business under the terms of which the
Seller: (A) is likely to pay or otherwise give consideration of more than
$5,000 in the aggregate during the calendar year ended December 31, 2003,
(B) is likely to pay or otherwise give consideration of more than $5,000 in
the aggregate over the remaining term of such Contract, or (C) was not
entered into in the ordinary course of business;
(ii) each Contract, invoice, or sales order for the sale of
personal property or for the furnishing of services by the Business which:
(A) is likely to involve consideration of more than $5,000 in the aggregate
during the calendar year ended December 31, 2003, (B) is likely to involve
consideration of more than $5,000 in the
14
aggregate over the remaining term of such Contract, or (C) was not entered
into in the ordinary course of business;
(iii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing, consulting and advertising Contracts to which the Seller is a
party;
(iv) all management and employment Contracts and Contracts
with independent contractors or consultants (or similar arrangements), or
any other Contract with any present or former member, manager, officer or
employee of the Seller, to which the Seller is a party;
(v) each Contract relating to Indebtedness of the Seller,
including, without limitation, any Contracts relating to the guarantee,
support, indemnification, assumption, endorsement of, or any other similar
commitment with respect to, the obligations, liabilities (whether accrued,
absolute, contingent or otherwise) or Indebtedness of any other Person;
(vi) all Contracts with any Governmental Authority to which
the Seller is a party;
(vii) all Contracts that limit the ability of the Seller to
compete in any line of business or with any Person or in any geographic
area or during any period of time, and all Contracts involving
confidentiality, secrecy or non-disclosure (whether the Seller is an
obligor or beneficiary thereunder);
(viii) all Contracts between the Seller and any Affiliate of
the Seller;
(ix) all leases of real property;
(x) all Contracts of the Seller which relate, in whole or in
part, to any Intellectual Property other than Contracts relating to shrink
wrap Software;
(xi) all Contracts of the Seller which relate to partnership,
joint venture or other similar arrangement; and
(xii) all other Contracts, whether or not made in the
ordinary course of the Business, the absence of which would be reasonably
likely to have a Material Adverse Effect.
(b) The Seller has delivered or made available to the Purchaser true,
correct and complete copies of all Material Contracts which are in writing, and
Schedule 4.6(a) contains an accurate summary of all Material Contracts which are
---------------
not in writing. The Seller has paid in full or set aside reserves or accruals
in accordance with GAAP consistently applied for all amounts due as of the date
hereof under each Material Contract and as of the Closing Date will have
satisfied in full all of its liabilities and obligations required to be
satisfied in respect of periods ending on or before the Closing Date, except for
such amounts as the Seller may in good faith dispute, which amounts are
identified on Schedule 4.6(a).
----------------
15
(c) The Material Contracts are in full force and effect and are
the valid and binding obligations of the Seller and, to the knowledge of the
Seller, the other parties thereto, enforceable in accordance with their
respective terms, subject only to bankruptcy, insolvency or similar laws
affecting the rights of creditors generally and to general equitable principles.
Except as set forth on Schedule 4.6(c), each Material Contract is freely and
---------------
fully assignable to the Purchaser without penalty or other adverse consequences
and no consent of or notice to any third party (the "Consents") is required in
order to validly assign and transfer the Material Contracts to Purchaser. The
Seller has not received written notice or, to the Seller's knowledge, oral
notice of default by the Seller under any of the Material Contracts and no event
has occurred which, with the passage of time or the giving of notice or both,
would constitute a default by the Seller thereunder. To the Seller's knowledge,
none of the other parties to any of the Material Contracts is in default
thereunder, nor has an event occurred which, with the passage of time or the
giving of notice or both would constitute a default by such other party
thereunder. The Seller has not received written notice or, to the Seller's
knowledge, oral notice of the pending or threatened cancellation, revocation or
termination of any of the Material Contracts, nor does it have knowledge of any
facts or circumstances that could reasonably be expected to lead to any such
cancellation, revocation or termination. There are no negotiations of, attempts
to renegotiate or outstanding rights to renegotiate any amounts paid or payable
to the Seller under any Material Contract or any terms of any Material Contract.
4.7 Litigation. There is no Litigation or, to Seller's knowledge,
----------
investigation pending or, to the Seller's knowledge, threatened against, or
otherwise adversely affecting, the Business or the Purchased Assets or rights of
Seller relating thereto, before any Court or Governmental Authority, nor does
there exist any reasonable basis for any such Litigation. The Seller is not
subject to any outstanding Litigation or Orders, which, individually or in the
aggregate, would prevent, hinder or delay the Seller from consummating the
transactions contemplated by this Agreement or any of the other Documents.
There is no Litigation pending or, to the Seller's knowledge, threatened that
would be reasonably likely to call into question the validity of this Agreement
or any of the other Documents or any action taken or to be taken pursuant hereto
or thereto, nor does there exist, to the Seller's knowledge, any reasonable
basis for any such Litigation. There is no Action by the Seller pending or
threatened against any third party with respect to the Business or any of the
Purchased Assets. Any Litigation, including, but not limited to, the Litigation
identified on Schedule 4.7, shall be deemed Excluded Liabilities.
4.8 Brokers. The Seller has not employed any financial advisor,
-------
broker or finder, and Seller has not incurred and will not incur any broker's,
finder's, investment banking or similar fees, commissions or expenses in
connection with the transactions contemplated by this Agreement or any of the
other Documents.
4.9 Compliance with Law. The Seller has conducted and continues to
---------------------
conduct the Business, in compliance with all Laws, Orders and other requirements
of Governmental Authorities, and is not in default or violation of any Law,
Order, Regulation or other requirement of any Governmental Authority applicable
to the Business or the Purchased Assets. The Seller is not subject to any
Orders that materially adversely affect, individually or in the aggregate, the
Business, or the Purchased Assets. The Seller has not received at any time any
notice or other communication (whether written or, to the Seller's knowledge,
oral) from any Governmental Authority or other Person regarding any actual or
alleged violation of or non-compliance with
16
any Law, Order, Regulation or other requirement to which the Business or any of
the Purchased Assets is or has been subject. There is no existing Law, Order,
Regulation or other requirement of any Governmental Authority, and the Seller is
not aware of any proposed Law, Order, Regulation or other such requirement which
would prohibit or materially restrict the Purchaser from, or otherwise
materially adversely affect the Purchaser in, conducting the Business in the
manner it is currently being conducted by the Seller in any jurisdiction in
which such business is now conducted. No representation or warranty is made in
this Section 4.9 with respect to Laws, Orders and other requirements of
Governmental Authorities relating to (i) Tax, which is treated in Section 4.25,
(ii) Intellectual Property, which is treated in Section 4.26, (iii) Labor which
is treated in Section 4.27 or (iv) Environmental Laws which is treated in
Section 4.28.
4.10 Certain Practices. Neither the Seller, nor any of its members,
------------------
managers, or, to the Seller's knowledge, any of its officers, employees or
agents has, directly or indirectly, given or agreed to give any material rebate,
gift or similar benefit to any supplier, customer, governmental employee or
other Person who was, is, or may be in a position to help or hinder the Seller
(or assist in connection with any actual or proposed transaction by the Seller).
4.11 Governmental Consents and Approvals. The execution, delivery and
------------------------------------
performance of this Agreement and the other Documents by the Seller, and the
consummation of the transactions contemplated hereby or thereby, do not and will
not require any consent, approval, authorization, Permit or Order of, action by,
filing with or notification to, any Governmental Authority except for any such
matters that arise out of the status, or obligations under this Agreement, of
Parent or the Purchaser.
4.12 No Other Agreements to Purchase. No person other than the
-----------------------------------
Purchaser has any written or oral agreement or option or any right or privilege
(whether by Law, pre-emptive right or contract) capable of becoming an agreement
or option for the purchase or acquisition from the Seller of any of the
Purchased Assets.
4.13 Receivables. Schedule 4.13 contains an aged list of the
----------- --------------
Receivables as of the Interim Financial Statement Date. Except as reserved
against on the Interim Financial Statements, all such Receivables constitute or
will constitute, as the case may be, only valid, undisputed claims of the
Seller, that, to Seller's knowledge, are not subject to valid claims of set-off
or other defenses or counterclaims. All Receivables reflected on the Interim
Financial Statements or arising from the date thereof until the Closing (subject
to the reserve for bad debts, if any, reflected on the Interim Financial
Statements or otherwise accrued in accordance with the historical practices of
the Seller) are, or will be, owned by Seller free and clear of any Liens, other
than Permitted Liens, and, to the Seller's knowledge, are or will be good and
have been collected or will be collectible in the aggregate face amounts
thereof, without resort to litigation or extraordinary collection activity,
within 90 days of the Closing Date.
4.14 Financial Statements. The Seller has previously furnished to the
---------------------
Purchaser, and attached hereto as Schedule 4.14 are (i) the financial statements
-------------
compiled on a cash basis and consistently applied for the ten month period ended
October 31, 2003 (the "Interim Financial Statements"), and (ii) the unaudited
balance sheet of the Seller as at December 31, 2002 and the related statements
of income and cash flow and notes thereto for the fiscal years ended December
31, 2002 and December 31, 2001 (collectively, the "Financial Statements"). All
such
17
Financial Statements identified in clause (ii) above have been prepared in
accordance with GAAP consistently applied (with the exception, in the case of
unaudited Financial Statements, the lack of notes thereto and normally recurring
year-end audit adjustments that are not material either individually or in the
aggregate). The Financial Statements fairly present the financial position of
the Business as of the dates thereof, and the results of its operations and cash
flows for the periods ended on the dates thereof. Since October 31, 2003 (the
"Interim Financial Statement Date"), (a) there has been no material adverse
change in the assets, liabilities or financial condition of the Business, and
(b) none of the business, financial condition, operations or property of the
Business has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured against.
4.15 Absence of Undisclosed Liabilities. The Seller is not engaged in
-----------------------------------
any business other than the Business and there are no Liabilities of the Seller
relating to the Business other than Liabilities (a) reflected or reserved
against on the Interim Financial Statements, (b) disclosed in Schedule 4.15, (c)
-------------
Liabilities of the Seller incurred on or prior to the Interim Financial
Statement Date that are not required by GAAP to be reflected on the Interim
Financial Statements, (d) Liabilities contemplated by this Agreement or incurred
in connection with the negotiation, execution and delivery of this Agreement or
(e) Liabilities of the Seller incurred since the Interim Financial Statement
Date in the ordinary course of business, consistent with past practice.
4.16 Conduct in the Ordinary Course; Absence of Changes. Since the
------------------------------------------------------
Interim Financial Statement Date, the Business has been conducted in the
ordinary course of business consistent with past practice, and there has been no
change in the Purchased Assets or the Business which has had, or could
reasonably be anticipated to result in, a Material Adverse Effect. As
amplification and not limitation of the foregoing, since the Interim Financial
Statement Date, except as otherwise contemplated by this Agreement and the other
Documents, the Seller has not:
(a) permitted or allowed any of the Purchased Assets to be subjected to
any Lien other than Permitted Liens, all of which will be discharged or provided
for in a manner reasonably satisfactory to Purchaser prior to Closing;
(b) except in the ordinary course of business consistent with past
practice, discharged or otherwise obtained the release of any Lien or paid or
otherwise discharged any material Liability relating to the Business, other than
Liabilities reflected on the Interim Financial Statements and Liabilities
incurred in the ordinary course of business consistent with past practice since
the Interim Financial Statement Date;
(c) written off, written down or written up (or failed to write down or
write up in accordance with GAAP consistent with past practice) the value of any
Receivables or revalued any Purchased Assets other than in the ordinary course
of business consistent with past practice and in accordance with GAAP;
(d) made any change in any method of accounting or accounting practice
or policy other than such changes required by GAAP;
18
(e) amended, terminated, cancelled or compromised any material claims
of the Seller or waived any other rights of substantial value to the Business;
(f) sold, transferred, leased, subleased, licensed or otherwise
disposed of any of the assets used in the Business, including the Purchased
Assets, other than in the ordinary course of business consistent with past
practices;
(g) suffered any loss of a major customer or cancellation of any
material order or the threat thereof;
(h) made any material change in the Business or operations of the
Business or in the manner of conducting the Business, or suffered any Material
Adverse Effect;
(i) done any of the following: (i) made any grant of any severance or
termination pay to any member, manager, officer, employee or individual
providing services to the Business, (ii) entered into any employment, deferred
compensation, change in control or other similar agreement (or any amendment to
any such existing agreement) with any member, manager, officer, employee or
individual providing services to the Business, (iii) increased or promised to
increase any benefits payable under any existing severance or termination pay
policies or employment agreements, or (iv) increased or promised to increase any
compensation, bonus or other benefits payable to members, managers, officers,
employees or individuals providing services to the Business;
(j) made any loan, advance or capital contribution to or investment in,
or guaranteed any indebtedness of or otherwise incurred any Indebtedness on
behalf of, any third Person other than advances to employees of the Seller in
respect of ordinary and necessary business expenses made in the ordinary course
of business consistent with past practice;
(k) incurred or become subject to any Liabilities, except Liabilities
contemplated by this Agreement or incurred in connection with the negotiation,
execution and delivery of this Agreement and Liabilities incurred in the
ordinary course of business consistent with past practice;
(l) instituted or settled any Litigation;
(m) disclosed any proprietary or confidential information of the
Business to any Person not associated with the Seller other than in the ordinary
course of business and pursuant to a binding non-disclosure agreement;
(n) made any single capital expenditure or commitment therefor in
excess of $5,000, or aggregate capital expenditures or commitments therefor in
excess of $5,000;
(o) entered into any joint venture, partnership or similar arrangement;
(p) made or changed any Tax election, filed any amended Tax Returns,
entered into any closing agreement relating to Taxes, settled or consented to
any claims with respect to Taxes, surrendered any right to claim a refund of
Taxes, settled or compromised any Tax liability
19
or consented to any extension or waiver of the limitation period applicable to
any claims with respect to Taxes;
(q) failed to pay any creditor any amount owed to such creditor with
respect to the Business when due (including any grace period), which other than
the Excluded Liabilities, will be discharged or addressed prior to the Closing
in a manner reasonably satisfactory to the Purchaser;
(r) entered into any agreement, arrangement or transaction with any of
its members, managers, officers, employees or Affiliates (or with any relative,
beneficiary, spouse or Affiliate of any such Person);
(s) terminated, discontinued, closed or disposed of any plant, facility
or other business operation, or laid off any employees or implemented any early
retirement, separation or program providing early retirement benefits or
announced or planned any such action or program for the future;
(t) entered into or committed to enter into any contract or any
transaction in connection with the Business except in the ordinary course of
business;
(u) granted any assignment or license of, or otherwise transferred any
Intellectual Property or permitted to lapse, abandoned or otherwise terminated
its rights to any Intellectual Property (or any registration or grant therefor
or any application relating thereto) in which the Seller has any right, title,
interest or license;
(v) allowed any Permit that was issued to the Seller and relates to the
Business or the Purchased Assets to lapse or terminate;
(w) failed to maintain the property and equipment used in the Business
in good repair and operating condition in accordance with past practice,
ordinary wear and tear excepted;
(x) suffered any casualty loss or damage with respect to any of the
Purchased Assets which in the aggregate have a replacement cost of more than
$5,000, whether or not such losses or damage shall have been covered by
insurance;
(y) amended, modified or consented to the termination of any Contract
or the Seller's rights thereunder;
(z) amended or restated its Articles of Organization; or
(aa) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 4.16 or entered into any commitment to effect
any of the actions specified in this Section 4.16, except as expressly
contemplated by this Agreement and the other Documents.
4.17 [Intentionally left blank]
---------------------------
4.18 Customers. Listed in Schedule 4.18 are the names and addresses of
--------- -------------
all of the customers of the Business for the period commencing January 1, 2003
and ending on October
20
31, 2003 and the amount which each such customer was invoiced during such
period. As of the date of this Agreement, the Seller has not received any
written notice or, to the Seller's knowledge, oral notice and, except for the
expiration of the term of any applicable Contract between the Seller and such
customers (provided that if such customer has notified Seller of its intent not
to renew, such customer shall be identified on Schedule 4.18), has no reason to
-------------
believe that any such customer of the Seller has ceased, or will cease, to use
the equipment, goods or services of the Seller or has substantially reduced, or
will substantially reduce, the use of such equipment, goods or services at any
time during the term of the Contract relating to such equipment, goods or
services.
4.19 Suppliers. Listed in Schedule 4.19 are the names and addresses
--------- -------------
of all of the material suppliers of supplies, merchandise and other goods or
services for the Business for the period commencing January 1, 2003 and ending
on October 31, 2003 and the amount which each such supplier invoiced the Seller
during such period. The Seller has not received any notice and has no reason to
believe that any such supplier will not sell supplies, merchandise and other
goods or services to the Seller or the Purchaser at any time after the Closing
Date on terms and conditions similar to those imposed on current sales to the
Business, subject to general and customary price increases.
4.20 Real Property. Seller does not own any real property.
--------------
4.21 Personal Property.
------------------
(a) Schedule 4.21 lists each material item or distinct group of
--------------
machinery, equipment, tools, supplies, furniture, fixtures, vehicles, rolling
stock and other tangible personal property used in the Business and owned or
leased by the Seller (the "Tangible Personal Property"), and the location
thereof.
(b) The Seller has delivered to the Purchaser correct and complete
copies of all leases for Tangible Personal Property and any and all material
ancillary documents pertaining thereto (including, but not limited to, all
amendments, consents and evidence of commencement dates and expiration dates).
With respect to each of such leases:
(i) such lease, together with all ancillary documents
delivered pursuant to the first sentence of this Section 4.21(b), is legal,
valid, binding, enforceable and in full force and effect and represents the
entire agreement between the respective lessor and lessee with respect to
such property;
(ii) subject to obtaining the consents identified in Schedule
--------
4.6(c), such lease will not cease to be legal, valid, binding, enforceable
------
and in full force and effect on terms identical to those currently in
effect as a result of the consummation of the transactions contemplated by
this Agreement and the other Documents, nor will the consummation of the
transactions contemplated by this Agreement and the other Documents
constitute a breach or default under such lease or otherwise give the
lessor a right to terminate such lease;
(iii) with respect to each such lease, (A) the Seller has not
received any notice of cancellation or termination under such lease and,
subject to obtaining the
21
consents identified in Schedule 4.6(c) and subject to expiration of the
----------------
term of any applicable Contract, no lessor has any right of termination or
cancellation under such lease or sublease except in connection with the
default of the Seller thereunder, (B) the Seller has not received any
notice of a breach or default under such lease, which breach or default has
not been cured, and (C) the Seller has not granted to any other Person not
a party to such lease or an affiliate or subsidiary of such party any
rights, adverse or otherwise, under such lease; and
(iv) neither the Seller, nor, to Seller's knowledge, any
other party to such lease, is in breach or default in any material respect,
and, to Seller's knowledge, subject to obtaining the consents identified in
Schedule 4.6(c), no event has occurred that, with notice or lapse of time
----------------
or both would constitute such a breach or default or permit termination,
modification or acceleration under, such lease.
(c) Subject to obtaining the consents identified in Schedule 4.6(c),
---------------
the Seller has, and upon the Closing will continue to have, the full right to
exercise any renewal options contained in the leases pertaining to the Tangible
Personal Property on the terms and conditions therein and upon due exercise
would be entitled to enjoy the use of each item of leased Tangible Personal
Property for the full term of such renewal options.
(d) All Tangible Personal Property is adequate and, to the Seller's
knowledge, usable for the use and purposes for which it is currently used, is in
good operating condition, normal wear and tear excepted, and has been maintained
and repaired in accordance with good business practice as reasonably determined
by the Seller.
4.22 Purchased Assets.
-----------------
(a) The Seller (i) owns, leases or has the legal right to use all the
properties and assets currently used in the conduct of the Business, and (ii)
with respect to contractual rights, is a party to and enjoys the right to the
benefits of all Contracts identified in Schedule 4.6(a), all of which
properties, assets and rights, excluding the Excluded Assets, constitute
Purchased Assets. The Seller has good and valid title to, or, in the case of
leased or subleased Purchased Assets, valid and subsisting leasehold interests
in, all the Purchased Assets, free and clear of all Liens.
(b) Except for the Excluded Assets, the Purchased Assets constitute all
of the properties, assets and rights used or held in the Business. At all
times, the Seller has caused the Purchased Assets to be maintained, in all
material respects, in accordance with good business practice as reasonably
determined by the Seller, and all the Purchased Assets are in good operating
condition and repair, normal wear and tear excepted, and are, to the Seller's
knowledge, suitable for the purposes for which they are currently used.
(c) Subject to obtaining the consents identified in Schedule 4.6(c),
---------------
the Seller has the complete and unrestricted power and unqualified right to
sell, assign, transfer, convey and deliver the Purchased Assets to the Purchaser
without penalty or other adverse consequences. Following the consummation of
the transactions contemplated by this Agreement and the other Documents and the
execution of the instruments of transfer contemplated by this Agreement, the
Purchaser will own, with good and valid title, or lease, under valid and
subsisting leases, or
22
otherwise acquire the interests of the Seller in the Purchased Assets, free and
clear of all Liens (other than Liens occasioned by the leases to which such
Purchased Assets may be subject, as are identified on Schedule 4.6(a)), and
----------------
without incurring any penalty or other adverse consequence, including, without
limitation, any increase in rentals, royalties, or license or other fees imposed
as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement and the other Documents.
4.23 Insurance. The Seller has furnished or made available to the
---------
Purchaser true and complete copies of all insurance policies and fidelity bonds
covering the assets, business, equipment, properties and operations of the
Seller relating to the Business. All such insurance policies are in full force
and effect and will remain in full force and effect with respect to all events
occurring prior to the Closing. As of the date of this Agreement, such policies
of insurance and bonds are of the type and in amounts customarily carried by
Persons conducting businesses similar to that of the Seller.
4.24 Permits. Schedule 4.24 lists all Permits required in connection
------- --------------
with the conduct of the Business. Each of such Permits will be duly and validly
transferred to the Purchaser in connection with the consummation of the
transactions contemplated herein. The Seller is, and at all times has been, in
material compliance with all conditions and requirements imposed by the Permits
and the Seller has not received any written notice (or to the Seller's
knowledge, oral notice) of, and has no reason to believe, that any appropriate
authority intends to cancel or terminate any of the Permits or that valid
grounds for such cancellation or termination exist. The Seller owns or has the
right to use the Permits in accordance with the terms thereof without any
conflict or alleged conflict or infringement with the rights of any other
Person. Each of the Permits is valid and in full force and effect.
4.25 Taxes. All tax reports and returns required to be filed relating
-----
to the Business and the Purchased Assets have been filed with the appropriate
Governmental Authority and all taxes, penalties, interest, deficiencies,
assessments and charges due as reflected on the filed returns or claimed to be
due by such Governmental Authorities has been paid, except for deficiencies,
assessments or claims which are being contested in good faith and which in the
aggregate are not material, and as are identified on Schedule 4.25 and that all
-------------
such returns and reports are true, correct and complete in all material
respects. In addition, Seller has withheld and paid all Taxes required to have
been withheld and paid in connection with any amounts paid or owing to any
employee, independent contractor, creditor, member or other third party, and all
Forms W-2 and 1099 required with respect thereto have been or will be properly
completed and timely filed.
4.26 Intellectual Property.
----------------------
(a) Except as set forth in Schedule 4.26(d), the Seller does not own
----------------
Intellectual Property (exclusive of shrink wrap Software having an acquisition
price of less than $5,000), including, without limitation, Patents, Trademarks,
trade names, domain name registrations and Copyrights, which is or reasonably
may become material to the Business as it is currently conducted, any of the
Purchased Assets or any of the Assumed Liabilities.
(b) The Seller is not a party to or bound by any license agreements
(other than license agreements in connection with shrink wrap Software having an
acquisition price of less than
23
$5,000) granting any right to use or practice any rights under any Intellectual
Property, whether the Seller is the licensee or licensor thereunder, or any
assignments, consents, forbearances to xxx, judgments, Governmental Orders,
settlements or similar obligations relating to any Intellectual Property
(collectively, the "License Agreements") which are or may become material to the
Business, any of the Purchased Assets or any of the Assumed Liabilities.
(c) The conduct of the Business as currently conducted does not, to the
Seller's knowledge, infringe upon any Intellectual Property rights of any third
party. The Seller has not been notified by any third party of any allegation
that Seller's activities or the conduct of the Business infringes upon, violates
or constitutes the unauthorized use of the Intellectual Property rights of any
third party. No third party has notified the Seller that (i) any of such third
party's Intellectual Property rights are infringed, or (ii) the Seller requires
a license to any of such third party's Intellectual Property rights.
(d) Schedule 4.26(d) lists all Software (other than off-the-shelf
-----------------
software applications programs having an acquisition price of less than $5,000)
which is owned, licensed to or by the Seller, leased to or by the Seller, or
otherwise used by the Seller, and identifies which Software is owned, licensed,
leased or otherwise used, as the case may be. Other than the Software listed in
Schedule 4.26(d) and off-the-shelf software applications programs having an
-----------------
acquisition price of less than $5,000, all Software which the Seller owns and
which is material to the operations of the Business was either developed (i) by
employees of the Seller within the scope of their employment, or (ii) by
independent contractors who have assigned their rights to the Seller pursuant to
enforceable written agreements.
(e) To the Seller's knowledge, all Software owned by the Seller, and
all Software licensed from third parties by the Seller, is free from any
significant defect or programming or documentation error, operates and runs in a
reasonable and efficient business manner, conforms to the specifications
thereof, if applicable, and, with respect to the Software owned by the Seller
for which Seller owns the source code, the applications can be compiled from
their associated source code without undue burden. The Seller has furnished the
Purchaser with all required documentation relating to use, maintenance and
operation of the Software.
4.27 Labor Matters.
--------------
(a) There are no employment, consulting, severance pay, continuation
pay, termination or indemnification agreements or other similar agreements of
any nature (whether in writing or not) between the Seller and any current or
former member, manager, officer or employee of or consultant to, the Seller.
(b) All managers, officers, management employees and technical and
professional employees of the Seller are under written obligation to the Seller
to maintain in confidence all confidential or proprietary information acquired
by them in the course of their employment and to assign to the Seller all
inventions made by them within the scope of their employment during such
employment and for a reasonable period thereafter.
(c) The Seller is not a party to any collective bargaining agreement
and there are no labor unions or other organizations representing, purporting to
represent or attempting to
24
represent any employees of the Seller. The Seller is currently in compliance
with all applicable Laws relating to the employment of labor, including those
related to wages, hours and the payment and withholding of taxes and other sums
as required by the appropriate Governmental Authority and has withheld and paid
to the appropriate Governmental Authority or is holding for payment not yet due
to such Governmental Authority all amounts required to be withheld from
employees of the Seller and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no claim with respect to payment of wages, salary or overtime pay that has
been asserted or is now pending or, to the Seller's knowledge, threatened before
any Governmental Authority with respect to any Persons currently or formerly
employed by the Seller.
4.28 Environmental Matters. The Seller has all Environmental Permits
----------------------
which are or are reasonably expected to be required under Environmental Laws.
The Seller is in compliance with all terms and conditions of such Environmental
Permits. The Seller is in compliance with all Environmental Laws and any other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such Environmental Laws or
contained in any Regulation, code, plan, governmental Order, notice or demand
letter issued, entered, promulgated or approved thereunder. As of the date
hereof, to the Seller's knowledge, there has not been any event, condition,
circumstance, activity, practice, incident, action or plan which will interfere
with or prevent continued compliance with the terms of such Environmental
Permits or which would give rise to any liability to the Purchaser under any
Environmental Law or give rise to any common law or statutory liability, based
on or resulting from the Seller's or its agents' manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, or release into the environment, of any Hazardous
Substance. The Seller has taken all actions necessary under applicable
requirements of Environmental Law to register any products or materials required
to be registered by the Seller (or any of its agents acting in such capacity)
thereunder.
4.29 Certain Interests. Except as set forth on Schedule 4.29, no
------------------ -------------
member, manager or officer of the Seller and no relative or spouse (or relative
of such spouse) who resides with, or is a dependent of, any such member, manager
or officer:
(i) has any direct or indirect financial interest in any
competitor, supplier, customer or licensee of the Seller, provided,
---------
however, that the ownership of securities representing no more than one
-------
percent of the outstanding voting power of any competitor, supplier,
customer or licensee, and which are also listed on any national securities
exchange or traded in the national over-the-counter market, shall not be
deemed to be a "financial interest" so long as the Person owning such
securities has no other connection or relationship with such competitor,
supplier, customer or licensee; or
(ii) owns, directly or indirectly (other than through an
equity interest in the Seller), in whole or in part, or has any other
interest in any tangible or intangible property which the Seller uses in
the conduct of the Business or otherwise.
4.30 Disclosure. No representation or warranty of the Seller contained
----------
in this Agreement and the other Documents, and no statement, report or
certificate furnished by or on
25
behalf of the Seller to the Purchaser or its agents pursuant to this Agreement
or any of the other Documents, contains or will contain any untrue statement of
a material fact or omits or, to Seller's knowledge, will omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
4.31 Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney.
-----------------------------------------------------------------
Schedule 4.31 is a true and complete list of (a) the names of each bank, savings
-------------
and loan association, securities or commodities broker or other financial
institution in which the Seller has an account, including cash contribution
accounts, and the names of all persons authorized to draw thereon or have access
thereto, and (b) the names of all Persons, if any, holding powers of attorney
from the Seller relating to the Business or the Seller. At the time of the
Closing, the Seller shall not have any such account, lockbox or safe deposit box
other than those listed in Schedule 4.31, nor shall any additional Person have
-------------
been authorized, from the date of this Agreement, to draw thereon or have access
thereto or to hold any such power of attorney, without the prior written consent
of the Purchaser. The Seller has not commingled monies or accounts of the
Seller with other monies or accounts of the members or any Affiliates of the
Seller. At the time of the Closing, all monies and accounts of the Seller shall
be held by, and be accessible only to, the Seller.
4.32 Existing Equipment. Schedule 4.32 is a true and complete list of
------------------- -------------
all Existing Equipment, as such term is defined in the Xxxxxx Lease in Section
7.1(m)(vii).
4.33 Purchase For Investment. The Seller is acquiring the Shares and
--------------------------
will acquire the Additional Shares, if any, for investment for its own account
and not with a view to the distribution or public offering thereof within the
meaning of the Securities Act. The Seller understands that the Shares delivered
at the Closing have not been registered under the Securities Act and may not be
sold or transferred without such registration, which registration shall occur in
accordance with the terms and provisions of the Registration Rights Agreement,
or an exemption therefrom. The Seller is sufficiently experienced in financial
and business matters to be capable of evaluating the risk of investment in the
Shares and to make an informed decision relating thereto. The Seller is an
"Accredited Investor" as defined in Regulation D under the Securities Act.
Prior to the execution and delivery of this Agreement, the Seller has had the
opportunity to ask questions of and receive answers from representatives of
Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
In order to induce the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Parent and the
Purchaser represents and warrants to the Seller as follows:
5.1 Organization and Qualification. The Parent is a corporation duly
---------------------------------
organized validly existing and in good standing under the laws of the State of
Delaware. The Purchaser is a limited liability company duly formed, validly
existing and in good standing under the laws of the State of New York. Each of
the Parent and the Purchaser is duly licensed or qualified to transact business
as a corporation or a foreign limited liability company, as the case may be, and
in good standing in those jurisdictions where its failure to be so qualified
would have a material
26
adverse effect on the business, operations, assets or liabilities (including,
without limitation, contingent liabilities), results of operations or the
condition (financial or otherwise) of Parent and its Subsidiaries taken as a
whole.
5.2 Authorization; Enforceability. Each of the Parent and the
------------------------------
Purchaser has the corporate or limited liability company, as the case may be,
power and authority to execute, deliver and perform this Agreement and the other
Documents, as applicable. The execution, delivery and performance of this
Agreement and the other Documents and the consummation of the transactions
contemplated herein and therein have been duly authorized and approved by the
Parent and the Purchaser, as applicable, and no other corporate or limited
liability company, as the case may be, action on the part of the Parent or the
Purchaser is necessary in order to give effect thereto. This Agreement and each
of the other Documents to be executed and delivered by the Parent and the
Purchaser, as applicable, have been (or will be when executed and delivered by
the parent and the Purchaser) duly executed and delivered by, and constitute the
legal, valid and binding obligations of, each of them, enforceable against each
of them, in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought.
5.3 No Violation or Conflict. Except as set forth in Schedule 5.3,
--------------------------- ------------
none of (a) the execution and delivery by the Parent and Purchaser of this
Agreement and the other Documents to be executed and delivered by the Parent and
the Purchaser, as applicable, (b) consummation by the Parent and Purchaser of
the transactions contemplated by this Agreement and the other Documents, or (c)
the performance of this Agreement and the other Documents required by this
Agreement to be executed and delivered by the Parent and the Purchaser at the
Closing, will (i) conflict with or violate the Certificate of Incorporation or
By-Laws of the Parent or conflict with or violate the Articles of Organization
or Operating Agreement of the Purchaser, (ii) conflict with or violate any Law,
Order or Permit applicable to the Parent or the Purchaser or by which Parent's
or Purchaser's properties or assets are bound or affected or (iii) result in any
breach or constitute a default under any material contract to which the Parent
or the Purchaser is a party or which would impact the Purchaser or Parent's
ability to fulfill its obligations under the Agreement and the other Documents.
5.4 Governmental Consents and Approvals. Except as set forth in
--------------------------------------
Schedule 5.4, the execution, delivery and performance of this Agreement and the
-------------
other Documents by the Parent and Purchaser do not and will not require any
consent, approval, authorization, Permit or other order of, action by, filing
with or notification to, any Governmental Authority.
5.5 Brokers. Neither the Parent nor the Purchaser has employed any
-------
financial advisor, broker or finder, and neither the Parent nor the Purchaser
has incurred or will incur any broker's, finder's, investment banking or similar
fees, commissions or expenses in connection with the transactions contemplated
by this Agreement or any of the other Documents.
5.6 Issuance of the Shares. The Shares and the Additional Shares that
-----------------------
are being issued to the Seller hereunder, when issued and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid,
27
nonassessable, free of restrictions on transfer other than restrictions on
transfer under the other Documents and under applicable state and federal
securities laws. Such Shares and Additional Shares will not be issued in
violation of any preemptive rights, rights or first refusal or any other
Contract to which Parent is a party relating to equity securities of Parent.
5.7 SEC Reports and Financial Statements.
----------------------------------------
(a) As of their respective dates, each form, report, schedule,
registration statement, definitive proxy statement and other document (together
with all amendments thereof and supplements thereto) filed by Parent or any of
its subsidiaries with the SEC since January 1, 2001 (as such documents have
since the time of their filing been amended or supplemented, the "Parent SEC
Reports"), which are all of the documents that Parent and its subsidiaries were
required to file with the SEC since such date: (i) complied as to form in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and if applicable, the Xxxxxxxx-Xxxxx Act of 2002 and
the rules and regulations promulgated thereunder (the "Xxxxxxxx-Xxxxx Act"), and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading except to the extent that any statement or omission was corrected
in or superceded by information contained in a later dated filing. The audited
consolidated financial statements and unaudited interim consolidated financial
statements (including, in each case, the notes, if any, thereto) included in the
Parent SEC Reports (the "Parent Financial Statements") complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC, including, without limitation, the
Xxxxxxxx-Xxxxx Act, applicable thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes thereto
and except with respect to unaudited statements as permitted by Form 10-Q of the
SEC) and fairly present (subject, in the case of the unaudited interim financial
statements, to normal, recurring year-end audit adjustments) the consolidated
financial position of the Parent and its consolidated Subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended. Each subsidiary of Parent is
treated as a consolidated subsidiary of Parent in the Parent Financial
Statements for all periods covered thereby.
(b) Parent has maintained disclosure controls and procedures required by
Rule 13a-15 or 15d-15 under the Exchange Act; such controls and procedures were
effective to ensure that all material information concerning Parent and its
subsidiaries was made known on a timely basis to the individuals responsible for
the preparation of Parent's filings with the SEC and other public disclosure
documents.
5.8 Capitalization. As of the date hereof, the authorized capital of
--------------
the Parent consists of:
(a) 2,000,000,000 shares of Parent Common Stock, 40,805,434 shares of
which are issued and outstanding, and 5,784,594 shares of which have been
reserved for issuance upon conversion of outstanding options and warrants
(including options granted pursuant to the Stock
28
Plans (as hereinafter defined)). All of the outstanding shares of Parent Common
Stock have been duly authorized, validly issued, fully paid and are
nonassessable.
(b) The Parent has reserved 5,587,968 shares of Parent Common Stock for
issuance to officers, directors, employees and consultants of the Parent
pursuant to its equity incentive plans duly adopted by the board of directors
and approved by the stockholders of the Parent (the "Stock Plans"). Of such
reserved shares of Parent Common Stock, options and restricted stock to purchase
5,128,424 shares have been granted and are currently outstanding, and 459,544
shares remain available for issuance to officers, directors, employees and
consultants pursuant to the Stock Plan.
ARTICLE VI
PRE-CLOSING COVENANTS
6.1 Covenants of Seller. From the date of this Agreement until the
---------------------
Closing, in addition to all of the other covenants and agreements of the Seller
contained herein, the Seller shall comply with the following covenants:
(a) Operation of the Business. The Seller shall continue to carry on
---------------------------
the Business in the usual and ordinary course and consistent with recent
practices in compliance with applicable Laws and will use reasonable commercial
efforts to preserve its business, operations and the goodwill of its customers,
employees and others having business relations with it. Without limiting the
generality of the foregoing, without the prior written consent of the Purchaser,
the Seller shall not take any action that, if taken prior to the date of this
Agreement and not disclosed hereunder, would cause any of the representations
and warranties of the Seller in Section 4.16 hereof to be untrue.
(b) Access to Facilities, Files and Records. The Seller will give or
-----------------------------------------
cause to be given to the officers, employees, accountants, counsel and
authorized representatives of the Purchaser and Parent (i) reasonable access
during normal business hours to the management personnel, property, contracts
and other books and records and files relating to the Business, and (ii) all
such other information relating to the transaction contemplated by this
Agreement as the Purchaser or Parent may reasonably request, and shall otherwise
cooperate and assist with the Purchaser's investigation of the properties,
assets, liabilities and financial condition of the Seller.
(c) Notice of Proceedings. Seller will promptly notify the Purchaser
-----------------------
and Parent in writing upon (i) becoming aware of any Order or any Action praying
for any order or decree restraining or enjoining the consummation of the
transactions contemplated hereby or by any of the other Documents, or (ii)
receiving any notice from any Court or any Governmental Authority of its
intention (x) to institute a suit or proceeding to restrain or enjoin the
consummation of the transactions contemplated hereby or thereby, or (y) to
nullify or render ineffective this Agreement or any of the other Documents.
(d) Reasonable Commercial Efforts. Subject to the terms of this
-------------------------------
Agreement, the Seller agrees to use its reasonable commercial efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary under applicable Laws to permit consummation of the transactions
contemplated hereby and by the other Documents as promptly
29
as practicable and otherwise enable consummation of the transactions
contemplated hereby and thereby, including satisfaction of the conditions set
forth in Section 7.1 hereof.
(e) Notification of Certain Matters. The Seller shall give prompt
----------------------------------
notice to the Purchaser and Parent of any fact, event or circumstance known to
it that (i) is reasonably likely to result in any Material Adverse Effect, or
(ii) would cause or constitute a breach of any of the representations,
warranties, covenants or agreements of the Seller contained herein or in any of
the other Documents. In connection therewith, the Seller may from time to time
prior to or on the Closing Date, by notice in accordance with this Agreement,
supplement or amend the Disclosure schedule, including one or more supplements
or amendments to (a) correct any matter that would otherwise constitute a breach
of any representation, warranty or covenant contained herein, or (b) to reflect
information received by the Seller after the date of this Agreement on or prior
to the Closing Date. Notwithstanding any other provision hereof to the
contrary, the Disclosure Schedule and the representations and warranties made by
the Seller shall be deemed for all purposes other than Article VIII hereof to
exclude such supplements and amendments and shall be deemed for all purposes of
Article VIII hereof to include and reflect such supplements and amendments as of
the date hereof and at all time thereafter, including the Closing Date.
6.2 Covenants of the Purchaser and Parent. From the date of this
------------------------------------------
Agreement until the Closing, in addition to all of the other covenants and
agreements of the Purchaser and the Parent contained herein, each of the
Purchaser and the Parent shall comply with the following covenants:
(a) Notice of Proceedings. The Purchaser and/or Parent will promptly
-----------------------
notify the Seller in writing upon (i) becoming aware of any Order or any Action
praying for an order or decree restraining or enjoining the consummation of the
transactions contemplated hereby or by any of the other Documents, or (ii)
receiving any notice from any Court or Governmental Authority of its intention
(x) to institute a suit or proceeding to restrain or enjoin the execution of
this Agreement or the consummation of the transactions contemplated hereby or
thereby, or (y) to nullify or render ineffective this Agreement or any of the
other Documents.
(b) Reasonable Commercial Efforts. Subject to the terms of this
-------------------------------
Agreement, each of the Purchaser and Parent agrees to use all reasonable
commercial efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary under applicable Laws to permit
consummation of the transactions contemplated hereby and by the other Documents
as promptly as practicable and otherwise enable consummation of the transactions
contemplated hereby and thereby, including satisfaction of the conditions set
forth in Section 7.2 hereof.
(c) Notification of Certain Matters. The Purchaser and/or Parent shall
-------------------------------
give prompt notice to the Seller of any fact, event or circumstance known to it
that (i) is reasonably likely to result in any material adverse effect on the
business, operations, assets or liabilities (including, without limitation,
contingent liabilities), results of operations or the condition (financial or
otherwise) of Parent and its Subsidiaries taken as a whole, or (ii) would cause
or constitute a breach of any of its representations, warranties, covenants or
agreements contained herein or in any of the other Documents.
30
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING;
POST-CLOSING COVENANTS
7.1 Conditions Precedent to the Obligations of Parent and Purchaser.
------------------------------------------------------------------
The obligations of the Parent and the Purchaser, as applicable, to consummate
the transactions described in this Agreement and any and all liability of the
Parent or the Purchaser, as applicable, to the Seller shall be subject to the
fulfillment on or before the Closing of the following conditions precedent, each
of which may be waived by the Purchaser in its sole discretion:
(a) Representations and Warranties. The representations and warranties
------------------------------
of the Seller contained in this Agreement (i) that are qualified as to
materiality and (ii) that are in Sections 4.3, 4.4, 4.7, 4.9, 4.11, 4.16, 4.18,
4.22 and 4.33, shall be true and correct in all respects and such other
representations and warranties that are either not in the enumerated sections or
are not so qualified as to materiality shall be true and correct in all material
respects, in each case as of the date of this Agreement and the Closing Date,
with the same force and effect as if made as of the Closing Date, other than
such representations and warranties that are expressly made as of another date,
and the Purchaser and Parent shall have received a certificate from the Seller
to such effect signed by a duly authorized officer thereof.
(b) Covenants. The Seller shall have performed and complied (i) in all
---------
material respects with the covenants set forth in Sections 6.1(b), (c) and (e)
of this Agreement, and (ii) in all respects with the covenants set forth in
Sections 6.1(a) and (d) of this Agreement, to be performed or complied with by
it prior to or on the Closing and the Purchaser and the Parent shall have
received a certificate from the Seller to such effect signed by a duly
authorized officer thereof.
(c) No Adverse Change. No events or conditions shall have occurred
-------------------
which individually or in the aggregate, have had, or may reasonably be
anticipated by the Purchaser to give rise to any material adverse effect on the
business, operations, assets or liabilities (including, without limitation,
contingent liabilities), results of operations or the condition (financial or
otherwise) of the Seller.
(d) Governmental Approvals. The Purchaser shall have received
-----------------------
evidence, in each instance in form and substance reasonably satisfactory to it,
that any and all approvals from Governmental Authorities required for the lawful
consummation of the transactions contemplated by this Agreement and the other
Documents shall have been obtained.
(e) Consents. The Purchaser shall have received evidence, each in form
--------
and substance satisfactory to it in its sole discretion, that all consents and
approvals from third parties which are identified in Schedule 2.4(c) have been
obtained.
(f) Opinion of Counsel. The Parent and the Purchaser shall have
--------------------
received from Wolf, Block, Xxxxxx and Xxxxx-Xxxxx LLP, special counsel to the
Seller, an opinion dated the Closing Date, in substantially the form attached
hereto as Exhibit C hereto.
---------
31
(g) No Actions, Suits or Proceedings. No Order of any Court or
------------------------------------
Governmental Authority shall have been issued restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated by
this Agreement and the other Documents. No Litigation shall be pending or, to
the knowledge of the parties to this Agreement, threatened, before any Court or
Governmental Authority (i) to restrain, prohibit, restrict or delay, or to
obtain damages or a discovery order in respect of this Agreement or any of the
other Documents or the consummation of the transactions contemplated hereby or
thereby, or (ii) which has had or reasonably may be expected to have a Material
Adverse Effect on the Business. No insolvency proceeding of any character,
including, without limitation, bankruptcy, receivership, reorganization,
dissolution or arrangement with creditors, voluntary or involuntary, affecting
the Seller shall be pending, and the Seller shall not have taken any action in
contemplation of, or which would constitute the basis for, the institution of
any such proceedings.
(h) Delivery of Purchased Assets. The Seller shall have delivered
-------------------------------
possession of the Purchased Assets to the Purchaser, and shall have made all
intangible Purchased Assets available to Purchaser.
(i) Amendment to Credit Agreement. The Parent shall have entered into
------------------------------
an Eleventh Amendment to the Amended and Restated Credit Agreement, the terms
and provisions of which shall be acceptable to the Seller.
(j) Permits. In order to facilitate the closing of the Construction
-------
Permit and Fire Department Permit (as referenced on Schedule 4.24), the Seller
shall have had its general contractor update the drawings for the leased space
under the Xxxxxx Lease with "as-built" conditions. The Seller shall have
submitted such "as-built" drawings to its architect/engineer, who shall have
updated the drawings subject to the Parent's reasonable approval. The
architect/engineer shall have successfully submitted the updated "as-built"
drawings to the Newark Department of Buildings for approval.
(k) Escrow Agreement. The Seller, the Purchaser, the Parent and the
-----------------
Escrow Agent shall have entered into an escrow agreement with respect to the
escrow of certain of the Shares, in substantially the form of Exhibit D attached
---------
hereto (the "Escrow Agreement").
(l) Due Diligence. The Parent and Purchaser shall have completed all
--------------
of its business, legal and accounting due diligence with respect to the Business
and the Purchased Assets, including, without limitation, an electrical audit,
and shall, in its sole and absolute judgment, be satisfied with the results
thereof.
(m) Closing Documents. The Seller shall have delivered to the
------------------
Purchaser the resolutions, certificates, documents and instruments set forth
below:
(i) each of the other Documents to which it is a party;
(ii) a copy of the resolutions duly and validly adopted by
the members/managers of the Seller, certified by its Secretary, authorizing
and approving the execution and delivery and performance of this Agreement,
the Ancillary Agreements and the other Documents and the transactions
contemplated hereby and thereby and the acts of the officers and employees
of the Seller in carrying out the terms and provisions
32
hereof and thereof;
(iii) all of the books, data, documents, instruments and
other records relating to the Business of the Seller set forth on Schedule
--------
2.1(a);
------
(iv) certificates issued by the Secretary of State or other
similar appropriate governmental department, as of a date not more than
five Business Days prior to the Closing, as to the good standing of the
Seller in its jurisdiction of organization and in each other jurisdiction
in which it is qualified to do business, and, as to its jurisdiction of
organization, certifying its Articles of Organization;
(v) a certificate of the Secretary of the Seller certifying
the names and signatures of the officers of the Seller authorized to sign
this Agreement and the Documents;
(vi) a Non-Competition and Non-Disclosure Agreement with each
of Xxxxx Xxxxxxx and Xxxx X. Xxxxxxx in substantially the form of Exhibit E
---------
attached hereto;
(vii) a Consent to Assignment, in substantially the form of
Exhibit F attached hereto, executed by Market Xxxxxx Urban Renewal, LLC
----------
("Landlord") with respect to the Lease Agreement, dated August 29, 1998, as
amended, between Landlord and the Seller, as tenant (the "Xxxxxx Lease");
(vii) a Consent to Assignment executed by Reach Services
(USA) Inc. (as assignee of Telstra, Inc.) ("Reach") with respect to the
Service Agreement, dated as of October 7, 1999, between Seller and Reach,
as amended (the "Reach Consent");
(ix) an Estoppel Certificate, in substantially the form of
Exhibit G attached hereto, executed by Xxxxxxxx Communications, LLC (as
----------
assignee of Ameritech Global Gateway Services, Inc., "Xxxxxxxx") with
respect to the Equipment Space Sublease between Seller and Xxxxxxxx, dated
October 30, 1998 (as amended, the "Sublease"); and
(x) such other documents and instruments as the Parent,
Purchaser or its counsel may reasonably request.
7.2 Conditions Precedent to the Obligations of the Seller. The
------------------------------------------------------------
obligation of the Seller to consummate the transactions described in this
Agreement and any and all liability of the Seller to each of the Parent and the
Purchaser shall be subject to the fulfillment on or before the Closing Date of
the following conditions precedent, each of which may be waived by the Seller in
its sole respective discretion:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Purchaser and Parent, as applicable, contained in this Agreement that are
qualified as to materiality shall be true and correct in all respects and those
not so qualified shall be true and correct in all material respects , in each
case on the date of this Agreement and on the Closing Date, , with the same
force and effect as if made as of the Closing Date, other than such
representations and warranties
33
that are expressly made as of another date, and the Seller shall have received a
certificate from the Purchaser and Parent, as applicable, to such effect signed
by a duly authorized officer thereof.
(b) Covenants. The Purchaser and Parent shall have performed and
---------
complied in all material respects with the covenants and agreements required by
this Agreement and any of the other Documents to be performed or complied with
by them prior to or on the Closing and the Seller shall have received a
certificate from each of them to such effect signed by a duly authorized officer
thereof.
(c) No Adverse Change. No events or conditions shall have occurred
-------------------
which individually or in the aggregate, have had, or may reasonably be
anticipated by the Seller to give rise to any material adverse effect on the
business, operations, assets or liabilities (including, without limitation,
contingent liabilities), results of operations or the condition (financial or
otherwise) of Parent and its Subsidiaries taken as a whole.
(d) Opinion of Counsel. The Seller shall have received from Xxxxx
--------------------
Xxxxx Xxxx Xxxxxx Xxxxxxx and Xxxxx PC, counsel to the Seller, an opinion dated
the Closing Date, in substantially the form attached hereto as Exhibit H hereto.
---------
(e) No Actions, Suits or Proceedings. No Order of any Court or
------------------------------------
Governmental Authority shall have been issued restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated by
this Agreement and the other Documents. No Litigation shall be pending or, to
the knowledge of the parties to this Agreement, threatened, before any Court or
Governmental Authority to restrain, prohibit, restrict or delay, or to obtain
damages or a discovery order in respect of this Agreement, any of the other
Documents or the consummation of the transactions contemplated hereby or
thereby. No insolvency proceeding of any character including without
limitation, bankruptcy, receivership, reorganization, dissolution or arrangement
with creditors, voluntary or involuntary, affecting the Purchaser or the Parent
shall be pending, and neither the Purchaser nor the Parent shall have taken any
action in contemplation of, or which would constitute the basis for, the
institution of any such proceedings.
(f) Purchase Price. The Purchaser shall have delivered the Purchase
---------------
Price as provided in Section 3.2.
(g) Closing Documents. The Parent and the Purchaser, as applicable,
------------------
shall have delivered to the Seller the resolutions, certificates, documents and
instruments set forth below:
(i) each of the other Documents to which either is a party;
(ii) with respect to each of the Parent and the Purchaser, a
copy of the resolutions duly and validly adopted by its Board of Directors
or similar governing body, certified by its Secretary, with respect to
authorizing and approving the execution and delivery and performance of
this Agreement, the Ancillary Agreements and the other Documents and the
transactions contemplated hereby and thereby and the acts of the officers
and employees of the Parent and Purchaser in carrying out the terms and
provisions hereof;
34
(iii) certificates issued by the Secretary of State or other
similar appropriate governmental department, as of a date not more than
five Business Days prior to the Closing, as to the good standing of each of
the Parent and the Purchaser in its jurisdiction of incorporation and in
each other jurisdiction in which it is qualified to do business, and, as to
its jurisdiction of incorporation or organization, certifying its
Certificate of Incorporation or its Articles of Organization, as
applicable;
(iv) a certificate of the Secretary of the Parent certifying
the names and signatures of the officers of the Purchaser authorized to
sign this Agreement and the Documents, as well as a certificate of the
Secretary of the Purchaser certifying the names and signatures of the
managing member or members of the Purchaser authorized to sign this
Agreement and the Documents; and
(v) such other documents and instruments as the Seller or its
counsel may reasonably request.
(h) Registration Rights Agreement. The Seller and the Parent shall
-------------------------------
have entered into a registration rights agreement with respect to the resale of
Shares and Additional Shares, if any, in substantially the form of Exhibit I
---------
attached hereto ( the "Registration Rights Agreement").
(i) Amendment to Credit Agreement. The Parent shall have entered into
------------------------------
an Eleventh Amendment to the Amended and Restated Credit Agreement, the terms
and provisions of which shall be acceptable to the Seller.
(j) Escrow Agreement. The Seller, the Purchaser, the Parent and the
-----------------
Escrow Agent shall have entered into an Escrow Agreement in substantially the
form of Exhibit D attached hereto.
----------
(k) Designation of Board Member and Observation Rights. The Board
----------------------------------------------------
of Directors of the Parent (the "Board") shall appoint one nominee of the Seller
to the Board and shall grant one individual designated by the Seller observation
rights with respect to the meetings of the Board, effective as of, and subject
to, the Closing. The length of the appointment and the duration of the
observation rights shall be pursuant to the terms and provisions of a letter
agreement between the Seller and the Parent, in substantially the form of
Exhibit J attached hereto.
----------
(l) Listing on Nasdaq. The Parent Common Stock shall continue to be
-------------------
quoted for trading on the Nasdaq SmallCap Market, and Parent shall not have
received notice, or have reason to believe, that it will cease to qualify for
such quotation.
(m) Consulting Agreement. The Parent and Xxxx X. Xxxxxxx shall have
---------------------
entered into a Consulting Agreement in substantially the form of Exhibit
-------
K attached hereto.
-
7.3 Post-Closing Covenants of the Seller. The Seller covenants and
---------------------------------------
agrees, in addition to all of the other covenants and agreements of the Seller
contained herein, as follows:
35
(a) Non-Disclosure of Information. The Seller shall not publish,
-----------------------------
disclose or otherwise make accessible to any third party any confidential
information concerning the Business, properties, assets (including the Purchased
Assets) or rights of Seller relating thereto.
(b) Covenant Not to Compete. The Seller hereby agrees that for
-----------------------
a period commencing on the date hereof and for three years thereafter, the
Seller shall not engage (individually or as a stockholder, partner, agent,
employee, representative or otherwise of a firm, person, corporation or
association) or have any interest, direct or indirect, in any colocation
business substantially similar to the Business and conducted anywhere in the
United States of America; provided, however, that the provisions of this Section
7.3(b) shall not be deemed breached merely because the Seller owns not more than
1% of the outstanding equity securities of a corporation or other entity, if, at
the time of acquisition by the Seller, such stock is listed on a national
securities exchange or is traded on the over-the-counter market by a member of a
national securities exchange.
(d) Further Action. The Seller hereby agrees to use all reasonable
--------------
effort to take, or cause to be taken, all appropriate action, do or cause to be
done all things necessary, and execute and deliver such documents and other
papers, as may be required to carry out the provisions of this Agreement and to
assist Purchaser and Parent in transferring the Purchased Assets and give
reasonable assistance in transitioning the Business, including, without
limitation, executing and acknowledging such documentation as may be necessary
to allow Parent access to Seller's bank accounts as are maintained in the
operation of the Business.
7.4 Post-Closing Covenants of the Purchaser and Parent. Each of the
----------------------------------------------------
Purchaser and the Parent covenants and agrees, as applicable, in addition to all
of the other covenants and agreements of the Purchaser and Parent contained
herein, as follows:
(a) Operation of the Business. For a period of twenty-four
----------------------------
months from the Closing Date, Purchaser and Parent will continue to operate the
Business in the ordinary course; provided, however, the Parent may undertake any
action with respect to the operations of the Business that the Board of
Directors of Parent deems desirable or in the best interests of Parent's
stockholders.
(b) Maintain Lease. Parent will not, nor will it cause or permit
---------------
the Purchaser to take any action to cause the Landlord to terminate the Xxxxxx
Lease; provided, however, the Parent may undertake any action with respect to
the operations of the Business that the Board of Directors of Parent deems
desirable or in the best interests of Parent's stockholders.
(c) SEC Filings. Parent will use commercially reasonable efforts
------------
to file with the SEC in a timely manner all reports and other documents required
of the Parent under the Securities Act and the Exchange Act (at any time it is
subject to such reporting requirements), and will take all actions necessary to
ensure that the Purchaser complies with the requirements of Rule 144(e) under
the Securities Act such that Seller may sell the Shares and Additional Shares
pursuant to such rule.
(d) Quarterly Reports. With respect to the quarterly results of
------------------
operations of the Purchased Assets and the conduct of the Business, Parent will
deliver to Seller a quarterly
36
profit and loss statement at such time the Parent publicly files its quarterly
reports under the Exchange Act. Such profit and loss statement shall include a
calculation of Gross Revenue for each month that is covered by the statement.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations, Warranties. The representations
-------------------------------------------
and warranties contained in this Agreement and the other Documents, shall
survive the Closing and any investigation at any time made by or on behalf of
any party for a period of two years; provided however that the representations
----------------
and warranties set forth in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.12 and 4.33
shall survive the Closing and continue in full force and effect indefinitely,
(b) the representations and warranties set forth in Section 4.25 shall survive
the Closing and continue in full force and effect until the expiration of the
period, if any, during which an assessment, reassessment or other form of
recognized document assessing liability for Tax, interest or penalties under
applicable Tax Laws in respect of any taxation year to which such
representations and warranties extend could be issued under applicable Tax Laws
to the Seller, the Purchaser or the Parent, (c) the representations and
warranties set forth in Section 4.28 shall survive the Closing and continue in
full force for a period of ten years, and (d) a claim for any breach of a
representation or warranty contained in this Agreement or any of the Documents
involving fraud or fraudulent misrepresentation may be made at any time
following the Closing Date, subject only to applicable limitation periods
imposed by Law. Any claims for indemnification asserted in writing as provided
for in this Article VIII prior to the expiration date applicable to the
representation or warranty with respect to which such claim for indemnification
is made shall survive until finally resolved and satisfied in full, provided
that indemnification claims for breach any representation or warranty must be
properly made prior to the expiration date applicable to the representation or
warranty. For convenience of reference, the date upon which any representation
and warranty contained herein shall terminate is referred to herein as the
"Survival Date." No third party other than Purchaser Indemnified Persons and
Seller Indemnified Persons (as hereinafter defined) shall be a third party or
other beneficiary of such representations and warranties and no such third party
shall have any rights of contribution with respect to such representations or
warranties or any matter subject to or resulting in indemnification under this
Article VIII or otherwise. All covenants and agreements contained in this
Agreement (and in the corresponding covenants and agreements set forth in any of
the other Documents) shall survive the Closing and continue in full force until
fully performed in accordance with their terms.
8.2 Indemnification and Reimbursement By the Seller. The Seller
---------------------------------------------------
will indemnify and hold harmless each of the Parent and the Purchaser, and their
respective officers, directors, employees, agents, Affiliates and
representatives (collectively, the "Purchaser Indemnified Persons"), and will
reimburse the Purchaser Indemnified Persons for any loss, liability, claim,
damage, expense (including costs of investigation and defense and reasonable
attorneys' fees and expenses) or diminution of value, whether or not involving a
third-party claim (collectively, "Damages"), arising from or in connection with:
37
(a) any breach of any representation or warranty made by the Seller in
this Agreement;
(b) any breach of any covenant or obligation of the Seller in this
Agreement;
(c) any Liability arising out of the ownership or operation of the
Business or the Purchased Assets prior to the Closing other than the Assumed
Liabilities; and
(d) any brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding made, or alleged to have been made, by
any Person with the Seller (or any Person acting on their behalf) in connection
with any of the transactions contemplated by this Agreement.
8.3 Indemnification and Reimbursement By the Purchaser. The
-------------------------------------------------------
Purchaser will indemnify and hold harmless the Seller, its officers, members,
managers, employees, agents, Affiliates and representatives (collectively, the
"Seller Indemnified Persons"), and will reimburse the Seller Indemnified Persons
for any Damages arising from or in connection with:
(a) any breach of any representation or warranty made by the Parent or
the Purchaser in this Agreement;
(b) any breach of any covenant or obligation of the Parent or the
Purchaser in this Agreement;
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with the Parent or the Purchaser (or
any Person acting on the Parent's or the Purchaser's behalf) in connection with
any of the transactions contemplated by this Agreement or any of the Documents;
and any Assumed Liabilities;
(d) the Assumed Liabilities; and
(e) any Liability arising out of the ownership or operation of the
Purchased Assets or the Business on or after the Closing Date.
8.4 Escrow of Shares. As security for the performance by Seller of
-----------------
its obligations under this Agreement, including, but not limited to, the
indemnification obligations pursuant to Section 8.2 hereof, Seller shall deposit
1,000,000 shares of Parent Common Stock payable pursuant to Section 3.2(b) in
escrow, and such shares to be held by the Escrow Agent and delivered to the
Purchaser or the Seller in accordance with the terms and provisions of the
Escrow Agreement.
8.5 Parent's Right of Set-Off. In the event the Seller is entitled to
--------------------------
receive Additional Shares pursuant to Section 3.3 hereof, such Additional
Shares shall be subject to a right of set-off for the amount of Damages to
which any of the Purchaser Indemnified Persons claims to be entitled to pursuant
to Section 8.2 (the "Set-Off Amount"). For purposes of any such set-off, the
Additional Shares shall have a value that is equal to the Undisputed 10 Day
Average. If the Parent intends to set off amounts pursuant to this Section
8.5, the Parent shall notify the Seller of
38
the Set-Off Amount in the Revenue Certification. In the event the Seller
disputes or disagrees with the Set-Off Amount, and if the Seller so demands in
writing within five (5) days of the Seller's receipt of the Revenue
Certification, the Parent will deposit with the Escrow Agent pursuant to the
Escrow Agreement Additional Shares having a value equal to 150% of the portion
of the Set-Off Amount that is in dispute based upon the Undisputed 10 Day
Average (which number of Additional Shares so deposited shall not be accessible
to the Seller until final resolution of such dispute and only to the extent it
is determined that such amounts are not payable to the Parent or another
Purchaser Indemnified Person). All disputes or disagreements with respect to the
Set-Off Amount shall be resolved by arbitration pursuant to a proceeding under
Section 10.11 hereof.
8.6 Limitations on Seller's Indemnification.
------------------------------------------
(a) No reimbursement for Damages pursuant to Section 8.2 shall be
required unless the aggregate amount of Damages exceeds $50,000 (the
"Threshold"), and, in such event indemnification shall be made by the Seller
only to the extent that Damages exceed the Threshold. The Purchaser Indemnified
Persons shall not have the right to indemnification for any individual Damage
that is less than $2,500 and individual Damages that are equal to or less than
such amount shall not be counted for purposes of determining whether the
aggregate amount of Damages exceeds the Threshold.
(b) All Damages incurred by the Purchaser Indemnified Persons shall be
reduced by (i) the amount of any insurance proceeds payable to the Purchaser
Indemnified Persons with respect to such loss, (ii) any indemnity, contribution
or other similar payment payable to any of the Purchaser Indemnified Persons by
any third party with respect to such loss and (iii) an amount equal to any
reduction of income Taxes attributable to such loss.
(c) In no event shall the Seller's aggregate liability to the Purchaser
Indemnified Persons under this Agreement for breaches of representations or
warranties, covenants or agreements, whether pursuant to Article VIII or
otherwise, exceed $2,000,000. However, the limitation on liability set forth in
this Section 8.6(c) will not apply to any breaches, actions or omissions, which
are not subsequently amended by a supplement or amendment prior to Closing, that
amount to fraud.
(d) The indemnification set forth in this Article VIII shall be the
sole monetary remedy of Parent, the Purchaser and the other Purchaser
Indemnified Persons with respect to the matters set forth in clauses (a) through
(d) of Section 8.2. Notwithstanding any other provisions of this Agreement and
except with respect to claims by third parties, the Seller shall not be liable,
whether in contract, in tort (including negligence and strict liability), or
otherwise, for any special, indirect, incidental or consequential damages
whatsoever, including, but not limited to, loss of profits or revenue, loss of
use of equipment or facilities, business interruptions, costs of capital and
claims of customers that in any way arise out of, relate to, or are a
consequence of, any of the matters set forth in clauses (a) through (d) of
Section 8.2.
8.7 Limitations on Purchaser's Indemnification.
---------------------------------------------
39
(a) No reimbursement for Damages pursuant to Section 8.3 (other than
for a breach of Parent's and Purchaser's obligations to make the payments
required by Sections 3.2 and 3.3 hereof) shall be required unless the aggregate
amount of Damages exceeds the Threshold, and, in such event indemnification
shall be made by the Seller only to the extent that Damages exceed the
Threshold. The Seller Indemnified Persons shall not have the right to
indemnification for any individual Damage (other than Damages arising from a
breach of Parent's and Purchaser's obligations to make the payments required by
Sections 3.2 and 3.3 hereof) that is less than $2,500 and individual Damages
that are equal to or less than such amount shall not be counted for purposes of
determining whether the aggregate amount of Damages exceeds the Threshold.
(b) All Damages incurred by the Seller Indemnified Persons shall be
reduced by (i) the amount of any insurance proceeds payable to the Seller
Indemnified Persons with respect to such loss, (ii) any indemnity, contribution
or other similar payment payable to any of the Seller Indemnified Persons by any
third party with respect to such loss and (iii) an amount equal to any reduction
of income Taxes attributable to such loss.
(c) In no event shall the Purchaser's aggregate liability to the Seller
Indemnified Persons under this Agreement for breaches of representations or
warranties, covenants or agreements, whether pursuant to Article VIII or
otherwise, exceed $2,000,000. However, the limitation on liability set forth in
this Section 8.7(c) will not apply to: (i) any breaches, actions or omissions
that amount to fraud; (ii) any breach of any of Purchaser's representations and
warranties of which Purchaser had actual knowledge at any time prior to the date
on which such representation or warranty is made; and (iii) any intentional
breach by Purchaser of any covenant or obligation, in such events, Purchaser
will be liable for all Damages with respect to such breaches, acts or omissions.
(d) The indemnification set forth in this Article VIII shall be the
sole monetary remedy of Seller and the other Seller Indemnified Persons with
respect to the matters set forth in clauses (a) through (e) of Section 8.3.
Notwithstanding any other provisions of this Agreement and except with respect
to claims by third parties, the Purchaser shall not be liable, whether in
contract, in tort (including negligence and strict liability), or otherwise, for
any special, indirect, incidental or consequential damages whatsoever,
including, but not limited to, loss of profits or revenue, loss of use of
equipment or facilities, business interruptions, costs of capital and claims of
customers that in any way arise out of, relate to, or are a consequence of, any
of the matters set forth in clauses (a) through (e) of Section 8.3.
8.8 Indemnification Procedures. The party or parties making a claim
---------------------------
for indemnification under this Agreement is, for purposes of this Agreement,
referred to as the "Indemnified Party" and the Party against whom such claims
-----------------
are asserted under this Article VIII is, for the purposes of this Agreement,
referred to as the "Indemnifying Party". All claims by an Indemnified Party
------------------
under this Agreement shall be asserted and resolved as follows:
(a) In the event that (A) any claim for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party (such claim,
a "Third Party Claim") or (B) any Indemnified Party hereunder should have a
-------------------
claim against any Indemnifying Party hereunder which does not involve a claim
being asserted against or sought to be collected from it by a third party (such
40
Claim, a "Direct Claim"), the Indemnified Party shall with reasonable promptness
------------
notify in writing the Indemnifying Party of such claim, specifying the nature of
and the specific basis for such claim and the amount or the estimated amount
thereof to the extent then feasible to determine (which estimate (except as set
forth in the next sentence) shall not be conclusive of the final amount of such
Claim) (a "Claim Notice"); provided, however, the failure to so notify the
------------- -------- -------
Indemnifying Party (x) will not relieve the Indemnifying Party from liability
under this Article VIII unless and to the extent it has been actually and
materially prejudiced by such failure and (y) will not, in any event, relieve
the Indemnifying Party from any obligations to any Indemnified Party other than
the indemnification obligation provided in this Article VIII. Unless the
Indemnifying Party notifies the Indemnified Party within thirty (30) days of
receipt of a Claim Notice that it disputes such claim, the amount of such claim
shall be conclusively deemed a liability of the Indemnifying Party hereunder.
(b) In the event of a Third Party Claim, the Indemnifying Party
may, and upon request of the Indemnified Party shall, retain counsel reasonably
satisfactory to the Indemnified Party to represent the Indemnified Party and
shall pay the fees and disbursements of such counsel with regard thereto;
provided, that the Indemnified Party shall have the right to participate in the
--------
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party (except that the Indemnifying Party
shall be liable for the fees and expenses of counsel employed by the Indemnified
Party for any period during which the Indemnifying Party has failed to assume
the defense of any Third Party Claim within a reasonable period of time after
receipt of a written notice of such Third Party Claim pursuant to clause (a)
above). Notwithstanding the foregoing, the Indemnified Party shall have the
right to employ one firm or separate counsel (plus local counsel), and the
Indemnifying Party shall bear the reasonable fees, costs and expenses of such
separate counsel, if (w) the use of counsel chosen by the Indemnifying Party to
represent the Indemnified Party would present such counsel with a conflict of
interest (based upon written advice of counsel to the Indemnified Party), (x)
the actual or potential defendants in, or targets of, any such action include
both the Indemnified Party and the Indemnifying Party and the Indemnified Party
shall have reasonably concluded that there may be legal defenses available to it
or other Indemnified Parties which are different from or additional to those
available to the Indemnifying Party, (y) the Indemnifying Party shall not have
employed counsel satisfactory to the Indemnified Party (in the exercise of the
Indemnified Party's reasonable judgment) to represent the Indemnified Party
within a reasonable time after notice of the Third Party Claim or (z) the
Indemnifying Party shall authorize in writing the Indemnified Party to employ
separate counsel at the expense of the Indemnifying Party.
(c) Whether or not the Indemnifying Party shall have assumed the
defense of a Third Party Claim, the Indemnifying Party shall not admit any
liability with respect to, or settle, compromise or discharge, any pending or
threatened Third Party Claim without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld); provided,
however, that if the Indemnified Party does not give its consent to a settlement
approved by the Indemnifying Party, then in no event shall the Indemnifying
Party be liable for indemnification of Damages in excess of such amount as would
be payable pursuant to such settlement. If the Indemnifying Party shall have
assumed the defense of a Third Party Claim, the Indemnified Party shall agree to
any settlement, compromise or discharge of a Third Party Claim which the
Indemnifying Party shall recommend and which releases the Indemnified Party
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completely and unconditionally from all liability in connection with such Third
Party Claim and which would not otherwise adversely affect the Indemnified
Party.
(d) Notwithstanding the foregoing, in the event the Indemnifying
Party fails timely, in good faith or diligently to defend, contest or otherwise
protect against any Third Party Claim (after having assumed the defense
therefor), the Indemnified Party shall have the right, but not the obligation,
to assume the defense of such Third Party Claim and take such other action as it
may elect to defend, protect against or settle such Third Party Claim as it may
determine, all at the expense of the Indemnifying Party.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) By mutual written consent of Parent and the Seller;
(b) By Parent or the Seller, if the Closing shall not have occurred on
or before January 31, 2004 (provided that the right to terminate this Agreement
under this Section 9.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to have occurred on or before such date); or
(c) By Parent or the Seller, if any Order shall have been enacted,
entered, promulgated or enforced which prohibits or enjoins the consummation of
the sale and purchase of the Purchased Assets and such Order is or shall have
become final and nonappealable.
9.2 Effect of Termination. If this Agreement is terminated in
-----------------------
accordance with Section 9.1 above, this Agreement shall become null and void and
of no further force and effect, except that (i) the terms and provisions of this
Section 9.2 and Article X and the Agreement of Non-Disclosure of Confidential
Information dated September 29, 2003, between the Parent and Seller, shall
remain in full force and effect and (ii) any termination of this Agreement shall
not relieve any party hereto from any liability for fraud or breach of its
obligations hereunder.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by
facsimile transmission (provided that such materials shall also be sent via
recognized overnight courier on the date such facsimile is sent), (iii) sent by
recognized overnight courier, or (iv) sent by certified mail, return receipt
requested, postage prepaid.
If to the Parent/Purchaser to: FiberNet Telecom Group, Inc.
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000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
---------
Facsimile: (000) 000-0000
---------
Attn: Xxxxxxx X. Xxxxxx, Esq.
With a copy to: Xxxxxxx X. Xxxxxxx, Xx., Esq.
Xxxx X. Xxxxx, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
Chrysler Center, 000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
---------
Facsimile: (000) 000 0000
---------
If to the Seller to: gateway.realty.new jersey.llc
c/o Telecom Realty Management, LLC
00 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
---------
Facsimile: (000) 000-0000
---------
With a copy to: Wolf, Block, Xxxxxx and Xxxxx-Xxxxx LLP
Wolf, Block, Xxxxxx and Xxxxx-Xxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. X'Xxxxxx, Esq.
Telephone: (000) 000-0000
---------
Facsimile: (000) 000-0000
---------
All notices, requests, consents and other communications hereunder shall be
deemed to have been (a) if by hand, at the time of the delivery thereof to the
receiving party at the address of such party set forth above, (b) if sent by
facsimile transmission, at the time receipt has been acknowledged by electronic
confirmation or otherwise, (c) if sent by overnight courier, on the next
business day following the day such notice is delivered to the courier service,
or (d) if sent by certified mail, on the fifth business day following the day
such mailing is made.
10.2 Entire Agreement The Documents embody the entire agreement and
-----------------
understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in the Documents shall
affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
43
10.3 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties hereto and their respective successors, heirs,
personal representatives, legal representatives and permitted assigns.
10.4 Assignment. Neither this Agreement, nor any right hereunder, may
----------
be assigned by any of the parties hereto without the prior written consent of
the other parties, except that the Parent or the Purchaser may assign all or
part of its rights and obligations, under this Agreement to one or more direct
or indirect wholly owned Subsidiaries of Parent (in which event, representations
and warranties relating to the Parent or the Purchaser shall be appropriately
modified), provided that such party shall agree to be bound by the terms of this
Agreement.
10.5 Modifications and Amendments. The terms and provisions of this
------------------------------
Agreement may be modified or amended only by written agreement executed by all
parties hereto.
10.6 Waivers and Consents. The terms and provisions of this Agreement
---------------------
may be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent. No failure or
delay by a party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, shall operate as
a waiver of any such right, power or remedy of the party. No single or partial
exercise of any right, power or remedy under this Agreement by a party hereto,
nor any abandonment or discontinuance of steps to enforce any such right, power
or remedy, shall preclude such party from any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The election of
any remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
10.7 No Third Party Beneficiary. Nothing expressed or implied in this
---------------------------
Agreement is intended, or shall be construed, to confer upon or give any Person
other than indemnified parties under Article VII and the parties hereto and
their respective heirs, personal representatives, legal representatives,
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
10.8 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an
44
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
10.9 Publicity. No party to this Agreement shall make, or cause to be
---------
made, any press release or public announcement in respect of this Agreement or
the transactions contemplated hereby or otherwise communicate with any news
media without the prior consent of the Purchaser and the Seller, except as may
be required by Law or any listing agreement related to the trading of the shares
of such party on any national securities exchange or national automated
quotation system, in which case the party proposing to issue such press release
or make such public announcement shall upon advice from outside counsel to the
other party to the effect that such disclosure is required by Law or such
listing agreement and shall use reasonable efforts to consult in good faith with
the other party before issuing any such press release or making any such public
announcement. The parties shall cooperate as to the timing and contents of any
such press release or public announcement.
10.10 Governing Law This Agreement and the rights and obligations of
--------------
the parties hereunder shall be construed in accordance with and governed by the
laws of the State of New York without giving effect to the conflict of law
principles thereof.
10.11 Arbitration; Consent to Injunctive Relief.
---------------------------------------------
(a) Any controversy, dispute or claim arising out of or relating to
this Agreement or the any of the Documents shall be settled by arbitration in
accordance with the following provisions:
(i) Disputes Covered. Subject to Section 10.11(b) hereof,
the agreement of the parties to arbitrate covers all disputes of every kind
relating to or arising out of this Agreement, the Documents or any of the
transactions contemplated hereby or thereby. Disputes include actions for
breach of contract with respect to this Agreement or the Documents, as well
as any claim based upon tort or any other causes of action relating to the
transactions contemplated hereby or thereby, such as claims based upon an
allegation of fraud or misrepresentation and claims based upon a federal or
state statute. In addition, the arbitrators selected according to the
procedures set forth below shall determine the arbitrability of any matter
brought to them and their decisions shall be final and binding on the
parties.
(ii) Forum. The governing law for the arbitration shall
be the law of the State of New York, without reference to its conflicts of
law provisions, and such arbitration shall be conducted in New York, New
York.
(iii) Selection. There shall be three arbitrators, unless
the parties are able to agree on a single arbitrator. In the absence of
such agreement, within 10 days after the initiation of an arbitration
proceeding, the Seller shall select one arbitrator and the Purchaser shall
select one arbitrator, and those two arbitrators shall then select, within
10 days, a third arbitrator. If those two arbitrators are unable to select
a third arbitrator within such 10 day period, a third arbitrator shall be
appointed by the commercial panel of the American Arbitration Association
(the "AAA"). The decision in writing of at least two of the three
arbitrators shall be final and binding upon the parties.
45
(iv) Administration. The arbitration shall be
administered by the AAA.
(v) Rules. The rules of arbitration shall be the
Commercial Arbitration Rules of the AAA (the "Rules"), as modified by any
other instructions that the parties may agree upon at the time, except that
each party shall have the right to conduct discovery in any manner and to
the extent authorized by the Federal Rules of Civil Procedure as
interpreted by the federal courts. If there is any conflict between the
Rules and the provisions of this Section 10.11, the provisions of this
Section 10.11 shall prevail.
(vi) Substantive Law. The arbitrators shall be bound by
and shall strictly enforce the terms of this Agreement and may not limit,
expand or otherwise modify its terms. The arbitrators shall make a good
faith effort to apply substantive law, but an arbitration decision shall
not be subject to review because of errors of law. The arbitrators shall be
bound to honor claims of privilege or work-product doctrine recognized at
law, but the arbitrators shall have the discretion to determine whether any
such claim of privilege or work product doctrine applies.
(vii) Expenses. Each party shall bear its own fees and
expenses with respect to the arbitration and any proceeding related thereto
and the parties shall share equally the fees and expenses of the AAA.
(viii) Decision; Remedies; Award. The arbitrators'
decision shall provide a reasoned based for the resolution of each dispute
and for any award. The arbitrators shall have the power and authority to
award any remedy or judgment that could be awarded by a court in the State
of New York. The award rendered by arbitration shall be final and binding
upon the parties, and judgment upon the award may be entered in any court
of competent jurisdiction in the United States.
(b) The Seller acknowledges that a breach of the provisions of either
Section 7.3(a) or Section 7.3(b) could not be adequately compensated for by
money damages. Accordingly, the Purchaser shall be entitled, in addition to any
other right or remedy available to it, to seek an injunction restraining such
breach, and, in either case, no bond or other security shall be required in
connection therewith.
10.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement. Facsimile signatures
shall constitute original signatures for all purposes of this Agreement.
10.13 Headings The descriptive headings contained in this Agreement
--------
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.14 Expenses. Except as otherwise specified in this Agreement,
--------
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the other Documents and the transactions contemplated hereby and
thereby shall be paid by the party incurring such costs and expenses, whether or
not the Closing shall have occurred.
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REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
LOCAL FIBER, LLC
By:____________________________
Name:__________________________
Title:_________________________
FIBERNET TELECOM GROUP, INC.
By:____________________________
Name:__________________________
Title:_________________________
GATEWAY.REALTY.NEW JERSEY.LLC
By:____________________________
Name:__________________________
Title:_________________________
48
