ASSET PURCHASE AGREEMENT
Introduction
THIS ASSET PURCHASE AGREEMENT is made as of this 30th day of July, 1999 by
and among Xxxxxx X. Xxxxxx, an individual with a mailing address of 00 Xxxxxx
Xxxxxx, Xxxxxxx, Xxx Xxxx 00000 (the "Seller"), Ascent Internet Holdings, Inc.,
a New York corporation (the "Company"), and Insite Internet III Acquisition Co.,
Inc., a New York corporation (the "Buyer") and wholly-owned subsidiary of
XxxxxxxXxxxxx.xxx, Inc., a Delaware corporation.
Background
The Seller is the owner of certain assets described herein used in
connection with the Seller's sole proprietorship business d/b/a Ascent
Networking (the "Proprietorship") and is the record and beneficial owner of all
the issued and outstanding shares of the Company's capital stock (the "Company
Shares").
The Seller desires to sell to the Buyer, and the Buyer desires to purchase
all of the issued and outstanding shares of the Company Shares and substantially
all of assets of the Proprietorship, for the consideration and upon the terms
and conditions set forth in this Agreement.
The Company is party to this Agreement in order to undertake certain
obligations set forth herein and to join, jointly and severally, with the Seller
in the Seller's representations and warranties hereunder.
Agreements
THE PARTIES HERETO, intending to be legally bound, agree as follows:
1. Definitions and Construction.
1.1 In addition to the other definitions set forth herein, when used in
this Agreement, the following terms have the meanings set forth below:
"Agreement" means this asset purchase agreement.
"Balance Sheet" means the balance sheet as of the Balance Sheet Date,
which is included in the Financial Statements.
"Balance Sheet Date" means December 31, 1998.
"Business" means the businesses of the Proprietorship and the Company as
conducted up to the Closing.
"Closing" means the taking of the actions required to consummate the sale
and purchase of the Assets by the Seller to the Buyer pursuant to this
Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Environmental, Health and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" means those certain financial statements of the
Business compiled by Xxxxxx & Company, PLLC, the independent public accountant
of the Seller, as well as certain other unaudited financial statements prepared
by the Seller for his own use, all of which are more particularly described in
Schedule 5.6.
"GAAP" means generally accepted accounting principles.
"Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended.
"Liability" means any liability whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
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"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means those certain liens and security interests solely
to the extent such liens and security interests secure liabilities which are to
be assumed by the Buyer pursuant to Section 3.1(c) below.
1.2 In this Agreement, unless the context otherwise requires:
(a) The words "hereby", "hereof", "hereto", "herein", "hereunder", and any
similar words refer to this Agreement; the word "hereafter" means after, and the
word "heretofore" means before, the date of this Agreement.
(b) The word "person" refers to partnerships (including limited
partnerships), corporations, governmental entities, trusts and other legal
entities as well as to natural persons.
(c) References to the "knowledge" or the "best knowledge" of the Seller
means the understanding of the Seller and of the Company after reasonable
investigation.
1.3 Section and subsection titles are for convenience of reference only
and are not to be considered in the interpretation or construction of any of the
provisions hereof.
1.4 Representations, warranties, covenants, obligations and agreements of
the Company and the Seller set forth in this Agreement will be deemed to be the
joint and several warranties, covenants, obligations and agreements of the
Company and the Seller.
2. Purchase and Sale of Assets.
2.1 Assets. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign, and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller, at the Closing, (i)
the assets and property of the Proprietorship described on Schedule 2.1 attached
hereto and (ii) the Company Shares (collectively, the "Assets"), free and clear
of all liens, pledges, security interests, charges, claims, restrictions and
encumbrances of any nature whatsoever except for Permitted Liens. For purposes
of this Agreement, the Assets will also mean and include all assets and property
acquired hereafter by the Seller relating to Proprietorship before the Closing
Date but will not include the assets and property of the Seller disposed of as
permitted by this Agreement or the "Excluded Assets" as defined in Section 2.2
hereof.
2.2 Excluded Assets. "Excluded Assets" shall mean (a) income and other tax
records of the Business (copies of which have been made available to the Buyer),
provided, however, the Seller will retain these records for a period of not less
than five (5) years after the Closing and make them available to the Buyer upon
the Buyer's request; (b) any contract, executory agreement or lease of the
Business which is not expressly assumed by the Buyer hereunder; and
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(c) any other assets listed on Schedule 2.2 hereof or which the Buyer notifies
the Seller in writing that the Buyer is not purchasing.
3. Purchase Price
3.1 Payment. The total consideration to be paid to the Seller by the Buyer
for the Assets (the "Purchase Price") is as follows:
(a) Cash Payment: The Buyer shall pay the Seller at the Closing, as full
payment for the Assets a total of One Million Twenty Five Thousand Four Hundred
Dollars ($1,025,400). The Buyer shall simultaneously place One Hundred Fifty
Thousand Dollars ($150,000) of such amount into escrow at the Closing (the
"Escrow Deposit") for a period of one (1) year (the "Escrow Period") pursuant to
the Escrow Agreement in the form attached hereto as Exhibit 3.1(a).
(b) Escrow of Deposit. The Buyer shall have the right to setoff from and
against the Escrow Deposit the amount of the adjustments, if any, described in
Section 3.3, as well as the amount of any claims of the Buyer for
indemnification for breach of any warranty or representation by the Seller, and
such right of setoff shall be in addition to the Buyer's right to seek damages
or obtain any other remedy at law or in equity to which the Buyer shall be
entitled by virtue of such breach.
(c) Assumption of Liabilities. At the Closing, the Buyer will assume (i)
that certain promissory note of the Company dated December 31, 1998 and those
certain trade debts, liabilities, obligations and contracts of the
Proprietorship, specifically described on Schedule 3.1(c) (the "Assumed
Liabilities"). The Buyer will not be liable for any of the obligations or
liabilities of the Seller of any kind and nature other than those specifically
listed or described on Schedule 3.1(c). Without limiting the foregoing, the
Buyer shall not assume any Liability for (i) any tax including, but not limited
to, income, sales or use tax, imposed on the Seller because of the sale of the
assets and/or the Business; (ii) any liabilities or expenses of the Seller or
the Company incurred in negotiating and carrying out their obligations under
this Agreement; (iii) any obligations incurred by the Seller after the Closing;
(iv) any liabilities or obligations incurred by the Seller in violation of, or
as a result of the Seller's or the Company's breach of, this Agreement; (v) any
intercompany payables or outstanding loans or lines of credit of the Seller or
the Company; (vi) any liability for any litigation involving the Seller or the
Company, including but not limited to matters listed on Schedule 5.15; and (vii)
liabilities for any severance, accrued vacation/sick day or other employee
benefits of the Seller or the Company whether or not resulting from the
transactions contemplated hereby.
(d) Transition Services. For six (6) months after the Closing Date, the
Seller shall be available, by teleconference and, if requested, on-site for one
to two days per week, to assist the Buyer with transitional business matters
relating to the Business as may be reasonably requested from time-to-time by the
Buyer.
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(e) Stock Options. On the Closing date, the Buyer shall cause its parent
to issue the number of common stock options from the parent's stock incentive
plan equal to the lesser of (i) ten thousand (10,000) shares with an exercise
price equal to the average NASDAQ National Market price of such common stock for
the twenty (20) business days ending on the second business day immediately
preceding the Closing Date; or (ii) $100,000 divided by the closing price of the
Company's common stock on the Closing Date (with an exercise price equal to such
closing price). For purposes herein, the "average NASDAQ National Market price"
shall mean the average of the closing sales prices or, in case no such reported
sale takes place on any given day, the average of the reported closing bid and
asked prices for such day. In either case, the prices would be as reported by
The Nasdaq Stock Market, Inc. However, in no event would the exercise price be
less than 100% (for an ISO) or 85% (for a non-qualified option) of the NASDAQ
National Market price of the common stock on the Closing Date. The options would
vest over three (3) years (i.e. one third of the options per year) at the end of
each of the initial anniversary dates of the Closing Date.
3.2 Allocation. The total purchase price will be allocated among the items
of the Assets in proportion to their fair market value and in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The allocation (or the method by which the allocation
will be determined) is set forth in this Section and Schedule 3.2. In connection
with their filing of Federal income tax returns, the parties will file Treasury
Forms 8594 consistent with this allocation.
3.3 Adjustments.
(a) Adjustment for Deficiency in 1999 Revenues. The Buyer's accountants
shall prepare an income statement in accordance with GAAP on or before April 30,
2000 showing the actual audited revenues for the year ended December 31, 1999 of
the Business determined on an accrual method basis. To the extent that the
aggregate audited revenues of the Business for the fiscal year ended December
31, 1999 are less than Five Hundred Thousand Dollars ($500,000) on an accrual
method basis, the Seller shall pay the Buyer, as a reduction of the Purchase
Price paid to Seller hereunder, an amount equal to Two Dollars ($2.00) for each
One Dollar ($1.00) in revenue less than $500,000. For example, in the event the
aggregate audited accrued revenues of the Business for the fiscal year ended
December 31, 1999 are Four Hundred Fifty Thousand Dollars ($450,000), the
purchase price would be reduced by One Hundred Thousand Dollars ($100,000) (i.e.
the $50,000 shortfall multiplied by 2). To the extent payment by the Seller to
the Buyer is required under this Section 3.3, the Buyer shall be entitled to
receive payment from the Escrow Deposit or to receive payment directly from the
Seller within ten (10) days of the delivery of the final income statement for
1999 as audited by the Buyer's accountants. In the event the Buyer's accountants
and the Seller's accountants disagree as to the audited 1999 revenues of the
Business, the Buyer and the Seller shall employ, within ten (10) days of the
date of delivery of such audited revenues, an accounting firm acceptable to both
parties for purposes of settling this dispute promptly. Such firm shall (i)
determine the audited revenues and final adjustment using such methods as
contemplated herein in accordance with GAAP on an accrual basis as such firm
deems appropriate, and (ii) apportion 100% of the fees and expenses of such firm
to the party who is "negligent" or "at fault" in pursuing such dispute. Such
determinations
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would be conclusive and binding upon the Buyer and the Seller and either or both
of them would have the right to so notify the Escrow Agent and to take such
further action as to which they may be entitled at law or equity. The Buyer
shall provide Seller with a statement of the aggregate revenues accrued on a
monthly basis.
(b) Payables and Liabilities. The Seller shall pay in full all payables
and liabilities relating to the Business, other than the Assumed Liabilities,
within thirty (30) days after the Closing. If such liabilities remain unpaid
after such date absent a bona fide dispute, the Buyer may, in addition to any
other legal or equitable remedy, pay such liabilities and deduct the same from
the Escrow Deposit.
(c) Sprint Credit. In the event the Seller does not receive a
credit/rebate from Sprint in the amount of $2,400 within sixty (60) days from
the date hereof, (i) the Seller shall immediately pay such amount to Buyer by
certified or bank check and (ii) the Buyer shall assign all rights in such
credit to Seller.
4. Closing. The sale and transfer of the Assets by the Seller to the Buyer
(the "Closing") will take place via correspondence and facsimile on July 30,
1999 or at such other time and place as the parties may agree to in writing (the
"Closing Date") subject to the satisfaction of all of the conditions to Closing
described in Sections 8 and 9 hereof.
5. Representations and Warranties of the Seller and the Company. As a
material inducement to the Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, the Seller and the Company, jointly and
severally, make to the Buyer the representations and warranties contained in
this Section 5, which shall be true and correct as of the date hereof and as of
the Closing Date.
5.1 Organization and Qualification of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Certificate of
Incorporation of the Company as amended to date, certified by the Secretary of
State of New York and the bylaws certified by the Secretary of the Company and
heretofore delivered to the Buyer's counsel, are complete and correct, and no
amendments thereto are pending. The stock records and minute books of the
Company which have heretofore been delivered to the Buyer's counsel are correct
and complete. The Company is duly qualified to do business as a foreign
corporation in each jurisdiction in which it owns, operates or leases real
property and in each other jurisdiction in which the failure to be so qualified
or registered would have a material adverse effect on the properties, assets,
business, financial condition and prospects of the Company.
5.2 Subsidiaries; Investments. The Company has no direct or indirect
subsidiaries and owns no securities issued by any other business organization or
governmental authority, except U.S. Government securities, bank certificates of
deposit and money market accounts acquired as short-term investments in the
ordinary course of its business. Neither the Company
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nor the Seller owns nor has any direct or indirect interest in or control over
any corporation, partnership, joint venture, proprietorship or entity of any
kind except as disclosed on Schedule 5.2. For purposes of this Agreement, the
term "subsidiary" means, with respect to any person, any corporation 5% or more
of the outstanding voting securities of which, or any partnership, joint venture
or other entity 5% or more of the total equity interest of which, is directly or
indirectly owned by such person.
5.3 Capital Stock. The total authorized capital stock of the Company
consists solely of the Company Shares listed on Schedule 5.3. All of the issued
and outstanding Company Shares are duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by the Seller, and
all such Company Shares were offered, issued, sold and delivered by the Company
in compliance with all applicable state and federal laws concerning the issuance
of securities. Further, none of such Company Shares were issued in violation of
the preemptive rights of any past or present stockholder. No shares of capital
stock of the Company are held in the treasury of the Company. The Seller holds
of record and owns beneficially all of the Company Shares, free and clear of any
restrictions on transfer taxes, security interests, mortgages, pledges, liens,
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the Seller to
sell, transfer, or otherwise dispose of any Company Shares (other than this
Agreement). The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any Company Shares.
There are no outstanding subscriptions, options, warrants, commitments,
preemptive rights, agreements, arrangements or commitments of any kind for or
relating to the issuance, sale, registration or voting of, or outstanding
securities convertible into or exchangeable for, any shares of capital stock of
any class or other equity interests of the Company.
5.4 Authority of the Seller.
(a) The Seller has full right, authority and power to enter into this
Agreement and each agreement, document and instrument to be executed and
delivered by or on behalf of the Seller pursuant to or as contemplated by this
Agreement and to carry out the transactions contemplated hereby and thereby.
This Agreement and each agreement, document and instrument to be executed and
delivered by the Seller or by the Company pursuant to or as contemplated by this
Agreement (to the extent it contains obligations to be performed by the Seller
and/or the Company) constitutes, or when executed and delivered will constitute,
valid and binding obligations of the Seller or the Company enforceable in
accordance with their respective terms, subject to the terms hereof. The
execution, delivery and performance by the Seller of this Agreement and each
such agreement, document and instrument:
(i) do not and will not violate any provision of the Certificate of
Incorporation or bylaws of the Company;
(ii) do not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to the Seller or require the Seller
to obtain any approval, consent or
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waiver of, or make any filing with, any federal, state, local or foreign
governmental body, agency or official that has not been obtained or made; and
(iii) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to a right of
termination of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award to which the
Seller or the Company is a party or by which the property of the Seller or the
Company is bound or to which the property of the Seller or the Company is
subject or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets or
properties of the Seller or the Company.
5.5 Status of Property Owned or Leased.
(a) Real Property. Neither the Company nor the Proprietorship own any real
property. The real property identified as being leased by the Business on
Schedule 5.5(a) is collectively referred to herein as the "Real Property". The
Real Property constitutes all the real property leased by the Company.
(i) Title. Except as set forth on Schedule 5.5(a), to the best
knowledge of the Seller or the Company, there are no unrecorded mortgages, deeds
of trust, ground leases, security interests or similar encumbrances, liens,
assessments, licenses, claims, rights of first offer or refusal, options, or
options to purchase, or any covenants, conditions, restrictions, rights of way,
easements, judgments or other encumbrances or matters affecting title to the
Real Property.
(ii) Security Interests. To the best knowledge of the Seller and the
Company, there is not now, nor, as a result of the consummation of the
transactions contemplated hereby, will there be, any mortgages, deeds of trust,
ground leases, security interests or similar encumbrances on the Real Property,
except as set forth on Schedule 5.5(a) (collectively, the "Encumbrances"). To
the best knowledge of the Seller and the Company, there is no outstanding
principal balance or accrued unpaid interest or other amount due as of the date
hereof under any instrument secured by any of the Encumbrances and all payments
required under each Encumbrance to the date hereof have been made in full. To
the best knowledge of the Seller and the Company, no condition or fact does or
will exist, as a result of the consummation of the transactions contemplated
hereby, which, with the lapse of time or the giving of notice or both, would
constitute a material default thereunder or result in any acceleration of the
indebtedness secured thereby or any increase in the amount of interest, premiums
or penalties payable on such indebtedness.
(iii) Commissions. To the best knowledge of the Seller and the
Company, there are no brokerage or leasing fees or commissions or other
compensation due or payable on an absolute or contingent basis to any person,
firm, corporation, or other entity with respect to or on account of any of the
Encumbrances or the Real Property, and no such fees, commissions or other
compensation shall, by reason of any existing agreement, become due after the
date hereof.
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(iv) Physical Condition. Except as set forth on Schedule 5.5(a), to
the best knowledge of the Seller and the Company, there is no material defect in
the physical condition of any of the Real Property. Except as set forth on
Schedule 5.5(a), to the best knowledge of the Seller and the Company, there is
no material defect in any material improvements located on or constituting a
part of any of the Real Property, including, without limitation, the structural
elements thereof, the mechanical systems (including without limitation all
heating, ventilating, air conditioning, plumbing, electrical, elevator,
security, telecommunication, utility, and sprinkler systems) therein, the roofs
or the parking and loading areas (collectively, the "Improvements"). To the best
knowledge of the Seller or the Company, all of the Improvements located on or
constituting a part of any of the Real Property, including, without limitation,
the structural elements thereof, the mechanical systems therein, the roofs and
the parking and loading areas are in generally good operating condition and
repair.
(v) Utilities. Neither the Company nor the Seller has received any
written notice of any termination or impairment of the furnishing of, or any
material increase in rates for, services to any of the Real Property of water,
sewer, gas, electric, telecommunication, drainage or other utility services,
except ordinary and usual rate increases applicable to all customers (or all
customers of a certain class) of a utility provider. Neither the Company nor the
Seller has entered into any agreement requiring it to pay to any utility
provider rates which are less favorable than rates generally applicable to
customers of the same class as the Business.
(vi) Compliance. Neither the Company nor the Seller has received any
written notice from any municipal, state, federal or other governmental
authority with respect to any violation of any zoning, building, fire, water,
use, health, environmental or other statute, ordinance, code or regulation
issued in respect of any of the Real Property that has not been heretofore
corrected.
(vii) Government Approvals. Neither the Company nor the Seller has
receive any notice of any plan, study or effort by any Governmental Entity which
would adversely affect the present use, zoning or value to the Business of any
of the Real Property or which would modify or realign any adjacent street or
highway in a manner materially adverse to the Business.
(viii) Zoning. Neither the Company nor the Seller has received any
notice of any zoning violations.
(ix) Real Property Taxes. To the best knowledge of the Company and
the Seller, except as set forth in said Schedule 5.5(a), no special assessments
any kind (special, bond or otherwise) are or have been levied against any Real
Property, or any portion thereof, which are outstanding or unpaid.
(x) Service Contracts. A complete list of all material existing
service, management, supply or maintenance or equipment lease contracts and
other contractual agreements affecting the Real Property or any portion thereof
(the "Service Contracts") to which the Company or the Seller is a party is set
forth on Schedule 5.5(a). All such Service Contracts
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are terminable upon no more than thirty (30) days written notice, at no cost,
except as specified in Schedule 5.5(a).
(b) Personal Property. A list of each item of the machinery, equipment and
other fixed assets owned or leased by the Business having a fair market value of
at least One Thousand Dollars ($1,000), is contained in Schedule 5.5(b) hereto.
All of such equipment and other machinery, equipment and personal property of
the Business is located on the Real Property or used in the operation of the
Business. Except as specifically disclosed in Schedule 5.5(b) or in the
Financial Statements, the Seller and the Company have good and marketable title
to all of the personal property owned by each of them in connection with the
Business. None of such personal property or assets is subject to any mortgage,
pledge, lien, conditional sale agreement, security title, encumbrance or other
charge except as specifically disclosed in any Schedule hereto and in the
Financial Statements. The Financial Statements reflect all personal property of
the Business, subject to dispositions and additions in the ordinary course of
business consistent with this Agreement. Except as otherwise specified in
Schedule 5.5(b) hereto, all leasehold improvements, furnishings, machinery and
equipment of the Business are in generally good repair, normal wear and tear
excepted, have been well maintained, and conform in all material respects with
all applicable ordinances, regulations and other laws.
5.6 Financial Statements; Undisclosed Liabilities.
(a) The Seller has delivered to the Buyer the following financial
statements of the Business, copies of which are attached hereto as Schedule 5.6:
(i) Balance Sheet prepared by Xxxxxx & Company CPC, PLLC, dated December 31,
1998; and (ii) Management prepared monthly profit and loss statements dated
January 1999 through June 30, 1999.
The Financial Statements have been prepared in accordance with accounting
principles applied consistently during the periods covered thereby (except that
the interim Company financial statements are subject to normal year-end audit
adjustments and do not include footnotes), and present fairly in all respects
the financial condition of the Business at the dates of said statements and the
results of their operations for the periods covered thereby.
(b) As of the Balance Sheet Date, the Business had no Liabilities of any
nature, whether accrued, absolute, contingent or otherwise, (including without
limitation liabilities as guarantor or otherwise with respect to obligations of
others or contingent liabilities arising prior to the Balance Sheet Date) except
liabilities stated or adequately reserved for on the Financial Statements or
reflected in Schedules furnished to Buyer hereunder as of the date hereof.
(c) As of the date hereof, the Business has no Liabilities of any nature,
whether accrued, absolute, contingent or otherwise, (including without
limitation liabilities as guarantor or otherwise with respect to obligations of
others, or liabilities for taxes due or then accrued or to become due or
contingent liabilities arising prior to the date hereof or the Closing, as the
case may be) except liabilities (i) stated or adequately reserved for on the
appropriate Financial Statement or the notes thereto, (ii) reflected in
Schedules furnished to the Buyer hereunder on the
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date hereof or (iii) incurred in the ordinary course of business of the Business
consistent with prior practices.
(d) All financial information delivered to KPMG, LLP and the Buyer in
connection with their audit of the Business's financial statements as of the
date hereof are true and correct in all material respects and reflect all
liabilities of the Business as of the date(s) of such information, and have been
prepared in accordance with accounting principles applied consistently during
the periods covered thereby.
5.7 Taxes.
(a) The Company and the Seller have paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), in the amounts indicated
on tax returns filed by the Company and the Seller through the date hereof or in
correspondence received from any federal, state, local or foreign government
taxing authority, whether disputed or not (other than current taxes the
liability for which is adequately reserved for on the financial statements
provided to the Buyer pursuant to Section 5.6 hereof).
(b) The Company and the Seller have in accordance with applicable law
filed all federal, state, local and foreign tax returns required to be filed by
them through the date hereof and all such returns correctly and accurately set
forth the amount of any Taxes relating to the applicable period. For every
taxable period of the Company and the Seller, the Company and the Seller have
delivered or made available to the Buyer complete and correct copies of all
federal, state, local and foreign income tax returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company or the
Seller. Schedule 5.7 attached hereto sets forth all federal tax elections under
the Internal Revenue Code, that are in effect with respect to the Company or for
which an application by the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company or the Seller any deficiency or claim for additional Taxes
or a claim that the Company or the Seller is or may be subject to taxation by
that jurisdiction. There are no security interests on any of the assets of the
Company or the Seller that arose in connection with any failure (or alleged
failure) to pay any Tax. Neither the Company nor the Seller have entered into a
closing agreement pursuant to Section 7121 of the Internal Revenue Code.
(d) Except as set forth in Schedule 5.7 attached hereto, there has not
been any audit of any tax return filed by the Company or the Seller, no audit of
any tax return of the Company or the Seller is in progress, and neither the
Company nor the Seller has been notified by any tax authority that any such
audit is contemplated or pending. Except as set forth in Schedule 5.7, no
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extension of time with respect to any date on which a tax return was or is to be
filed by the Company or the Seller is in force, and no waiver or agreement by
the Company or the Seller is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions of Section
341(f)(2) of the Internal Revenue Code applied to it, (ii) the Company has not
agreed to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Internal Revenue Code by reason of a
change in accounting method or otherwise and (iii) the Company has never made
any payments, is obligated to make any payments, or is a party to any agreement
that under certain circumstances would obligate it to make any payments, that
will not be deductible under Section 280G of the Internal Revenue Code. The
Company has disclosed on its federal income tax returns all positions taken
therein that could give rise to a penalty for underpayment of federal Tax under
Section 6662 of the Internal Revenue Code. The Company has never had any
liability for unpaid Taxes because it is a member of an "affiliated group" (as
defined in Section 1504(a) of the Internal Revenue Code). The Company has never
filed, nor has it ever been required to file, a consolidated, combined or
unitary tax return with any entity. The Company is not a party to any tax
sharing agreement.
(f) The Business computes its federal taxable income on a cash basis of
accounting.
5.8 Accounts Receivable. All accounts receivable of the Business as of the
respective Balance Sheet Dates and all accounts receivable arising thereafter or
hereafter to the Closing Date, arose or will arise from valid sales in the
ordinary course of business and are not subject to setoff or counterclaim.
Except as set forth in Schedule 5.8, the Business has no accounts or loans
receivable from any person, firm or corporation which is affiliated with the
Company or the Seller.
5.9 Inventories. The Business maintains less than $10,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
5.10 Absence of Certain Changes.
Since December 31, 1998, the Company and the Seller have conducted the
Business only in the ordinary course and consistent with past practices and
except as disclosed in Schedule 5.10 there has not been:
(a) Any change in the properties, assets, liabilities, business,
operations, financial condition or prospects of the Business which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been materially adverse with respect to the
Business;
(b) Except for the endorsement of checks in the ordinary course of
business any material contingent liability incurred by the Business as guarantor
or otherwise with respect to the obligations of others or any cancellation of
any material debt or claim owing to, or waiver of any material right of, the
Business;
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(c) Any mortgage, encumbrance or lien placed on any of the properties of
the Business which remains in existence on the date hereof or will remain on the
Closing Date except for liens permitted by any current agreement of the Business
with respect to borrowed money;
(d) Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any capital assets
of the Business costing more than Five Thousand Dollars ($5,000);
(e) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting any of the properties, assets or business of
the Business;
(f) Any declaration, setting aside or payment of any dividend by the
Company, or the making of any other distribution in respect of the capital stock
of the Company, any direct or indirect redemption, purchase or other acquisition
by the Company of its own capital stock, any issuance or sale of any securities
convertible into or exchangeable for debt or equity securities of the Company or
any grant, issuance or exercise of options, warrants, subscriptions, preemptive
rights, agreements, arrangements or commitments of any kind for or relating to
the issuance, sale, registration or voting of any shares of capital stock of any
class or other equity interests of the Company;
(g) Any claim of unfair labor practices asserted against the Business; any
change in the compensation (in the form of salaries, wages, incentive
arrangements or otherwise) payable or to become payable by the Business to any
of its officers, employees, agents or independent contractors other than
customary merit or cost of living increases in accordance with its usual
practices, or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors; any entering into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any officer, director, manager or employee
of the Company or the Business as applicable except for employment arrangements
providing for salary or wages of less than Eighteen Thousand Dollars ($18,000)
per annum and any oral agreement terminable at will by the Business;
(h) Any change with respect to the officers or management of the Business,
any grant of any severance or termination pay to any officer or employee of the
Company or the Seller;
(i) Any payment or discharge of a material lien or liability of the
Business which was not shown on the Financial Statements or incurred in the
ordinary course of business thereafter;
(j) Any obligation or liability incurred by the Business to any of its
officers, directors, managers or stockholders, or any loans or advances made by
the Business to any of its officers, directors, managers, stockholders, except
normal compensation and expense allowances payable to such parties;
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(k) Any change in accounting methods or practices, credit practices or
collection policies used by the Business other than to comply with new
accounting pronouncements;
(l) Any other transaction entered into by the Business other than
transactions in the ordinary course of business; or
(m) Any agreement or understanding whether in writing or otherwise, that
would result in any of the transactions or events or require the Business to
take any of the actions specified in paragraphs (a) through (l) above.
5.11 Banking Relations. All of the arrangements which the Company or the
Seller has with any banking institution are described in Schedule 5.11 attached
hereto, indicating with respect to each of such arrangements the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.), the names in which the accounts are held, the account
number, and the name of each person, corporation, firm or other entity
authorized in respect thereof.
5.12 Patents, Trade Names, Trademarks, Copyrights and Proprietary Rights.
All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or the Seller or
otherwise used in connection with the Business (the "Proprietary Rights") are
listed in Schedule 5.12 attached hereto. All of the material patents, registered
trademarks and copyrights of the Business and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Business have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in Schedule 5.12: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company and the Seller have sufficient title or adequate
rights or licenses to use all material patents, trade names, trademarks,
copyrights, or other proprietary rights used by it in its business as presently
conducted free and clear of any attachments, liens, encumbrances or adverse
claims. Neither the Company nor the Seller has received written notice that its
present or contemplated activities or products infringe any such patents, trade
names, trademarks or other proprietary rights of others. Except as set forth in
Schedule 5.12: (i) no other person has an interest in or right or license to
use, or the right to license others to use, any of said patents, patent
applications, trade names, trademarks, copyrights or other proprietary rights;
(ii) there are no written claims or demands of any other person pertaining
thereto and no proceedings have been instituted, or are pending or threatened,
which challenge the rights of the Company or the Seller in respect thereof;
(iii) none of the patents, trade names, trademarks, copyrights or other
proprietary rights listed in said schedule is subject to any outstanding order,
decree, judgment or stipulation, or is being infringed by others; and (iv) no
proceeding charging the Company or the Seller with infringement of any adversely
held patent, trade name, trademark or copyright has been filed or is threatened
to be filed.
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5.13 Trade Secrets and Customer Lists. The Business has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products and services presently sold, manufactured, licensed, under
development or produced by it, including products licensed from others. Any
payments required to be made by the Company or the Seller for the use of such
trade secrets, inventions, customer lists and secret processes are described in
Schedule 5.13. Neither the Company nor the Seller are using or in any way making
use of any confidential information or trade secrets of any third party,
including without limitation, a former employer of any present or past employee
of the Company or the Seller.
5.14 Contracts.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 5.14 (complete and accurate copies of which have been
delivered to the Buyer), the Business is not a party to or subject to:
(i) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
severance or termination pay, collective bargaining or the like, or any contract
or agreement with any labor union;
(ii) any employment contract or contract for services which requires
the payment of Eighteen Thousand Dollars ($18,000) or more annually or which is
not terminable at will by the Business without liability for any penalty or
severance payment;
(iii) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than Five Thousand Dollars ($5,000 each);
(iv) any other contracts or agreements creating any obligation of
Five Thousand Dollars ($5,000) or more with respect to any such contract;
(v) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(vi) any contract or agreement which by its terms does not terminate
or is not terminable by the Business or any successor or assign within six
months after the date hereof without payment of a penalty;
(vii) any contract or agreement for the sale or lease of its
products or services not made in the ordinary course of business;
(viii) any contract with any sales agent or distributor of products
of the Company or the Seller;
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(ix) any contract containing covenants limiting the freedom of the
Company or the Seller to compete in any line of business or with any person or
entity;
(x) any contract or agreement for the purchase of any fixed asset
for a price in excess of Five Thousand Dollars ($5,000) whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee); provided that
a complete list of all software currently owned, licensed or used by the Company
or the Seller and set forth in Schedule 5.14 shall satisfy the disclosure
obligation of the Company or the Seller for purposes hereof;
(xii) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money and any
related security agreement;
(xiii) any contract or agreement with any officer, employee,
director or stockholder of the Company or the Seller or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other similar contract,
arrangement or agreement; or
(xv) any registration rights agreements, warrants, warrant
agreements or other rights to subscribe for securities, any voting agreements,
voting trusts, shareholder agreements or other similar arrangements or any stock
purchase or repurchase agreements or stock restriction agreements.
(b) All material contracts, agreements, leases and instruments to which
the Company or the Seller is a party or by which the Business is obligated are
valid and are in full force and effect and constitute legal, valid and binding
obligations of the Business and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor the Seller nor
any other party to any contract, agreement, lease or instrument of the Company
or the Seller is in default in complying with any provisions thereof, and no
condition or event or facts exists which, with notice, lapse of time or both
would constitute a default thereof on the part of either of the Company, the
Seller, or on the part of any other party thereto in any such case that could
have a material adverse effect on the properties, assets, financial condition or
prospects of the Business. Schedule 5.14 indicates whether any of the
agreements, contracts, commitments or other instruments and documents described
therein requires consent or approval to be transferred to the Buyer as a result
of the transactions contemplated herein.
5.15 Litigation. Schedule 5.15 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company or the Seller is a party. Except for matters
described in Schedule 5.15, there is no
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litigation or governmental or administrative proceeding or investigation pending
or threatened against the Company or the Seller which may have an adverse effect
on the properties, assets, business, financial condition or prospects of the
Business or which would prevent or hinder the consummation of the transactions
contemplated by this Agreement.
5.16 Compliance with Laws. Neither the Company nor the Seller has received
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would have a
material adverse effect on the Business, and except as set forth in Schedule
5.16 hereto, the Company and the Seller are currently in compliance in all
material respects with all such statutes, ordinances, orders, rules or
regulations, and there is no valid basis for any claim that such parties are not
in compliance with any such statute, ordinance, order, rule or regulation.
5.17 Insurance. Schedule 5.17 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Business has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and (e) a description of any retroactive
premium adjustments or other loss-sharing arrangements. With respect to each
such insurance policy: (i) the policy is legal, valid, binding, enforceable, and
in full force and effect; (ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby, (iii) neither the
Company, the Seller, nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; and (iv) no party to the policy has repudiated
any provision thereof. Since the commencement of the Business, the Company and
the Seller have been covered by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period.
5.18 Warranty and Related Matters. There are no existing or threatened in
writing, product liability, warranty or other similar claims against the Company
or the Seller alleging that any of its products or services are defective or
fail to meet any product or service warranties except as disclosed in Schedule
5.18 hereto. Neither the Company nor the Seller have received notice of any
statements, citations, correspondence or decisions by any Governmental Entity
stating that any product manufactured, marketed or distributed at any time by
the Business (the "Products") is defective or unsafe or fails to meet any
product warranty or any standards promulgated by any such Governmental Entity.
There have been no recalls ordered by any such Governmental Entity with respect
to any Product. There is no (i) fact relating to any Product that may impose
upon the Business a duty to recall any Product or a duty to warn customers of a
17
defect in any Product, (ii) latent or overt design, manufacturing or other
defect in any Product, or (iii) liability for warranty or other claim or return
with respect to any Product except in the ordinary course of business consistent
with the past experience of the Business for such kind of claims and
liabilities.
5.19 Finder's Fees. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Seller.
5.20 Permits; Burdensome Agreements. Schedule 5.20 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Business to conduct its business. The Company and the Seller have obtained
all the Approvals, which are valid and in full force and effect. Except as
disclosed on Schedule 5.20, none of the Approvals is subject to termination by
their express terms as a result of the execution of this Agreement by the Seller
and the Company, and no further Approvals will be required in order to continue
to conduct the business currently conducted by the Business subsequent to the
Closing. Except as disclosed in Schedule 5.20, neither the Company nor the
Seller is subject to nor bound by any agreement, judgment, decree or order which
may materially and adversely affect the properties, assets, business, financial
condition or prospects of the Business.
5.21 Transactions with Interested Persons. Except as set forth in Schedule
5.21 hereto, no stockholder, officer, employee or director of the Company, nor
the Seller, nor employees of the Business and none of their respective parents,
grandparents, spouses, children, siblings or grandchildren owns directly or
indirectly on an individual or joint basis any material interest in, or serves
as an officer or director or in another similar capacity of, any competitor,
supplier or customer of the Business or any organization, person or entity with
whom the Business is doing business.
5.22 Lists of Certain Employees and Suppliers.
(a) Schedule 5.22 hereto contains a list of all current directors and
officers of the Company and a list of all managers, employees and consultants of
the Business who, individually, have received or are scheduled to receive base
salary from the Business during the current fiscal year of Eighteen Thousand
Dollars ($18,000) or more. In each case such schedule includes the current job
title and current base salary of each such individual.
(b) Schedule 5.22 sets forth a true and complete list of all suppliers of
the Business to whom the Business made payments aggregating Ten Thousand Dollars
($10,000) or more during the most recent complete fiscal year, showing, with
respect to each, the name, address and dollar volume involved.
5.23 Employees; Labor Matters. As of the date hereof, the Business
employed the number of full-time employees and part-time employees described on
Schedule
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5.23. Neither the Company nor the Seller are delinquent in payments to any of
its employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Except as set forth in Schedule
5.23, upon termination of the employment of any of said employees, the Business
will not be liable to any of said employees for so-called "severance pay" or any
other payments. Except as set forth in Schedule 5.23 attached hereto, neither
the Company nor the Seller have policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment. The Business is in compliance with all applicable
laws and regulations respecting labor, employment, fair employment practices,
terms and conditions of employment, and wages and hours. No charges of
employment discrimination or unfair labor practices have been brought against
the Company or the Seller, nor are there any strikes, slowdowns, stoppages of
work, or any other concerted interference with normal operations existing,
pending or threatened against or involving the Company or the Seller. There are
no grievances, complaints or charges that have been filed against the Company or
the Seller under any dispute resolution procedure (including, but not limited
to, any proceedings under any dispute resolution procedure under any collective
bargaining agreement). No collective bargaining agreements are in effect or are
currently being or are about to be negotiated by the Company or the Seller.
Neither the Company nor the Seller have received written notice of pending or
threatened changes with respect to the management or key supervisory personnel
of the Business.
5.24 Customers. Schedule 5.24 sets forth any customer who accounted for
more than 5% of the sales of the Business for the most recent complete fiscal
year of the Business (collectively, the "Customers"). No Customer has given
notice to the Company or the Seller of its intention to terminate, to cancel or
otherwise materially and adversely modify its relationship with the Business or
to decrease materially or limit its usage or purchase of the services or
products of the Business.
5.25 Y2K. The Company and the Seller have taken all commercially
reasonable action known to date to assess, evaluate, test and correct all of the
hardware, software, embedded microchips and other processing capabilities of
computer and telecommunication systems it uses, either directly or indirectly,
including but not limited to computerized services provided by third parties
such as billing and payroll services, to ensure that such systems will be able
to function accurately and without interruption or ambiguity using date
information before, during and after January 1, 2000.
5.26 Disclosure. This Agreement, including the Schedules hereto prepared
by the Seller and the Company, together with the other information furnished to
the Buyer by the Company and the Seller in connection herewith, does not contain
an untrue statement of material fact or omit to state a material fact necessary
to make the statements herein and therein, in light of the circumstances under
which they were made, not misleading.
5.27 Employee Benefits.
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(a) Schedule 5.27 lists each Employee Benefit Plan that the Business
maintains or to which either the Company or the Seller is a party.
(i) Each such Employee Benefit Plan (and each related trust,
insurance, contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Internal Revenue Code, and other
applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title 1 of ERISA and
of Internal Revenue Code ss.4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Business. All premiums or
other payments for all periods ending on or before the Closing Date have been
paid with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Internal Revenue
Code ss.401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer Plan)
equals or exceeds the present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on the date for
determination.
(vi) The Seller has delivered and has caused the Company to deliver
to the Buyer correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which implement
each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that the Business maintains
or ever has maintained or to which either contributes, ever has contributed, or
ever has been required to contribute:
(i) No such Employee Benefit Plan which is in Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC.
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No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or is threatened.
(ii) There have been no Prohibited Transactions with respect to any
such Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan. No
action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than routine claims for benefits) is pending or threatened. None of the
Seller nor the directors and officers of the Company has any knowledge of any
basis for any such action, suit, proceeding, hearing, or investigation.
(iii) Neither Seller nor the Company has incurred, and none of the
Seller, the Company and the directors and officers of the Company has any reason
to expect that the Seller or the Company will incur, any liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Internal Revenue Code with
respect to any such Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(c) Neither Seller nor the Company has ever contributed to, or ever has
been required to contribute to any Multiemployer Plan or has any liability
(including withdrawal liability) under any Multiemployer Plan.
(d) Neither Seller nor the Company maintains or contributes to, has ever
maintained or contributed to, or has ever been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Internal Revenue Code ss.4980B).
5.28 Environment, Health, and Safety.
(a) To the best of the Seller and the Company's knowledge, the Business
has complied with all Environmental, Health and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against them alleging any failure so to
comply. Without limiting the generality of the preceding sentence, the Seller
and the Company have obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are required
under, and have complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which are contained in, all Environmental, Health, and Safety Laws.
(b) To the best of the Seller and the Company's knowledge, neither Seller
nor the Company has liability (and the Seller and the Company have not handled
or disposed of any substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or condition, or owned
or operated any property or facility in any manner that
21
could form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Seller
or the Company giving rise to any liability) for damage to any site, location,
or body of water (surface or subsurface), for any illness of or personal injury
to any employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(c) To the knowledge of the Seller, all properties and equipment used in
the Business have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2-trans-dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
6. Covenants of the Seller and the Company. The Seller and the Company
jointly and severally covenant and agree as set forth in this Section 6.
6.1 Conduct of Business. Between the date of this Agreement and the
Closing Date, the Seller will cause the Company and the Proprietorship to do and
the Company and the Proprietorship will do the following, unless the Buyer shall
otherwise consent in writing:
(a) conduct its business only in the ordinary course consistent with past
practices, refrain from changing or introducing any method of management or
operations except in the ordinary course of business and in a manner consistent
with past practices and will not use any cash generated by the Business other
than to pay ordinary course business expenses consistent with past practices
except for the payment to Norwich Tire described in Schedule 5.10;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing or
selling any capital asset of the Business and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets;
(c) refrain from incurring or modifying any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring or modifying any other contingent or fixed obligations or liabilities
except in the ordinary course of business and in a manner consistent with past
practices;
(d) refrain from making any change in the Company's incorporation
documents, by-laws or authorized or issued capital stock or from acquiring any
securities issued by any other business organization other than short-term
investments in the ordinary course of business;
(e) refrain from declaring, setting aside or paying any dividend, making
any other distribution in respect of the Company's capital stock, making any
direct or indirect redemption, purchase or other acquisition of the Company's
capital stock, issuing, granting, awarding, selling, pledging, disposing of or
encumbering or authorizing the issuance, grant, award, sale, pledge, disposition
or encumbrance of any shares of, or securities convertible or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or entering into any
agreement or commitment with respect to any of the foregoing;
22
(f) refrain from making any change in the compensation payable or to
become payable to any of its officers, employees or agents, except for scheduled
increases in salary or wages in the ordinary course of business that are
consistent with past practices, or granting any severance or termination pay to,
or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or the Seller or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing arrangements or
modifying, amending or terminating any of its contracts except in the ordinary
course of business, or waiving, releasing or assigning any material rights or
claims;
(h) use reasonable efforts to prevent any change with respect to its
management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business organization and to
preserve the goodwill of and business relationships with all suppliers,
customers and others having business relations with it, and to maintain its
properties and facilities, including those held under leases, in as good a
working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) Maintain at all times all insurance of the kind, in the amount and
with the insurers set forth in Schedule 5.17 or equivalent insurance with any
substitute insurers approved by Buyer;
(k) refrain from changing accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable) or from making any tax election or
settling or compromising any federal, state, local or foreign income tax
liability;
(l) refrain from entering into any executory agreement, commitment or
undertaking to do any of the activities prohibited by the foregoing provisions;
and
(m) maintain a minimum of $27,000 cash on hand on the Closing Date; and
(n) permit the Buyer and its authorized representatives (including without
limitation the Buyer's attorneys, accountants, and pension consultants) to have
full access to all of its properties, assets, books, records, business files,
executive personnel, tax returns, contracts and documents and furnish to the
Buyer and its authorized representatives such financial and other information
with respect to its business or properties as Buyer may from time to time
reasonably request.
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6.2 Consents and Approvals. The Seller and the Company shall use their
best efforts to obtain or cause to be obtained prior to the Closing Date all
necessary consents and approvals to the performance of the obligations of the
Seller and the Company under this Agreement unless waived by the Buyer,
including, without limitation, the consents and authorizations described in
Schedule 5.14, and such other authorizations, waivers, approvals, consents and
permits as set forth in Schedule 6.2 as may be necessary to transfer to the
Buyer and/or to retain in full force and effect without penalty subsequent to
the Closing Date all contracts, permits, licenses and franchises of or
applicable to the Business.
6.3 Exclusive Dealing. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to Section 10 neither
the Company nor the Seller shall, nor shall any of them permit any director,
officer, employee or agent of either of the Company or the Seller to, directly
or indirectly, (i) take any action to solicit, initiate submission of or
encourage, proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a portion of
the assets of the Business, or any equity interest in the Company or any merger
or business combination with the Company or the Proprietorship (an "Acquisition
Proposal"), (ii) participate in any discussions or negotiations regarding an
Acquisition Proposal with any person or entity other than Buyer and its
representatives, or (iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do any of the foregoing.
6.4 No Sales of Capital Stock. Between the date of this Agreement and the
Closing Date, the Seller shall not sell, exchange, deliver, assign, pledge,
encumber or otherwise transfer or dispose of any Company Shares owned
beneficially or of record by the Seller, nor grant any right of any kind to
acquire, dispose of, vote or otherwise control in any manner such Company
Shares; provided, however, that notwithstanding anything to the contrary stated
herein, any transferee, executor, heir, legal representative, successor or
assign of the Seller shall be bound by this Agreement.
6.5 Notification of Certain Matters. The Seller and the Company shall give
prompt notice to the Buyer of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Seller and the Company contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (ii)
any material failure of the Seller or the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. The delivery of any notice pursuant to this Section 6.5 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, (ii) modify the conditions set forth in Section 8 or
elsewhere or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
6.6 Amendment of Schedules. The Seller and the Company agree that, with
respect to the representations and warranties contained in this Agreement, the
Seller and the Company shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described on the
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Schedules. The Seller and the Company understand and agree that, as of the
Closing Date, they will be required to execute a "bring-down" certificate which
shall state that all representations and warranties in this Agreement are true
and correct as of the Closing Date. To the extent that any such representation
and warranty is qualified by disclosure on a schedule which changes after the
date hereof and prior to Closing, the Seller and the Company agree to notify the
Buyer of such changes in writing and to summarize all such changes via the
bring-down certificate on the Closing Date. Notwithstanding the foregoing
sentence, the truth and accuracy of any and all representations and warranties
of the Seller and the Company as of the date of this Agreement and as of the
Closing Date shall be a precondition to the consummation of this transaction by
the Buyer, and Buyer shall not be deemed to have consented to any amendment or
supplement to a Schedule prepared by the Seller and the Company after the date
hereof or to have waived any of its rights or remedies for breach hereof,
particularly with respect to any matter hereafter arising or discovered that
constitutes or reflects an event or occurrence that would be reasonably likely
to have a material adverse effect on the business of the Company or the Seller,
unless the Buyer acknowledges and consents in writing to such amendment or
supplement.
6.7 Further Assurances. The Seller and the Company hereto agree to execute
and deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
6.8 Employees. As of the Closing Date, the Seller shall have terminated
all of its employees of the Business and the Buyer shall have hired certain of
such former employees as it may, in its sole discretion, need to operate the
Business, provided, however, that the Buyer shall have no obligation to hire any
such employees (other than pursuant to the Employment Agreement).
7. Representations and Warranties of the Buyer. As of the date hereof, the
Buyer hereby represents and warrants to the Seller and the Company as set forth
in this Section 7.
7.1 Organization of the Buyer. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of State of New York with
full corporate power and authority to conduct its businesses in the manner as
now conducted.
7.2 Authority. All necessary corporate action has been taken by the Buyer
to authorize the execution, delivery and performance of this Agreement and each
agreement, document and instrument to be executed and delivered by the Buyer
pursuant to this Agreement. This Agreement and each agreement, document and
instrument to be executed and delivered by the Buyer pursuant to this Agreement
constitutes, or when executed and delivered by the Buyer will constitute, valid
and binding obligations of the Buyer enforceable in accordance with their
respective terms.
7.3 No Conflicts. The execution, delivery and performance by the Buyer of
this Agreement and each such other agreement, document and instrument: (i) does
not and will not violate any provision of the Certificate of Incorporation or
bylaws of the Buyer ; and (ii) will not
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result in a breach of, constitute a default under, accelerate any obligation
under, or give rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Buyer is a party or
by which the property of the Buyer is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets of the Buyer, except where such
breach, default, acceleration or right of termination would not have a material
adverse effect on the properties, assets, business, financial condition or
prospects of the Buyer, and would not result in the creation or imposition of
any mortgage, pledge, lien, security interest or other charge or encumbrance on
any of the assets of the Buyer.
7.4 Litigation. There is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Buyer which may
have an adverse effect on the properties, assets, business, financial condition
or prospects of the Buyer or which would prevent or hinder the consummation of
the transactions contemplated by this Agreement.
7.5 Compliance with Laws. The Buyer has not received any notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Buyer.
8. Conditions Precedent to the Obligations of the Buyer. The obligations
of the Buyer to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing, of the
conditions set forth in this Section 8.
8.1 Examination of Financial Statements. Prior to the Closing Date, the
Buyer shall have had sufficient time to review the management-prepared balance
sheets of the Business as of the last day of the month ended immediately prior
to the Closing Date and the management-prepared statements of income, cash flow
and stockholders' equity for the period then ended, disclosing no material
change in the financial condition of the Business or the results of its
operations from the Balance Sheet Date, and the Buyer shall be satisfied in all
respects with such financial information.
8.2 No Material Adverse Change. No material adverse change in the results
of operations, financial position or business of the Business shall have
occurred and the Company and the Seller shall not have suffered any material
loss or damages to any of its properties or assets, whether or not covered by
insurance, since the Balance Sheet Date, which change, loss or damage materially
affects or impairs the ability of the Company and the Seller to conduct its
business; and the Buyer shall have received on the Closing Date a certificate
signed by the President of the Company and the Seller to such effect.
8.3 Due Diligence and Regulatory Review. The Buyer and KPMG LLP shall have
completed to its satisfaction a due diligence investigation of the Seller and
the Company and the Business's prospects, business, assets, contracts, rights,
liabilities and obligations, including a
26
review of the practices and procedures of the Company and the Seller with
respect to compliance with contracts and federal, state and local laws and
regulations governing the operations of the Company and the Seller. Such review
shall be satisfactory in all respects to the Buyer, in its sole discretion.
8.4 Opinion of Counsel. The Buyer shall have received an opinion from
counsel to the Company and the Seller, dated the Closing Date, in form and
substance satisfactory to the Buyer, to the effect that:
(a) the Company has been duly organized and is validly subsisting in good
standing under the laws of the State of New York.
(b) the authorized and outstanding capital stock of the Company is as
represented by the Seller in this Agreement and each share of such stock has
been duly and validly authorized and issued, is fully paid and nonassessable and
was not issued in violation of the preemptive rights of any stockholder;
(c) to the knowledge of such counsel, the Company does not have any
outstanding options, warrants, calls, conversion rights or other commitments of
any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and delivered by the
Seller and constitutes a valid and binding agreement of the Seller and the
Company enforceable against them in accordance with its terms except as such
enforceability may be subject to bankruptcy, moratorium, insolvency,
reorganization, arrangement and other similar laws relating to or affecting the
rights of creditors.
(e) except to the extent set forth on Schedule 5.15, there are no claims,
actions, suits or proceedings pending, or to the knowledge of such counsel
threatened against or affecting the Company or the Seller, at law or in equity,
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality wherever located;
(f) no notice to, consent, authorization, approval or order of any court
or governmental agency or body or of any other third party (excluding any
software licensed to the Business) is required in connection with the execution,
delivery or consummation of this Agreement by the Seller or for the transfer to
the Buyer of the Company Shares or the Assets;
(g) the execution of this Agreement and the performance of the obligations
hereunder will not violate or result in a breach or constitute a default under
any of the terms or provisions of the Company's Certificate of Incorporation or
the bylaws of the Company or of any lease, instrument, license, permit or any
other agreement to which the Seller is a party or by which the Company or the
Seller is bound; and
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(h) any other matters incident to the matters set forth herein as
reasonably required by the Buyer.
8.5 Additional Liabilities and Obligations. The Seller shall have
delivered to the Buyer a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Business arising since the Balance Sheet
Date; (ii) showing all material contracts and agreements, together with copies
thereof, entered into by the Company and the Seller since the Balance Sheet Date
and (iii) all outstanding payables of the Business which the Seller shall
satisfy in accordance with Section 3.3(b).
8.6 Good Standing Certificates; Certified Copy of the Certificate of
Incorporation. The Seller shall have delivered to the Buyer certificates, dated
as of a date no earlier than twenty days prior to the Closing Date, duly issued
by the Secretary of State and the Department of Revenue of the State of New York
and of any other state in which the Business is authorized to do business,
showing that the Company and the Proprietorship are in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for the Business for all periods prior to the dates of such
certificates have been filed and paid. The Seller shall also have delivered to
the Buyer prior to the Closing a recent copy of the Company's Certificate of
Incorporation and all amendments thereto duly certified by the Secretary of
State of New York.
8.7 Representations; Warranties; Covenants. Each of the representations
and warranties of the Seller and the Company contained in Section 5 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Seller and the Company shall, on or before the Closing Date, have performed and
satisfied all agreements and conditions hereunder which by the terms hereof are
to be performed and satisfied by the Seller and the Company on or before the
Closing Date; and the Seller and the Company shall have delivered to the Buyer a
certificate dated the Closing Date signed by the Seller and the Company to the
foregoing effect.
8.8 Approvals and Consents. The Company and the Seller shall have made all
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by them in connection with the execution
and delivery of this Agreement, the performance of the transactions contemplated
hereby and the continued operation of the Business subsequent to the Closing
Date, and the Company, the Seller and the Buyer shall have received all required
authorizations, waivers, consents and permits to permit the consummation of the
transactions contemplated by this Agreement, in form and substance reasonably
satisfactory to the Buyer, from all third parties, including, without
limitation, approvals required under federal and state securities laws and/or
the securities and Exchange Commission, state "Blue Sky" laws, other applicable
governmental authorities and regulatory agencies, lessors, lenders and contract
parties, required in connection with this Agreement or the Company's or the
Seller's permits, leases, licenses and franchises, to avoid a breach, default,
termination, acceleration or modification of any material agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a
28
result of the execution or performance of this Agreement, or otherwise in
connection with the execution and performance of this Agreement.
8.9 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Buyer make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
8.10 Proceedings Satisfactory to the Buyer. All proceedings to be taken by
the Company and the Seller in connection with the consummation of the Closing on
the Closing Date and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transaction contemplated hereby reasonably requested by the Buyer shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.
9. Conditions Precedent to the Obligations of the Seller. The obligations
of the Seller to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing Date, of the
following conditions (any one or more of which may be waived in whole or in part
by the Seller):
9.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Buyer contained in Section 7 shall be true and correct in
all material respects on and as of the Closing Date, with the same effect as
though made on and as of the Closing Date; the Buyer shall, on or before the
Closing Date, have performed and satisfied all agreements and conditions
hereunder which by the terms hereof are to be performed and satisfied by the
Buyer on or before the Closing Date; and the Buyer shall have delivered to the
Company a certificate signed by the President of the Buyer and dated as of the
Closing Date certifying to the foregoing effect.
9.2 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company or the Seller make it inadvisable to
consummate such transactions, and no law or regulation shall be in effect and no
court order shall have been entered in any action or proceeding instituted by
any party which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
10. Termination of Agreement; Effect of Termination.
29
10.1 Termination. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the Seller and the board of directors of the Buyer;
(b) either by the Seller on the one hand, or by the Buyer on the other
hand, if
(i) the transactions contemplated by this Agreement to take place at
the Closing shall not have been consummated by September 30, 1999, unless the
failure of such transactions to be consummated is due to the willful failure of
the party seeking to terminate this Agreement to perform any of its obligations
under this Agreement to the extent required to be performed by it prior to or on
the Closing Date; or
(ii) if a material breach or default shall be made by the other
party in the observance of or in the due and timely performance of any of the
covenants or agreements contained herein, and the curing of such default shall
not have been made on or before the Closing Date
10.2 Liabilities in the Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
10.3 Time is of the Essence. Time is of the essence with respect to the
termination provisions of this Section 10.
11. Non-competition. For a period of three (3) years from and after the
Closing Date, the Seller will not (i) engage directly or indirectly in any
internet access service, web design or other business that the Buyer, or its
affiliates may from time to time engage, or actively plan to engage in during
the term of this covenant (except that ownership of less than 2% of the
outstanding stock of any competing publicly traded corporation shall not
constitute a violation of this covenant not to compete) or (ii) solicit,
directly or indirectly, any customers, clients, accounts, officers, employees,
agents or representatives of the Company or the Buyer. Notwithstanding the
foregoing, the Seller shall be permitted to design a web site for a full time
employer provided that such employment would not otherwise violate this Section
11. If the final judgment of a court of competent jurisdiction declares that any
term or provision of this Section is invalid or unenforceable, the parties
hereto agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
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12. Nondisclosure of Confidential Information.
12.1 The Seller and the Company. The Seller and the Company recognize and
acknowledge that they have had in the past, currently have and in the future may
have access to certain confidential information relating to the Business and the
Buyer and its affiliates, including, but not limited to, operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Company and the Buyer and its affiliates. The Seller and
the Company agrees that they will not use or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Buyer and its affiliates who need to know such information in connection
with the transactions contemplated hereby, who have been informed of the
confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) following the Closing, such
information may be disclosed by the Seller as is required in the course of
performing his or her duties for the Buyer or the Company unless (i) such
information becomes known to the public generally through no breach by the
Seller of this covenant, (ii) disclosure is required by law or the order of any
governmental authority under color of law or is necessary in order to secure a
consent or approval to consummate the transactions contemplated hereby,
provided, that prior to disclosing any information pursuant to this clause (ii),
the Seller shall give prior written notice thereof to the Buyer and provide the
Buyer with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party and the same prior
disclosure set forth immediately above is given. In the event of a breach or
threatened breach by the Seller of the provisions of this section, the Buyer
shall be entitled to an injunction restraining the Seller from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the Buyer from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. In the
event that the transactions contemplated herein are not consummated, the Seller
shall return to the Buyer within a reasonable time all documents containing
confidential information about the Buyer.
12.2 The Buyer. The Buyer recognizes and acknowledges that it had in the
past and currently has access to certain confidential information relating to
the Business, such as operational policies, customer lists, and pricing and cost
policies, that are valuable, special and unique assets of the Business. The
Buyer agrees that, prior to the Closing, or if the transactions contemplated by
this Agreement are not consummated, it will not use or disclose such
confidential information to its own benefit except in furtherance of the
transactions contemplated by this Agreement or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to the Seller and to authorized
representatives of the Seller or the Buyer who need to know such information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, unless (i) such information becomes
known to the public generally through no breach by the Buyer of this covenant,
(ii) disclosure is required by law or the order of any governmental authority
under color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
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disclosing any information pursuant to this clause (ii), the Buyer shall give
prior written notice thereof to the Seller and provide the Seller with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party and the same prior disclosure set forth
immediately above is given. In the event of a breach or threatened breach by the
Buyer of the provisions of this Section, the Seller shall be entitled to an
injunction restraining the Buyer from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Seller from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, the Buyer shall return to the Seller
within a reasonable time all documents containing confidential information
relating to the Business.
12.3 Survival. The obligations of the parties under this Section 12 shall
survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
13. Indemnification.
13.1 Indemnification by the Seller. The Seller, on behalf of himself and
his successors, executors, administrators, estates, heirs and permitted assigns,
agrees subsequent to the Closing Date to indemnify and hold harmless the Buyer,
the Company and their respective officers, directors, employees and agents
(individually, a "Buyer Indemnified Party" and collectively, the "Buyer
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Buyer Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the Seller in
this Agreement or in any schedule, exhibit, certificate, agreement or other
instrument delivered under or in connection with this Agreement, or by reason of
any claim, action or proceeding asserted or instituted arising out of any matter
or thing covered by any such representations or warranties (collectively, "Buyer
Representation and Warranty Claims");
(b) any breach of any covenant or agreement made by the Seller in this
Agreement or in any schedule, exhibit, certificate, agreement or other
instrument delivered under or in connection with this Agreement, or by reason of
any claim, action or proceeding asserted or instituted arising out of any matter
or thing covered by any such covenant or agreement; or
(c) with respect to taxes of the Business incurred with respect to any
Pre-Closing Tax Period (as defined below). The term "Pre-Closing Tax Period"
shall mean all taxable periods ending on or before the Closing Date and the
portion (ending on the Closing Date) of any taxable period that includes (but
does not end on) the Closing Date.
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Claims under clauses (a) through (c) of this Section 13 are hereinafter
collectively referred to as "Buyer Indemnifiable Claims". The rights of Buyer
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this Section 13 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this Section 13.
13.2 Notice; Defense of Claims.
Promptly after receipt by a Buyer Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Buyer Indemnified Party shall give notice thereof in writing to
the Seller, but the omission to so notify the Seller promptly will not relieve
the Seller from any liability except to the extent that the Seller shall have
been prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within twenty (20) days after receiving such notice the Seller give
written notice to the Buyer Indemnified Party stating that (i) it would be
liable under the provisions hereof for indemnity in the amount of such claim if
such claim were successful and (ii) that it disputes and intends to defend
against such claim, liability or expense at its own cost and expense, then
counsel for the defense shall be selected by the Seller (subject to the consent
of the Buyer Indemnified Party which consent may not be unreasonably withheld)
and the Buyer Indemnified Party shall not be required to make any payment with
respect to such claim, liability or expense as long as the Seller is conducting
a good faith and diligent defense at its own expense; provided, however, that
the assumption of defense of any such matters by the Seller shall relate solely
to the claim, liability or expense that is subject or potentially subject to
indemnification. The Seller shall have the right, with the consent of the Buyer
Indemnified Party, which consent shall not be unreasonably withheld, to settle
any Buyer Indemnified Claims by third parties which are susceptible to being
settled provided its obligation to indemnify the Buyer Indemnified Party
therefor will be fully satisfied. The Seller shall keep the Buyer Indemnified
Party apprised of the status of the claim, liability or expense and any
resulting suit, proceeding or enforcement action, shall furnish the Buyer
Indemnified Party with all documents and information that the Buyer Indemnified
Party shall reasonably request and shall consult with the Buyer Indemnified
Party prior to acting on major matters, including settlement discussions.
Notwithstanding anything herein stated, the Buyer Indemnified Party shall at all
times have the right to fully participate in such defense at its own expense
directly or through counsel; provided, however, if the named parties to the
action or proceeding include both the Seller and the Buyer Indemnified Party and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for the Buyer Indemnified Party shall be paid by the Seller. If no such notice
of intent to dispute and defend is given by the Seller, or if such diligent good
faith defense is not being or ceases to be conducted, the Buyer Indemnified
Party shall, at the expense of the Seller, undertake the defense of (with
counsel selected by the Buyer Indemnified Party), and shall have the right to
compromise or settle (exercising reasonable business judgment), such claim,
liability or expense. If such claim, liability or expense is one that by its
nature cannot be defended solely by the Seller, then the
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Buyer Indemnified Party shall make available all information and assistance that
the Seller may reasonably request and shall cooperate with the Seller in such
defense.
14. Publicity; Securities Laws. The Seller acknowledges that the Buyer is
a subsidiary of a publicly held company that is therefore subject to certain
disclosure requirements under federal securities laws. The Seller and his
representatives shall not directly or indirectly, make any public comment,
statement or communication with respect to, or otherwise disclose or permit the
disclosure of the existence of discussions regarding, the Agreement between the
parties or any of the terms, conditions or other aspects of the Agreement. The
Seller further understands that this Agreement represents information concerning
the Buyer which has not been previously disclosed to the public and which may be
material, all as determined in accordance with applicable laws, rules and
regulations of the United States and the several states concerning securities
(collectively, the "Securities Laws"). The Seller agrees not to take any action
in connection with this Agreement in violation of the Securities Laws, including
but not limited to trading in the common stock of the Buyer's parent while in
possession of material non-public information.
15. Expenses. Each party shall be responsible for its own
transaction-related fees and expenses incurred in connection with this Agreement
(including without limitation legal, accounting, and consulting fees and
expenses); provided, however, that in the event of a breach of the Agreement by
any party hereunder, the non-breaching party shall be entitled to recover all of
its reasonable costs incurred in pursuing the transactions contemplated by this
Agreement, including without limitation, legal and accounting fees and expenses.
16. Entire Agreement; Amendment; Waiver. This Agreement and the schedules
and exhibits attached hereto constitute the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreement, representations and understandings of the parties. No
supplement, modification, or amendment of this Agreement will be binding unless
executed in writing by all of the parties. No waiver of any of the provisions of
this Agreement will be effective unless in writing; no waiver will constitute a
waiver of any other provision; and no waiver of a breach of any provision of
this Agreement will operate to waive any subsequent breach.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
18. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or Liability of any third persons to any party to this
Agreement, nor will any provision give any third persons any right of
subrogation or action against any party to this Agreement.
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19. Successors and Assigns. This Agreement will be binding on, and will
inure to the benefit of, the parties to it and their respective heirs,
executors, administrators, successors and assigns.
20. Further Assurances. The Seller from time to time will execute and
deliver and cause the Company to execute and deliver such additional documents
and instruments and take such additional actions as may be necessary to carry
out the transactions contemplated by this Agreement. If requested by the Buyer,
the Seller will prosecute or otherwise enforce in its own name for the benefit
of the Buyer any claims, rights or benefits that are transferred to the Buyer
under this Agreement and that require prosecution or enforcement in the Seller's
name. Any prosecution or enforcement of claims, rights or benefits under this
Section 20 will be solely at the Buyer's expense unless the prosecution or
enforcement is made necessary by a breach of this Agreement by the Seller.
21. Survival. All representations, warranties, covenants and agreements of
the parties contained in this Agreement, or in any instrument, certificate, or
opinion provided for in it, shall survive the Closing (even if the damaged party
knew or had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect forever thereafter
(subject to any applicable statutes of limitation or repose).
22. Notices. Any notice, consent, approval or other communication required
or permitted hereunder will be in writing and will be given (i) by delivery in
person, (ii) by certified mail, return receipt requested, postage prepaid, (iii)
by commercial overnight courier, fees prepaid, or (iv) by facsimile transmission
(with telephone confirmation of receipt), as follows:
(a) If to the Seller and/or the Company:
Xxxxxx X. Xxxxxx
c/o Norwich Tire Company, Inc.
00 Xxxx Xxxxxx
Xxxxxxx, XX 00000
Phone: (000) 000-0000 or 000-0000
Fax: (000) 000-0000
With a copy to:
Xxx, Xxxxxxx & Xxxx, LLP
00 Xxxx Xxxx Xxxxxx
X.X. Xxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
(b) If to the Buyer:
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Insite Internet III Acquisition Co., Inc.
X.X. Xxx 0000
Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, President
Phone: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Xxxxx & Xxxxxxx, LLP
000 Xxxxx Xxxx Xxxxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
or to such other address for any of the above as may be designated by notice to
the others. Any such notice or other communication will be considered to have
been given (i) on the date of delivery in person, (ii) on the fifth day after
mailing by certified mail, provided that receipt of delivery is confirmed in
writing, or (iii) on the first Business Day following delivery to a commercial
overnight courier, or (iv) on the day of facsimile transmission provided that
the giver of the notice obtains telephone confirmation of receipt promptly.
23. Arbitration; Jurisdiction; Venue; Attorney's Fees. Each party hereto
agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held in Albany
and the arbitrator(s) shall apply New York law. Judgment upon any award rendered
by the arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Buyer shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of New York or in any United States District Court in the State of
New York. Each party irrevocably submits to and accepts the exclusive
jurisdiction of each of such courts and waives any objection (including any
objection to venue or any objection based upon the grounds of forum non
conveniens) which might be asserted against the bringing of any such action,
suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party and/or parties in any litigation or arbitration.
24. Governing Law. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and construed
in accordance with the laws of the State of New York without reference to its
laws governing conflicts of law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SELLER:
/s/Xxxxxx X. Xxxxxx
----------------------------------------
Xxxxxx X. Xxxxxx
ASCENT INTERNET HOLDINGS, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Xxxxxx X. Xxxxxx, President
BUYER:
INSITE INTERNET III ACQUISITION CO., INC.
By: /s/ Xxxx X. Xxxxx
------------------------------------
Xxxx X. Xxxxx, Chief Executive Officer
[Signature page to Asset Purchase Agreement]
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SCHEDULE 2.1
Assets
All assets and all properties and rights of the Business including but not
limited to (a) office equipment, machinery, apparatus, and furniture; (b) all
permits, licenses and other rights under federal, state or local laws relating
to the Assets and the Business to the extent such permits, licenses and rights
may be assigned to the Buyer under applicable law or under the contractual terms
of the permit, license or right, provided that the Seller will use best efforts
to facilitate such assignments as necessary and possible; (c) all intangible
assets including, trademarks, trade names, technology, know-how, data,
copyrights, assumed names, service marks, telephone numbers, post office box
addresses, licenses, covenants by others not to compete, rights and privileges
used in the conduct of the Business and rights to recover from infringement
thereon, whether express or implied; (d) goodwill and going concern value of the
Business; (e) all rights in, to and under contracts and agreements, including
privileges, deposits, claims, causes of actions and options pertaining thereto;
(f) all computers, programs and office supplies; (g) all orders; (h) all
accounts receivable and other rights of the Seller to payment for goods sold or
for services rendered, together with all documents representing the foregoing;
(i) all of the books, records, papers and documents, including diagrams,
accounting and financial records, advertising materials, mailing lists, credit
reports, sales records and customer lists and other customer data and supplier;
(j) prepaid expenses and all other current assets on hand as of the Closing
Date; (k) all of the Seller's rights to the Company's name, the name "Ascent
Networking" and any variations or similar names used in the Business; (l) all
rights, privileges, claims, causes of action and options relating or pertaining
to the Business or the Assets; and (m) all other and additional privileges,
rights, interest, properties and assets of the Business of every kind and
description and wherever located that are used or intended for use in connection
with, or that are necessary to the continued conduct of the Business as
presently being conducted, by the Seller and the Company.
The assets specifically do not include the "Excluded Assets" as defined in
Section 2.2 of this Agreement.
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