ASSET PURCHASE AGREEMENT
Introduction
THIS ASSET PURCHASE AGREEMENT is made as of this 17th day of August, 1999
by and among Insite Internet VI Acquisition Co., Inc., a New York corporation
(the "Buyer"); XxxxxxxXxxxxx.xxx, Inc., a Delaware corporation (the "Parent");
WebWay, LLC, a New York limited liability company (the "Seller"); and Xxxxx
Xxxxxxxx, Xxxx X. Xxxxxxxx, Xxxx Xxxxxxxxx and Xxxx Xxxxxxxxx, the owners of all
the outstanding membership interests of the Seller (collectively, the
"Members").
Background
The Seller is the owner of certain assets described herein and desires to
sell to the Buyer, and the Buyer desires to purchase substantially all of assets
of the Seller, for the consideration and upon the terms and conditions set forth
in this Agreement.
The Members are joining this Agreement to guarantee the Seller's
performance of its obligations under this Agreement and to join, jointly and
severally, with the Seller in the Seller's representations and warranties
hereunder and to undertake certain other obligations set forth in this
Agreement.
Agreements
THE PARTIES HERETO, intending to be legally bound, agree as follows:
1. Definitions and Construction.
1.1 In addition to the other definitions set forth herein, when used in
this Agreement, the following terms have the meanings set forth below:
"Agreement" means this asset purchase agreement.
"Balance Sheet" means the balance sheet of the Seller as of the Balance
Sheet Date, which is included in the Financial Statements.
"Balance Sheet Date" means May 28, 1999.
"Business" means the business of the Seller as conducted up to the
Closing.
"Closing" means the taking of the actions required to consummate the sale
and purchase of the Assets by the Seller to the Buyer pursuant to this
Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
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
Seller compiled by Xxxxxxxx X. Xxxxxxxx, CPA, 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).
"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(d) below.
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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" (or other
similar variation of "knowledge") of the Seller means the understanding of the
Seller and of the Members after reasonable investigation of the files, documents
and internal records of the Seller.
1.3 Section and subsection titles are for convenience of reference only
and are not to be considered in the interpretation or construction of any of the
provisions hereof.
1.4 Representations, warranties, covenants, obligations and agreements of
the Seller and/or the Members set forth in this Agreement will be deemed to be
the joint and several warranties, covenants, obligations and agreements of each
of the Members and the Seller.
2. Purchase and Sale of Assets.
2.1 Assets. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign, and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller, at the Closing, the
assets and property of the Seller described on Schedule 2.1 attached hereto (the
"Assets"), free and clear of all liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature whatsoever except for
Permitted Liens. For purposes of this Agreement, the Assets will also mean and
include all assets and property acquired hereafter by the Seller before the
Closing Date but will not include the assets and property of the Seller disposed
of as permitted by this Agreement or the "Excluded Assets" as defined in Section
2.2 hereof.
2.2 Excluded Assets. "Excluded Assets" shall mean (a) income and other tax
records of the Seller (copies of which have been made available to the Buyer),
provided, however, the Seller will retain these records for a period of not less
than five (5) years after the Closing and make them available to the Buyer upon
the Buyer's request; (b) any contract, executory agreement or lease of the
Seller which is not expressly assumed by the Buyer hereunder; and (c) any other
assets listed on Schedule 2.2 hereof or which the Buyer notifies the Seller in
writing that the Buyer is not purchasing.
3. Purchase Price
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3.1 Payment. Subject to adjustment as set forth in Section 3.3, the total
consideration to be paid to the Seller by the Buyer as full payment for the
Assets (the "Purchase Price") is as follows:
(a) Cash Payment: The Buyer shall pay the Seller at the Closing, a total
of Eight Hundred Thirty Thousand Dollars ($830,000) payable by good bank check,
wire transfer or other readily available funds;
(b) Parent Stock. The Buyer shall deliver to the Seller One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000) in unregistered common stock of the
Parent (the "Parent Stock"). The number of shares of Parent Stock to be
delivered shall be based on the average Nasdaq National Market value of the
Parent Stock for the thirty (30) business day period ending on the second
business day immediately preceding the Closing date. The "average Nasdaq
National Market value" for such thirty (30) business day period shall mean the
average of the closing sales prices, or, in case no such reported sale takes
place on any given day, the average of the reported closing bid and asked prices
for such day, in either case as reported by The Nasdaq Stock Market, Inc. The
Parent Stock shall be subject to the provisions of Section 14 hereof.
(c) Escrow. The Buyer shall, simultaneously with the Closing, place that
number of shares of Parent Stock with a value of $875,000 (the "Escrow Deposit')
into escrow with the Buyer's counsel (the "Escrow Agent") for a period of one
year from the Closing date pursuant to the escrow agreement attached hereto as
Exhibit 3.1(c). For illustrative purposes only (and without giving effect to the
purchase price adjustments and escrow conditions described below, if the average
Nasdaq National Market value for such thirty (30) business day period is $10 per
share, the Buyer would cause the Parent to deliver 87,500 shares of the Parent
Stock to Seller pursuant to this Section 3.1(c). The Buyer shall have the right
to setoff from and against the Escrow Deposit the amount of the adjustments, if
any, described in Section 3.3, as well as the amount of any claims of the Buyer
for indemnification for breach of any warranty or representation herein by the
Seller or the Members respectively, and such right of setoff shall be in
addition to the Buyer's right to seek damages or obtain any other remedy at law
or in equity to which the Buyer shall be entitled by virtue of such breach. The
shares used to satisfy such claims shall be valued at the average NASDAQ
National Market Value for the thirty (30) business day period ending on the
earlier of the first anniversary of the Closing or the date the Buyer's setoff
amount is finally determined.
(d) Assumption of Liabilities. At the Closing, the Buyer will assume those
certain trade debts, liabilities, obligations and contracts of the Seller,
specifically described on Schedule 3.1(d) (the "Assumed Liabilities"). The Buyer
will not be liable for any of the obligations or Liabilities of the Seller of
any kind and nature other than those specifically listed or described on
Schedule 3.1(d). Without limiting the foregoing, the Buyer shall not assume any
Liability for (i) any tax including, but not limited to, income tax, imposed on
the Seller or the Members because of the sale of the Assets; (ii) any
liabilities or expenses of the Seller or the Members incurred in negotiating and
carrying out their obligations under this Agreement; (iii) any obligations
incurred by the Seller or the Members after the Closing; (iv) any liabilities or
obligations incurred by the Seller in violation of, or as a result of the
Seller's or Members' breach
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of, this Agreement; (v) any intercompany payables or outstanding loans or lines
of credit of the Seller; (vi) any Liability for any litigation involving the
Seller, including but not limited to matters listed on Schedule 5.20 (excluding,
however, any litigation for which Buyer would be required to indemnify Seller
pursuant to Section 13.2; and (vii) liabilities for any severance, accrued
vacation/sick day or other employee benefits of the Seller whether or not
resulting from the transactions contemplated hereby.
(e) Employment Agreements. At the Closing, the Buyer will simultaneously
enter into employment agreements with (i) Xxxxx Xxxxxxxx, (ii) Xxxx Xxxxxxxxx
and (iii) Xxxx Xxxxxxxxx in the forms attached as Exhibit 3.1(e)(i), Exhibit
3.1(e)(ii) and Exhibit 3.1(e)(iii) respectively (the "Employment Agreements").
3.2 Allocation. The total purchase price will be allocated among the items
of the Assets in proportion to their fair market value and in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The allocation (or the method by which the allocation
will be determined) is set forth in this Section 3.2 and Schedule 3.2. In
connection with their filing of Federal income tax returns, the parties will
file Treasury Forms 8594 consistent with this allocation.
3.3 Adjustments.
(a) Post Closing Adjustment for Deficiency in 1999 Revenues. On or before
April 30, 2000, the Buyer's accountants shall prepare an income statement in
accordance with GAAP showing the actual audited revenues for the year ended
December 31, 1999 of the Seller determined on an accrual method basis. To the
extent that (i) the aggregate audited revenues (accrual basis) of the Seller for
the calendar year ended December 31, 1999 are less than $1,100,000, the Seller
shall pay the Buyer as a reduction of the Purchase Price paid to the Seller
hereunder an amount equal to Two Dollars and 15/100 ($2.15) for each One Dollar
($1.00) in revenue less than $1,100,000, and (ii) the aggregate audited revenues
of the Seller for the fiscal year ended December 31, 1999 are greater than
$1,300,000, the Purchase Price would be increased by an amount equal to Two
Dollars and 15/100 ($2.15) for each One Dollar ($1.00) in revenue greater than
$1,100,000. For example, in the event the aggregate revenues of the Seller for
the fiscal year ended December 31, 1999 are $1,050,000, the Purchase Price would
be reduced by $107,500 (i.e. the $50,000 shortfall multiplied by 2.15). For
purposes of this adjustment, the annual revenues of Seller shall include revenue
of the Seller generated by the Seller's business (i) before the Closing and (ii)
after the Closing until December 31, 1999 from accounts of the Seller's business
as well as accounts of the Buyer, the Parent and their respective subsidiaries.
To the extent payment by the Seller or the Members to the Buyer are required
under this Section 3.3, the Buyer shall be entitled to receive payment from the
Escrow Deposit or to receive payment directly from the Seller or the Members
within ten (10) days of the delivery of the final income statement for 1999 as
audited by the Buyer's accountants. In the event the Buyer's accountants and the
Seller's accountants disagree as to the audited 1999 revenues of the Seller, 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
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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 Buyer, if the independent third party accounting firm
determines that the audited revenues were more than the amount determined by
Buyer's accountant, otherwise such fees and expenses shall be paid by the
Seller. Such determinations shall be final and binding upon the Buyer, the
Seller and the Members, absent manifest error which error may only be corrected
by such firm. Any increase in the Purchase Price shall be payable to the Seller
in shares of Parent Stock, which shares shall be valued at the same price per
share as determined under Section 3.1(b). The Buyer shall make such payment, if
any, on or before May 10, 2000.
(b) Payables and Liabilities; TV Data Receivable. The Seller shall pay in
full all payables and Liabilities relating to the Assets and the Business, other
than the Assumed Liabilities, within thirty (30) days after the Closing. If the
TV Data Technologies, Inc. receivable of the Seller (Invoice #2102) (the "TV
Data Receivable") in the amount of $67,667.00 is collected by the Seller prior
to the Closing Date, the Seller shall use the proceeds to payoff the Seller's
outstanding balance on its line of credit loan from HSBC and Sellers' other
payables other than the Assumed Liabilities. Notwithstanding, the preceding
sentence, the Seller shall maintain its minimum cash covenants set forth in this
Agreement. 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. In the event the
TV Data Receivable is not paid prior to the Closing Date, (i) such receivable
shall be included in the Assets purchased hereunder and (ii) Buyer shall payoff
the HSBC line of credit at the Closing, the outstanding balance of which does
not exceed $67,667. In the event the TV Data Receivable is not paid in full with
in thirty (30) days of the Closing, the Seller shall purchase the TV Data
Receivable from Buyer at a cash price equal to the then outstanding balance of
such receivable.
(c) Cash of the Seller. To the extent the cash on hand of the Seller to be
purchased by the Buyer at Closing is less than $20,000, the Purchase Price shall
be reduced, dollar for dollar, by such deficient amount.
4. Closing. The sale and transfer of the Assets by the Seller to the Buyer
(the "Closing") will take place at the offices of Xxxxx & Xxxxxxx, LLP, 300
Turks Head Building, Providence, Rhode Island beginning at 10:00 a.m. on August
18, 1999 or at such other time and place as the parties may agree to in writing
(the "Closing Date") subject to the satisfaction of all of the conditions to
Closing described in Sections 8 and 9.
5. Representations and Warranties of the Seller and the Members. As a
material inducement to the Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, the Seller and the Members, jointly and
severally, make to the Buyer the representations and warranties contained in
this Section 5, which shall be true and correct as of the date hereof and as of
the Closing Date.
5.1 Organization and Qualification of the Seller. The Seller is a limited
liability company duly organized, validly existing and in good standing under
the laws of New York with
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full power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased and where such business is currently conducted. The copies of the
Articles of Organization of the Seller as amended to date, certified by the
Secretary of State of New York and the operating agreement certified by the
Manager of the Seller (the "Operating Agreement") and heretofore delivered to
the Buyer's counsel, are complete and correct, and no amendments thereto are
pending. The records and minute books of the Seller which have heretofore been
delivered to the Buyer's counsel are correct and complete. The Seller is duly
qualified to do business as a foreign company i in which the failure to be so
qualified or registered would have a material adverse effect on the properties,
assets, business, financial condition and results of operations of the Seller.
5.2 Subsidiaries; Investments. The Seller has no direct or indirect
subsidiaries and owns no securities issued by any other business organization or
governmental authority, except U.S. Government securities, bank certificates of
deposit and money market accounts acquired as short-term investments in the
ordinary course of its business. Except as disclosed on Schedule 5.2, the Seller
does not own or have any direct or indirect interest in or control over any
corporation, partnership, joint venture, proprietorship or entity of any kind.
For purposes of this Agreement, the term "subsidiary" means, with respect to any
person, any corporation 5% or more of the outstanding voting securities of
which, or any partnership, joint venture or other entity 5% or more of the total
equity interest of which, is directly or indirectly owned by such person.
5.3 Membership Interests. The total membership interests of the Seller
consist solely of the interests listed on Schedule 5.3. All of the issued and
outstanding membership interests are duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Members as set forth on Schedule 5.3, and all such membership interests of the
Seller were offered, issued, sold and delivered by the Seller in compliance with
all applicable state and federal laws concerning the issuance of securities.
Further, none of such membership interests of the Seller were issued in
violation of the preemptive rights of any past or present member. The Members
hold of record and own beneficially all of the membership interests of the
Seller, free and clear of any restrictions on transfer taxes, security
interests, mortgages, pledges, liens, encumbrances, options, warrants, purchase
rights, contracts, commitments, equities, known claims, and known demands.
Except as set forth in the Operating Agreement or as disclosed on Schedule 5.3,
none of the Members are a party to any option, warrant, purchase right, or other
contract or commitment that could require any Member to sell, transfer, or
otherwise dispose of any membership interest of the Seller. None of the Members
are a party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any membership interests of the Seller. Except as
disclosed on Schedule 5.3, there are no outstanding subscriptions, options,
warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
membership or other equity interests of the Seller.
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5.4 Authority of the Members.
(a) Each of the Members has full right, authority and power to enter into
this Agreement and each agreement, document and instrument to be executed and
delivered by or on behalf of the Seller pursuant to or as contemplated by this
Agreement and to carry out the transactions contemplated hereby and thereby.
This Agreement and each agreement, document and instrument to be executed and
delivered by the Seller pursuant to or as contemplated by this Agreement (to the
extent it contains obligations to be performed by the Seller and/or the Members)
constitutes, or when executed and delivered will constitute, valid and binding
obligations of the Seller and the Members enforceable in accordance with their
respective terms, subject to the terms hereof, subject however to the extent
enforceability may be limited by the effect of bankruptcy, insolvency or similar
laws affecting creditors' rights generally or by general principles of equity..
The execution, delivery and performance by each of the Members and the Seller of
this Agreement and each such agreement, document and instrument:
(i) do not and will not violate any provision of the Articles of
Organization or Operating Agreement ;
(ii) do not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to such Member or require such Member
to obtain any approval, consent or waiver of, or make any filing with, any
federal, state, local or foreign governmental body, agency or official that has
not been obtained or made; and
(iii) to the extent any violation will have a material adverse
affect on the Assets or the Business, do not and will not result in a breach by
the Seller or the Members of, constitute a default by the Seller or the Members
under, accelerate any obligation under or give rise to a right of termination of
any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which such Member or
the Seller is a party or by which the property of such Member or the Seller is
bound or to which the property of such Member or the Seller is subject or result
in the creation or imposition of any mortgage, pledge, lien, security interest
or other charge or encumbrance on any of the assets or properties of such Member
or the Seller.
5.5 Status of Property Owned or Leased.
(a) Real Property. The Seller does not own any real property. The real
property identified as being leased by the Seller on Schedule 5.5(a) is
collectively referred to herein as the "Real Property". The Real Property
constitutes all the real property leased by the Seller. Seller is not in default
and to Seller's knowledge, no default is threatened under the lease for the Real
Property.
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(i) Physical Condition. Except as set forth on Schedule 5.5(a), to
the knowledge of the Seller, there is no material defect in the physical
condition or improvements of any of the Real Property.
(ii) Compliance. The Seller has not received any written notice from
any municipal, state, federal or other governmental authority with respect to
any violation of any zoning, building, fire, water, use, health, environmental
or other statute, ordinance, code or regulation issued in respect of any of the
Real Property that has not been heretofore corrected.
(iii) Zoning. The Seller has not received any written notice of any
zoning violations.
(b) Personal Property. Except for leased personal property previously
disclosed on Schedule 3.1(d), a list of each item of the machinery, equipment
and other fixed assets owned or leased by the Seller having a fair market value
of at least Five Hundred Dollars ($500), is contained in Schedule 5.5(b) hereto.
All of such equipment and other machinery, equipment and personal property of
the Seller is located on the Real Property and is used in the operation of the
Business. Except as specifically disclosed in Schedule 5.5(b) or in the
Financial Statements, the Seller has good title to all of such personal
property. None of such personal property or assets is subject to any mortgage,
pledge, lien, conditional sale agreement, security title, encumbrance or other
charge except as specifically disclosed in any Schedule hereto and in the
Financial Statements and except for those imperfections of title, if any, which
individually or in the aggregate do not materially detract from the value of the
property or interfere with the present or continued use of the property in the
conduct of Seller's normal operations. The Financial Statements reflect all
personal property of the Seller, subject to dispositions and additions in the
ordinary course of business consistent with this Agreement. Except as otherwise
specified in Schedule 5.5(b) hereto, all leasehold improvements, furnishings,
machinery and equipment of the Seller are in generally good repair, normal wear
and tear excepted, have been maintained in accordance with industry standards,
and conform in all material respects with all applicable ordinances, regulations
and other laws.
5.6 Financial Statements; Undisclosed Liabilities.
(a) The Seller has delivered to the Buyer the following financial
statements of the Seller, copies of which are attached hereto as Schedule 5.6:
(i) Balance Sheet prepared by management dated December 31, 1998 and May 28,
1999; and (ii) Management prepared monthly profit and loss statements dated May
1999 through [July,] 1999.
The Financial Statements have been prepared in accordance with accounting
principles applied consistently during the periods covered thereby (except that
the interim financial statements are subject to normal year-end audit
adjustments and do not include footnotes), and present fairly in all material
respects the financial condition of the Seller at the dates of said statements
and the results of their operations for the periods covered thereby.
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(b) As of the Balance Sheet Date, the Seller had no known 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 Seller has no known Liabilities of any
nature, whether accrued, absolute, contingent or otherwise, (including without
limitation liabilities as guarantor or otherwise with respect to obligations of
others, or liabilities for taxes due or then accrued or to become due or
contingent liabilities arising prior to the date hereof or the Closing, as the
case may be) except liabilities (i) stated or adequately reserved for on the
appropriate Financial Statement or the notes thereto, (ii) reflected in
Schedules furnished to the Buyer hereunder on the date hereof or (iii) incurred
in the ordinary course of business of the Seller consistent with prior
practices.
(d) All financial information delivered to KPMG, LLP and the Buyer in
connection with their audit of the Seller's financial statements as of the date
hereof are true and correct in all material respects and reflect all known
Liabilities of the Seller as of the date(s) of such information to the extent
the Seller would otherwise be required to indemnify the Buyer for such liability
in accordance with the provisions of Section 13 and to the extent such
indemnification survives the Closing pursuant to Section 22.
Notwithstanding the knowledge qualification set forth herein, the Seller
shall remain fully responsible for all unknown and/or undisclosed liabilities
and shall indemnify and hold Buyer and Parent harmless therefrom in accordance
with Section 13 hereof.
5.7 Taxes.
(a) The Seller has paid or caused to be paid all federal, state, local,
foreign and other taxes, including without limitation income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes,
value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes,
employment and payroll-related taxes, withholding taxes, stamp taxes, transfer
taxes and property taxes, whether or not measured in whole or in part by net
income, and all deficiencies, or other additions to tax, interest, fines and
penalties owed by it (collectively, "Taxes"), in the amounts indicated on tax
returns filed by the Seller through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing authority,
whether disputed or not (other than current taxes due and payable, the liability
for which is adequately reserved for on the financial statements provided to the
Buyer pursuant to Section 5.6 hereof).
(b) The Seller has in accordance with applicable law filed all federal,
state, local and foreign tax returns required to be filed by them through the
date hereof and all such returns correctly and accurately set forth the amount
of any Taxes relating to the applicable period. For every taxable period of the
Seller, the Seller has delivered or made available to the Buyer complete and
correct copies of all federal, state, local and foreign income tax returns,
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examination reports and statements of deficiencies assessed against or agreed to
by the Seller. Schedule 5.7 attached hereto sets forth all federal tax elections
under the Internal Revenue Code, that are in effect with respect to the Seller
or for which an application by the Seller is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or to the actual knowledge of
the Seller threatening to assert against the Seller any deficiency or claim for
additional taxes or a claim that the Seller has or may be subject to taxation by
that jurisdiction. There are no security interests on any of the assets of the
Seller that arose in connection with any failure (or alleged failure) to pay any
Tax. The Seller has not entered into a closing agreement pursuant to Section
7121 of the Internal Revenue Code.
(d) Except as set forth in Schedule 5.7 attached hereto, there has not
been any audit of any tax return filed by the Seller, no audit of any tax return
of the Seller is in progress, and the Seller has not been notified by any tax
authority that any such audit is contemplated or pending. Except as set forth in
Schedule 5.7, no extension of time with respect to any date on which a tax
return was or is to be filed by the Seller is in force, and no waiver or
agreement by the Seller is in force for the extension of time for the assessment
or payment of any Taxes.
(e) (i) The Seller has not consented to have the provisions of Section
341(f)(2) of the Internal Revenue Code applied to it, (ii) the Seller has not
agreed to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Internal Revenue Code by reason of a
change in accounting method or otherwise and (iii) the Seller has never made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances would obligate it to make any payments, that will
not be deductible under Section 280G of the Internal Revenue Code. The Seller
has disclosed on its federal income tax returns all positions taken therein that
could give rise to a penalty for underpayment of federal Tax under Section 6662
of the Internal Revenue Code. The Seller has never had any liability for unpaid
Taxes because it is a member of an "affiliated group" (as defined in Section
1504(a) of the Internal Revenue Code). The Seller has never filed, nor has it
ever been required to file, a consolidated, combined or unitary tax return with
any entity. The Seller is not a party to any tax sharing agreement.
(f) The Seller computes its federal taxable income under the cash method
of accounting.
5.8 Accounts Receivable. All accounts receivable of the Seller as of the
respective Balance Sheet Dates and all accounts receivable arising thereafter or
hereafter to the Closing Date, arose or will arise from valid sales in the
ordinary course of business and to the Seller's knowledge are not subject to
setoff or counterclaim except to the extent of the normal allowance for doubtful
accounts consistent with the Seller's past practices. Except as set forth in
Schedule 5.8, the Seller has no accounts or loans receivable from any person,
firm or corporation which is affiliated with the Seller.
11
5.9 Inventories. The Seller maintains less than Five Thousand Dollars
($5,000) of inventory, all saleable in the ordinary course and stated in
accordance with GAAP.
5.10 Absence of Certain Changes.
Since May 28, 1999, the Seller has conducted business only in the ordinary
course and consistent with past practices and except as disclosed in Schedule
5.10 there has not been:
(a) Any change in the properties, assets, liabilities, business,
operations, financial condition or results of operations of the Seller which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse with
respect to the Seller;
(b) Except for the endorsement of checks in the ordinary course of
business any material contingent liability incurred by the Seller as guarantor
or otherwise with respect to the obligations of others or any cancellation of
any material debt or claim owing to, or waiver of any material right of, the
Seller;
(c) Any mortgage, encumbrance or lien placed on any of the Assets which
remains in existence on the date hereof or will remain on the Closing Date
except for liens permitted by any current agreement of the Seller with respect
to borrowed money;
(d) Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any capital assets
of the Seller costing more than 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 Seller;
(f) Any declaration, setting aside or payment or making of any other
distribution in respect of the membership interest of the Seller, any direct or
indirect redemption, purchase or other acquisition by the Seller of its own
membership interests, any issuance or sale of any securities convertible into or
exchangeable for debt or equity securities of the Seller or any grant, issuance
or exercise of options, warrants, subscriptions, preemptive rights, agreements,
arrangements or commitments of any kind for or relating to the issuance, sale,
registration or voting of any membership interest of any class or other equity
interests of the Seller;
(g) Any claim of unfair labor practices asserted against the Seller;
except as disclosed on Schedule 5.22 any change in the compensation (in the form
of salaries, wages, incentive arrangements or otherwise) payable or to become
payable by the Seller to any of its officers, members, managers, employees,
agents or independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment or
arrangement made to or with any of such officers, employees, agents or
independent contractors; any entering into any employment, deferred compensation
or other similar agreement (or any amendment to any such existing agreement)
with any officer, member, manager, employee agent
12
or independent contractor of the Seller 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 Seller;
(h) Any change with respect to the officers or management of the Seller,
any grant of any severance or termination pay to any officer or employee of the
Seller;
(i) Any payment or discharge of a material lien or liability of the Seller
which was not shown on the Financial Statements or incurred in the ordinary
course of business thereafter;
(j) Any obligation or liability incurred by the Seller to any of its
officers, members, managers or employees, or any loans or advances made by the
Seller to any of its officers, members, managers, or employees, except normal
compensation and expense allowances payable to such parties and the accrued but
unpaid salary owed to Xxxxx Xxxxxxxx in the aggregate amount of $7,400 for June
1999 and July 1999;
(k) Any change in accounting methods or practices, credit practices or
collection policies used by the Seller other than to comply with new accounting
pronouncements;
(l) Any other transaction entered into by the Seller other than
transactions in the ordinary course of business; or
(m) Any agreement or understanding whether in writing or otherwise, that
would result in any of the transactions or events or require the Seller to take
any of the actions specified in paragraphs (a) through (l) above.
5.11 Banking Relations. All of the arrangements which the Seller has with
any banking institution are described in Schedule 5.11 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
5.12 Patents, Trade Names, Trademarks, Copyrights and Proprietary Rights.
All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Seller (the "Proprietary
Rights") are listed in Schedule 5.12 attached hereto. Except as set forth in
Schedule 5.12: (a) to the Seller's knowledge, 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) to Seller's knowledge, the Seller has sufficient title or adequate
rights or licenses to use all material patents, trade names, trademarks,
copyrights, or other proprietary rights used by it in its business as presently
conducted free and clear of any attachments, liens, encumbrances or to Seller's
knowledge, adverse claims. The Seller has not received written notice that its
present or contemplated activities or products
13
infringe any such patents, trade names, trademarks or other proprietary rights
of others. Except as set forth in Schedule 5.12: (i) to the Seller's knowledge,
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 to Seller's knowledge, threatened, which
challenge the rights of the Seller in respect thereof; (iii) none of the
patents, trade names, trademarks, copyrights or other proprietary rights listed
in said schedule is subject to any outstanding order, decree, judgment or
stipulation, or to Seller's knowledge is being infringed by others; and (iv) no
proceeding charging the Seller with infringement of any adversely held patent,
trade name, trademark or copyright has been filed or to Seller's knowledge is
threatened to be filed.
5.13 Trade Secrets and Customer Lists. The Seller is not using or in any
way making use of any confidential information or trade secrets (e.g.
inventions, designs, customer lists or secret processes) of any third party,
including without limitation, a former employer of any present or past employee
of the Seller.
5.14 Contracts.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 5.14 or in any other Schedule attached to this Agreement
(complete and accurate copies of which have been delivered to the Buyer), the
Seller is not a party to or subject to:
(i) any plan or contract providing for bonuses, pensions, options,
membership interest purchases, deferred compensation, retirement payments,
profit sharing, severance or termination pay, collective bargaining or the like,
or any contract or agreement with any labor union;
(ii) any employment contract or contract for services which requires
the payment of Ten Thousand Dollars ($10,000) or more annually or which is not
terminable at will by the Seller without liability for any penalty or severance
payment;
(iii) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than One Thousand Dollars ($1,000 each);
(iv) any other contracts or agreements creating any obligation of
One Thousand Dollars ($1,000) or more with respect to any such contract;
(v) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(vi) any contract or agreement which by its terms does not terminate
or is not terminable by the Seller or any successor or assign within six (6)
months after the date hereof without payment of a penalty;
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(vii) any contract or agreement for the sale or lease of its
products or services not made in the ordinary course of business;
(viii) any contract with any sales agent or distributor of products
of the Seller;
(ix) any contract containing covenants limiting the freedom of the
Seller or any of the Members to compete in any line of business or with any
person or entity;
(x) any contract or agreement for the purchase of any fixed asset
for a price in excess of One Thousand Dollars ($1,000) whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee) other than off
the shelf, "shrink-wrapped" software licenses to use software which is licensed
on a mass distribution basis (e.g. Microsoft Windows) and license fees payable
to the Seller in connection with sales of web hosting services; provided that a
complete list of all software currently owned, licensed or used by the Seller
and set forth in Schedule 5.14 shall satisfy the disclosure obligation of the
Seller for purposes hereof;
(xii) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money and any
related security agreement;
(xiii) any contract or agreement with any officer, employee, member
or manager of the Seller or with any persons or organizations controlled by or
affiliated with any of them;
(xiv) except as provided in Schedule 5.2, any partnership, joint
venture, or other similar contract, arrangement or agreement; or
(xv) except as provided in the Operating Agreement which rights are
hereby waived by the Members, any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any voting
agreements, or other similar arrangements or any membership interest purchase or
repurchase agreements or membership interest restriction agreements.
(b) All material contracts, agreements, leases and instruments to which
the Seller is a party or by which the Seller is obligated are valid and are in
full force and effect and constitute legal, valid and binding obligations of the
Seller and the other parties thereto, enforceable in accordance with their
respective terms except to the extent enforceability may be limited by the
effect of bankruptcy, insolvency or similar laws affecting creditors rights
generally or by general principles of equity. Neither the Seller nor to its
knowledge any other party to any contract,
15
agreement, lease or instrument of 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 Seller, or to the Seller's knowledge on the part of any other
party thereto in any such case that could have a material adverse effect on the
properties, assets, financial condition or prospects of the Seller. Schedule
5.14 indicates whether any of the agreements, contracts, commitments or other
instruments and documents described therein requires consent or approval to be
transferred to the Buyer as a result of the transactions contemplated herein.
5.15 Litigation. Schedule 5.15 hereto lists all currently pending and to
the Seller's knowledge, threatened litigation and governmental or administrative
proceedings or investigations to which the Seller is a party. Except for matters
described in Schedule 5.15, there is no litigation or governmental or
administrative proceeding or investigation pending or to Seller's knowledge
threatened against the Seller which may have an adverse effect on the
properties, assets, business, financial condition or results of operations of
the Seller or any of the Members or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
5.16 Compliance with Laws. The Seller has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the Seller, and except as set forth in Schedule 5.16
hereto, the Seller is currently in compliance in all material respects with all
such statutes, ordinances, orders, rules or regulations, and there is no valid
basis for any claim that Seller is not in compliance in all material respects
with any such statute, ordinance, order, rule or regulation.
5.17 Insurance. Attached to Schedule 5.17 is a copy of each insurance
policy (including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Seller is a
party, a named insured, or otherwise the beneficiary of coverage. With respect
to each such insurance policy: (i) to Seller's knowledge, the policy is legal,
valid, binding, enforceable, and in full force and effect; (ii) the Seller, is
not 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 (iii) to Seller's
knowledge, no party to the policy has repudiated any provision thereof.
5.18 Warranty and Related Matters. The Seller has made no express
warranties with respect to any of its products or services sold or provided in
connection with the Business. To Seller's knowledge, (i) the Seller has not
received notice of any statements, citations, correspondence or decisions by any
Governmental Entity stating that any product manufactured, marketed or
distributed at any time by the Seller (the "Products") is defective or unsafe or
fails to meet any product warranty or any standards promulgated by any such
Governmental Entity; and (ii)there have been no recalls ordered by any such
Governmental Entity with respect to any Product. To Seller's knowledge, there is
no (i) fact relating to any Product that may impose upon
16
the Seller a duty to recall any Product or a duty to warn customers of a defect
in any Product, (ii) latent or overt design, manufacturing or other defect in
any Product, or (iii) liability for warranty or other claim or return with
respect to any Product except in the ordinary course of business consistent with
the past experience of the Seller for such kind of claims and liabilities.
5.19 Finder's Fees. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Seller.
5.20 Permits; Burdensome Agreements. Schedule 5.20 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Seller to conduct the Business. The Seller has obtained all the Approvals,
which are valid and in full force and effect. Except as disclosed on Schedule
5.20, none of the Approvals is subject to termination by their express terms as
a result of the execution of this Agreement by the Seller, and to the Seller's
knowledge, no further Approvals will be required in order to continue to conduct
the business currently conducted by the Seller subsequent to the Closing. Except
as disclosed in Schedule 5.20, the Seller is not subject to nor bound by any
agreement, judgment, decree or order which may materially and adversely affect
the properties, assets, business, financial condition or results of operations
of the Seller.
5.21 Transactions with Interested Persons. Except as set forth in Schedule
5.21 hereto, no officer, employee, member or manager of the Seller and none of
their respective parents, grandparents, spouses, children, siblings or
grandchildren owns directly or indirectly on an individual or joint basis any
material interest in, or serves as an officer or director or in another similar
capacity of, any competitor, supplier or customer of the Seller or any
organization, person or entity with whom the Seller is doing business.
5.22 Lists of Certain Employees and Suppliers.
(a) Schedule 5.22 hereto contains a list of all current members and
managers of the Seller and a list of all employees and consultants of the Seller
who, individually, have received or are scheduled to receive base salary from
the Seller during the current fiscal year of Eighteen Thousand Dollars ($18,000)
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) Schedule 5.22 sets forth a true and complete list of all suppliers of
the Seller to whom the Seller made payments to any single supplier aggregating
Ten Thousand Dollars ($10,000) or more during the most recent complete fiscal
year, showing, with respect to each, the name, address and dollar volume
involved.
5.23 Employees; Labor Matters. As of the date hereof, the Seller employed
the number of full-time employees and part-time employees described on Schedule
5.23. Except for the salary owed to Xxxxx Xxxxxxxx for June 1999 and July 1999,
the Seller is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct
17
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees except as provided in the Seller's
Employee Benefit Plans described in Schedule 5.26 (which Seller acknowledges
will not be assumed by Buyer hereunder). Except as set forth in Schedule 5.23,
upon termination of the employment of any of said employees, the Seller will not
be liable to any of said employees for so-called "severance pay" or any other
payments. Except as set forth in Schedule 5.23 attached hereto, the Seller does
not have a policy, practice, plan or program of paying severance pay or any form
of severance compensation in connection with the termination of employment. The
Seller is in compliance with all applicable laws and regulations respecting
labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours in all material respects. No charges of
employment discrimination or unfair labor practices have been brought against
the Seller, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations existing, pending or to
Seller's knowledge threatened against or involving the Seller. There are no
grievances, complaints or charges that have been filed against the Seller under
any dispute resolution procedure (including, but not limited to, any proceedings
under any dispute resolution procedure under any collective bargaining
agreement). No collective bargaining agreements are in effect or are currently
being or are about to be negotiated by the Seller. The Seller has not received
written notice of pending or threatened changes with respect to the management
or key supervisory personnel of the Seller.
5.24 Customers. Schedule 5.24 sets forth any customer who accounted for
more than 5% of the sales of the Seller for the most recent complete fiscal year
of the Seller (collectively, the "Customers"). Except as disclosed on Schedule
5.10, no Customer has given notice to the Seller of its intention to terminate,
to cancel or otherwise materially and adversely modify its relationship with the
Seller or to decrease materially or limit its usage or purchase of the services
or products of the Seller.
5.25 Y2K. The Seller has taken all necessary action to assess, evaluate,
test and correct all of the hardware, software, embedded microchips and other
processing capabilities of computer and telecommunication systems it uses,
either directly or indirectly, including but not limited to computerized
services provided by third parties such as billing and payroll services, to
ensure that such systems will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.
5.26 Employee Benefits.
(a) Attached to Schedule 5.26 is a copy of each Employee Benefit Plan that
the Seller maintains or to which the Seller is a party. The Seller acknowledges
that the Buyer is not assuming any obligations under any plan identified in or
attached to Schedule 5.26. None of the Assets are subject to any lien in favor
of or enforceable by the Pension Guaranty Corporation or any similar lien under
state of federal law governing employment or benefits. 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. The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the
18
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. The Seller has never contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any liability (including withdrawal
liability) under any Multiemployer Plan.
(b) The Seller does not maintain or contribute to, nor has ever maintained
or contributed to, nor has ever been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with Internal
Revenue Code ss.4980B).
5.27 Environment, Health, and Safety.
(a) The Seller has complied in all material respects with all
Environmental, Health and Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against them alleging any failure so to comply. Without limiting the
generality of the preceding sentence, the Seller has obtained and been in
compliance with all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and have complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health, and Safety Laws.
(b) The Seller is not subject to any material Liability (and the Seller
has not handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
would form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Seller
giving rise to any liability) for damage to any site, location, or body of water
(surface or subsurface), for any illness of or personal injury to any employee
or other individual, or for any reason under any Environmental, Health, and
Safety Law.
5.28 Disclosure. This Agreement, including the Schedules hereto prepared
by the Seller, together with the other written or documented information
furnished to the Buyer by the Seller in connection herewith, do not to the
Seller's knowledge contain an untrue statement of material fact or to the
Seller's knowledge 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.
Notwithstanding, (i) the disclosures set forth on the Seller's disclosure
Schedules attached hereto or (ii) the qualification of any representation or
warranty of the Seller and the Members either "to Seller's knowledge", "known to
Seller", or similar qualifying language limiting such representation and
warranty to such knowledge, the Seller shall remain responsible for all
encumbrances, claims, liens or Liabilities (other than the Assumed Liabilities)
related to the Assets to the extent the Seller would otherwise be required to
indemnify the Buyer for such
19
liability in accordance with the provisions of Section 13 and to the extent such
indemnification survives the Closing pursuant to Section 22 and shall fully
indemnify, defend and hold the Buyer, the Parent and their respective agents,
employees, directors and affiliated members harmless from and against such
encumbrances, claims, liens or liabilities in accordance with Section 13 hereof.
6. Covenants of the Seller and the Company. The Seller and the Members
jointly and severally covenant and agree as set forth in this Section 6.
6.1 Conduct of Business. Between the date of this Agreement and the
Closing Date, the Members will cause the Seller to do and the Seller and the
Members will do the following, unless the Buyer shall otherwise consent in
writing which consent shall not be unreasonably withheld or delayed:
(a) conduct its business only in the ordinary course consistent with past
practices, refrain from changing or introducing any method of management or
operations except in the ordinary course of business and in a manner consistent
with past practices and will not use any cash generated by the Seller other than
to pay ordinary course business expenses consistent with past practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing or
selling any capital asset of the Seller and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets;
(c) refrain from incurring or modifying any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring or modifying any other contingent or fixed obligations or liabilities
in an amount in excess of $1,000 except in the ordinary course of business and
in a manner consistent with past practices;
(d) refrain from making any change in the Seller's formation documents,
operating agreement or authorized or issued membership interest or from
acquiring any securities issued by any other business organization other than
short-term investments in the ordinary course of business;
(e) refrain from declaring, setting aside or paying any dividend, making
any other distribution in respect of the Seller's membership interest, making
any direct or indirect redemption, purchase or other acquisition of the Seller's
membership interest, issuing, granting, awarding, selling, pledging, disposing
of or encumbering or authorizing the issuance, grant, award, sale, pledge,
disposition or encumbrance of any membership interest of, or securities
convertible or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any membership interest of the Seller or entering
into any agreement or commitment with respect to any of the foregoing;
20
(f) refrain from making any change in the compensation payable or to
become payable to any of its officers, members, managers, employees or agents,
except for scheduled increases in salary or wages in the ordinary course of
business that are consistent with past practices, or granting any severance or
termination pay to, or establishing, adopting or entering into any agreement or
arrangement providing for severance or termination pay to, or entering into or
amending any employment, or other agreement or arrangement with, any officer,
member, manager, or other employee of the Seller or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, membership interest option or purchase, insurance,
pension, retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing arrangements or
modifying, amending or terminating any of its contracts except in the ordinary
course of business, or waiving, releasing or assigning any material rights or
claims;
(h) use reasonable efforts to prevent any change with respect to its
management and supervisory personnel or banking arrangements;
(i) maintain its business organization and use its best efforts preserve
the goodwill of and business relationships with all suppliers, customers and
others having business relations with it, and to maintain its properties and
facilities, including those held under leases, in as good a working order and
condition as on the date hereof, ordinary wear and tear excepted;
(j) maintain at all times all insurance of the kind, in the amount and
with the insurers set forth in Schedule 5.17 or equivalent insurance with any
substitute insurers approved by the Buyer;
(k) refrain from changing accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable) or from making any tax election or
settling or compromising any federal, state, local or foreign income tax
liability;
(l) refrain from entering into any executory agreement, commitment or
undertaking to do any of the activities prohibited by the foregoing provisions;
and
(m) maintain a minimum of Twenty-Thousand Dollars ($20,000) 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.
21
6.2 Consents and Approvals. The Seller shall use its 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
Members under this Agreement, including, without limitation, the consents and
authorizations described in Schedule 5.14, and such other authorizations,
waivers, approvals, consents and permits as set forth in Schedule 6.2 as may be
necessary to transfer the Assets to the Buyer.
6.3 Exclusive Dealing. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to Section 10 the
Seller shall not permit any officer, member, manager, employee or agent to,
directly or indirectly, (i) take any action to solicit, initiate submission of
or encourage, proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a portion of
the assets of the Seller, or any equity interest in the Seller or any merger or
business combination with the Seller (an "Acquisition Proposal"), (ii)
participate in any discussions or negotiations regarding an Acquisition Proposal
with any person or entity other than Buyer and its representatives, or (iii)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do any of the foregoing.
6.4 No Sales of Membership Interests. Between the date of this Agreement
and the Closing Date, the Seller shall not sell, exchange, deliver, assign,
pledge, encumber or otherwise transfer or dispose of any membership interests
owned beneficially or of record by the Members, other than pursuant to operation
of law, nor grant any right of any kind to acquire, dispose of, vote or
otherwise control in any manner such membership interests; provided, however,
that notwithstanding anything to the contrary stated herein, any transferee,
executor, heir, legal representative, successor or assign of the Members shall
be bound by this Agreement.
6.5 Notification of Certain Matters. The Seller shall give prompt notice
to the Buyer of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of the Seller and the Members contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of the Seller or the Members to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. The delivery of any notice pursuant to this Section 6.5 shall not be
deemed to (i) modify the conditions set forth in Section 8 or elsewhere or (ii)
affect the Buyer's right to terminate this Agreement.
6.6 Amendment of Schedules. The Seller and the Members agree that, with
respect to the representations and warranties contained in this Agreement, the
Seller and the Members shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described on the
Schedules. The Seller and the Members understand and agree that, as of the
Closing Date, they will be required to execute a "bring-down" certificate which
shall state that all representations and warranties in this Agreement are true
and correct as of the Closing Date. To the extent that any such representation
and warranty is qualified by disclosure on a schedule which changes after the
date hereof and prior to Closing, the Seller and the Members agree to notify the
Buyer of such
22
changes in writing and to summarize all such changes via the bring-down
certificate on the Closing Date. Notwithstanding the foregoing sentence, the
truth and accuracy of any and all representations and warranties of the Seller
and the Members as of the date of this Agreement and as of the Closing Date
shall be a precondition to the consummation of this transaction by the Buyer,
and Buyer shall not be deemed to have consented to any amendment or supplement
to a Schedule prepared by the Seller and the Members after the date hereof or to
have waived any of its rights or remedies for breach hereof, 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 Seller or the Members, unless the Buyer
acknowledges and consents in writing to such amendment or supplement.
6.7 Further Assurances. The Seller and the Members hereto agree to execute
and deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
6.8 Employees. As of the Closing Date, the Seller shall have terminated
all of its employees and the Buyer shall have hired certain of such former
employees as it may, in its sole discretion, need to operate the Business,
provided, however, that the Buyer shall have no obligation to hire any such
employees (other than pursuant to the Employment Agreements).
7. Representations and Warranties of the Buyer. As of the date hereof, the
Buyer and the Parent hereby represent and warrant to the Seller and the Members
as set forth in this Section 7.
7.1 Organization of the Buyer. Each of the Buyer and the Parent is a
corporation duly organized, validly existing and in good standing under the laws
of their respective state of incorporation with full corporate power and
authority to conduct their respective businesses in the manner as now conducted.
7.2 Authority. All necessary corporate action has been taken by the Buyer
and the Parent to authorize (i) the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by the Buyer and the Parent pursuant to this Agreement and (ii) the
consummation of the transactions contemplated hereby. This Agreement and each
agreement, document and instrument to be executed and delivered by the Buyer and
the Parent pursuant to this Agreement constitute, or when executed and delivered
by the Buyer and the Parent will constitute, valid and binding obligations of
the Buyer enforceable in accordance with their respective terms, subject however
to the extent enforceability may be limited by the effect of bankruptcy,
insolvency or similar laws affecting creditors' rights generally or by general
principles of equity.
7.3 No Conflicts. The execution, delivery and performance by the Buyer and
the Parent of this Agreement and each such other agreement, document and
instrument has been duly authorized by all necessary corporate action: (i) does
not and will not violate any provision of the Certificate of Incorporation or
bylaws of the Buyer ; and (ii) will not result in a breach of,
23
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. No consent, approval, order or authorization of, or registration,
declaration or filing with any government agency or public or regulatory agent
body or authority with respect to the Buyer or the Parent is required in
connection with the execution, delivery or performance of this Agreement by the
Parent or the Buyer or the consummation of the transactions contemplated by this
Agreement by the Parent and the Buyer, the failure of which to obtain would (i)
prevent the Closing, or (ii) have a material adverse effect on the Seller or the
Members. Seller acknowledges that in order to issue the Parent Stock to Seller
pursuant to this Agreement, the Parent and the Buyer will rely upon a private
placement exemption based in part upon certain representations and warranties of
the Seller and the Members contained herein.
7.4 Litigation. There is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Buyer or the
Parent which may have an adverse effect on the properties, assets, business,
financial condition or prospects of the Buyer or the Parent or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
7.5 Compliance with Laws. Neither the Buyer nor the Parent has received
any notice of a violation or alleged violation of applicable statutes,
ordinances, orders, rules and regulations promulgated by any federal, state,
municipal or other governmental authority, which violation or alleged violation
would have a material adverse effect on the business of the Buyer or the Parent.
7.6 No Known Breach. The Buyer and the Parent have reviewed the warranties
and representations of the Seller and the Members contained in this Agreement
and the corresponding schedules/exhibits and have no actual knowledge of any
breach of any representation, warranty or covenant made by the Seller or the
Members.
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 any one of which may be waived by the
Buyer in its sole discretion.
8.1 Examination of Financial Statements. Prior to the Closing Date, the
Buyer shall have had sufficient time to review the management-prepared balance
sheets of the Seller as of the last day of the month ended immediately prior to
the Closing Date and the management-prepared statements of income, cash flow and
members' equity for the period then ended, disclosing no
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material change in the financial condition of the Seller or the results of its
operations from the Balance Sheet Date.
8.2 No Material Adverse Change. No material adverse change in the results
of operations, financial position or business of the Seller shall have occurred
and the Seller shall not have suffered any material loss or damages to any of
its properties or assets, whether or not covered by insurance, since the Balance
Sheet Date, which change, loss or damage materially affects or impairs the
ability of the Seller to conduct its business; and the Buyer shall have received
on the Closing Date a certificate signed by the Manager of the Seller to such
effect.
8.3 [Intentionally omitted]
8.4 Opinion of Counsel. The Buyer shall have received an opinion from
counsel to the Seller and the Members, dated the Closing Date, in form and
substance satisfactory to the Buyer, to the effect that:
(a) the Seller has been duly organized and is validly subsisting in good
standing under the laws of the State of New York.
(b) the authorized and outstanding membership interests of the Seller is
as represented by the Members in this Agreement and each membership interest has
been duly and validly authorized and issued, is fully paid and nonassessable and
was not issued in violation of the preemptive rights of any member;
(c) to the actual knowledge of such counsel, the Seller does not have any
outstanding options, warrants, calls, conversion rights or other commitments of
any kind to issue or sell any of its membership interests except as disclosed on
Schedule 5.3 ;
(d) this Agreement has been duly authorized, executed and delivered by the
Seller and the Members and constitutes a valid and binding agreement of the
Seller and the Members enforceable against them in accordance with its terms
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating to or
affecting the rights of creditors.
(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 Seller or any of the Members, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality wherever
located;
(f) to such counsel's actual knowledge, no notice to, consent,
authorization, approval or order of any court or governmental agency or body or
of any other third party is required in connection with the execution, delivery
or consummation of this Agreement by the Seller and the Members or for the
transfer to the Buyer of the Assets;
25
(g) the execution of this Agreement and the performance of the obligations
hereunder will not violate or result in a breach or constitute a default under
any of the terms or provisions of the Seller's Articles of Organization or the
operating agreement of the Seller or to the such counsel's knowledge of any
lease, instrument, license, permit or any other agreement to which the Seller is
a party or by which the Seller or its members are is bound; and
(h) any other matters incident to the matters set forth herein as
reasonably required by the Buyer.
8.5 Additional Liabilities and Obligations. The Seller shall have
delivered to the Buyer a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Seller arising since the Balance Sheet
Date; (ii) showing all material contracts and agreements, together with copies
thereof, entered into by the Seller since the Balance Sheet Date and (iii) all
outstanding payables of the Seller which the Seller shall satisfy in accordance
with Section 3.3(b).
8.6 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 forty-five (45) days prior to the Closing Date,
duly issued by the Secretary of State and the Department of Taxation and
Finance, showing that the Seller is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
the Seller for all periods prior to the dates of such certificates have been
filed and paid. The Seller shall also have delivered to the Buyer prior to the
Closing a recent copy of the Seller's Articles of Organization and all
amendments thereto duly certified by the Secretary of State of New York.
8.7 Representations; Warranties; Covenants. Each of the representations
and warranties of the Seller and the Members contained in Section 5 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Members shall, on or before the Closing Date, have performed and satisfied all
agreements and conditions hereunder which by the terms hereof are to be
performed and satisfied by the Seller and the Members on or before the Closing
Date; and the Seller and the Members shall have delivered to the Buyer a
certificate dated the Closing Date signed by the Seller and Members to the
foregoing effect.
8.8 Approvals and Consents. All filings with and notifications of
governmental authorities, regulatory agencies and other entities required to be
made by them in connection with the execution and delivery of this Agreement,
the performance of the transactions contemplated hereby and the continued
operation of the Business subsequent to the Closing Date, and the Seller and the
Buyer shall have received all required authorizations, waivers, consents and
permits to permit the consummation of the transactions contemplated by this
Agreement, in form and substance reasonably satisfactory to the Buyer, from all
third parties, including, without limitation, approvals required under federal
and state securities laws and/or the securities and Exchange Commission, state
"Blue Sky" laws, other applicable governmental authorities and regulatory
agencies, lessors, lenders and contract parties, required in connection with
this Agreement or the Seller's permits, leases, licenses and franchises, to
avoid a breach, default,
26
termination, acceleration or modification of any material agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a result of the
execution or performance of this Agreement, or otherwise in connection with the
execution and performance of this Agreement unless the failure to obtain any
such consent would not individually or in the aggregate have a material adverse
effect on the Business. Notwithstanding the foregoing, the Buyer agrees that it
shall waive its right to obtain the landlord's consent to assign the lease to
the Real Property and obtain consents for the assignment of equipment leases set
forth on Schedule 3.1(d) and that obtaining such waivers shall not be a
condition to Closing. Seller agrees to use its best efforts to obtain consents
for the assignment of equipment leases within sixty (60) days of the Closing.
8.9 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Buyer make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
8.10 Proceedings Satisfactory to the Buyer. All proceedings to be taken by
the Seller and the Members in connection with the consummation of the Closing on
the Closing Date and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transaction contemplated hereby reasonably requested by the Buyer shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.
8.11 Employment Agreements. The Employment Agreements shall be executed by
the Buyer and the respective Members.
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 and the Parent 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 and the
Parent 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 and the Parent on or before the Closing
Date; and the Buyer and the Parent shall have delivered to the Seller
certificates signed by the President of the Buyer and the Parent respectively
and dated as of the Closing Date certifying to the foregoing effect.
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9.2 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Seller make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
9.3 No Material Adverse Change. No material adverse change in the results
of operations, financial condition or business of the Parent or the Buyer shall
have occurred and neither the Buyer nor the Parent shall have suffered any
material loss, liability or damage which materially affects either of its
respective operations, financial condition or business.
9.4 Employment Agreements. The Employment Agreements shall be executed by
the Buyer and the respective Members.
10. Termination of Agreement; Effect of Termination.
10.1 Termination. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the Seller and the Members and the board of
directors of the Buyer;
(b) either by the Seller on the one hand, or by the Buyer on the other
hand, if
(i) the transactions contemplated by this Agreement to take place at
the Closing shall not have been consummated by September 15, 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.
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10.3 Time is of the Essence. Time is of the essence with respect to the
termination provisions of this Section 10, unless waived by the Seller.
11. [Intentionally Omitted]
12. Nondisclosure of Confidential Information.
12.1 The Seller and the Members. The Seller and the Members recognize and
acknowledge that they have had in the past, currently have and in the future may
have access to certain confidential information relating to the Business and the
Buyer and its affiliates, including, but not limited to, operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Seller and the Buyer and its affiliates. The Seller and the
Members agrees that they will not use or disclose such confidential information
to any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of the 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 unless (i) such information becomes known to the public
generally through no breach by the Seller or the Members of this covenant, (ii)
disclosure is required by law or the order of any governmental authority under
color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Seller or the
Members shall give prior written notice thereof to the Buyer and provide the
Buyer with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party and the same prior
disclosure set forth immediately above is given. In the event of a breach or
threatened breach by the Seller or the Members of the provisions of this
Section, the Buyer shall be entitled to an injunction restraining the Seller
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Buyer from pursuing any other
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 and the Members shall return to the Buyer within a
reasonable time all documents containing confidential information about the
Buyer and the provisions of this Section 12.1 as they relate to the Business
shall not be applicable.
12.2 The Buyer. The Buyer and the Parent each respectively recognize and
acknowledge 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 and the Parent each respectively agree
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
29
Seller or the Buyer who need to know such information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, unless (i) such information becomes known to
the public generally through no breach by the Buyer of this covenant, (ii)
disclosure is required by law or the order of any governmental authority under
color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Buyer shall give
prior written notice thereof to the Seller and provide the Seller with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party and the same prior disclosure set forth
immediately above is given. In the event of a breach or threatened breach by the
Buyer of the provisions of this Section, the Seller shall be entitled to an
injunction restraining the Buyer from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Seller from pursuing any other available remedy for such breach or threatened
breach, including 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 and the Members. Subject to Section
13.4, the Seller and the Members, jointly and severally, on behalf of themselves
and their respective successors, executors, administrators, estates, heirs and
permitted assigns, agree subsequent to the Closing Date to indemnify and hold
harmless the Buyer and its respective officers, directors, employees and agents
(individually, a "Buyer Indemnified Party" and collectively, the "Buyer
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Buyer Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the Seller or the
Members in this Agreement or in any schedule, exhibit, certificate, agreement or
other instrument delivered under or in connection with this Agreement, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing covered by any such representations or warranties
(collectively, "Buyer Representation and Warranty Claims");
30
(b) any breach of any covenant or agreement made by the Seller or the
Members in this Agreement or in any schedule, exhibit, certificate, agreement or
other instrument delivered under or in connection with this Agreement, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing covered by any such covenant or agreement; or
(c) with respect to taxes of the Seller incurred with respect to any
Pre-Closing Tax Period (as defined below) to the extent such liability exceeds
the amounts accrued therefor. The term "Pre-Closing Tax Period" shall mean all
taxable periods ending on or before the Closing Date and the portion (ending on
the Closing Date) of any taxable period that includes (but does not end on) the
Closing Date.
Claims under clauses (a) through (c) of this Section 13 are hereinafter
collectively referred to as "Buyer Indemnifiable Claims". 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 Subject to Section 13.4, Buyer and Parent hereby agree to indemnify
and hold Seller and each Member harmless from, against and in respect of) and
shall on demand reimburse them for):
(i) Any and all losses, liabilities or damages resulting from any
untrue representation, breach of warranty or non-fulfillment of any covenant or
agreement by Buyer contained herein or in any certificate, document or
instrument delivered to Seller hereunder;
(ii) Any and all claims, liabilities and obligations of any kind or
nature arising from or relating to the operation of the Business subsequent to
the Closing Date; and
(iii) The Assumed Liabilities (even if Seller remains primarily
liable thereon pursuant to the assignment and assumption or consent to
assignment agreement).
(iv) 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 in connection with a claim made
pursuant to this Section 13.2.
13.3 Notice; Defense of Claims.
Promptly after receipt by a Buyer Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Buyer Indemnified Party shall give notice thereof in writing to
the Seller and the Members, but the omission to so notify the Seller and the
Members promptly will not relieve the Seller from any liability except to
31
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 and the Members give written notice to the Buyer
Indemnified Party stating that (i) it would be liable under the provisions
hereof for indemnity in the amount of such claim if such claim were successful
and (ii) that it disputes and intends to defend against such claim, liability or
expense at its own cost and expense, then counsel for the defense shall be
selected by the Seller and the Members (subject to the consent of the Buyer
Indemnified Party which consent may not be unreasonably withheld) and the Buyer
Indemnified Party shall not be required to make any payment with respect to such
claim, liability or expense as long as the Seller and the Members are conducting
a good faith and diligent defense at their own expense; provided, however, that
the assumption of defense of any such matters by the Seller and the Members
shall relate solely to the claim, liability or expense that is subject or
potentially subject to indemnification. The Seller and the Members shall have
the right, with the consent of the Buyer Indemnified Party, which consent shall
not be unreasonably withheld, to settle any Buyer Indemnified Claims by third
parties which are susceptible to being settled provided its obligation to
indemnify the Buyer Indemnified Party therefor will be fully satisfied. The
Seller and the Members shall keep the Buyer Indemnified Party apprised of the
status of the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the Buyer Indemnified Party with all documents
and information that the Buyer Indemnified Party shall reasonably request and
shall consult with the Buyer Indemnified Party prior to acting on major matters,
including settlement discussions. Notwithstanding anything herein stated, the
Buyer Indemnified Party shall at all times have the right to fully participate
in such defense at its own expense directly or through counsel; provided,
however, if the named parties to the action or proceeding include both the
Seller and the Buyer Indemnified Party and representation of both parties by the
same counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for the Buyer Indemnified Party shall
be paid by the Seller and the Members. If no such notice of intent to dispute
and defend is given by the Seller and the Members, or if such diligent good
faith defense is not being or ceases to be conducted, the Buyer Indemnified
Party shall, at the expense of the Seller and the Members, undertake the defense
of (with counsel selected by the Buyer Indemnified Party), and shall have the
right to compromise or settle (exercising reasonable business judgment), such
claim, liability or expense. If such claim, liability or expense is one that by
its nature cannot be defended solely by the Seller and/or Members, then the
Buyer Indemnified Party shall make available all information and assistance that
the Seller and/or the Members may reasonably request and shall cooperate with
the Seller in such defense.
13.4 Limitations on Indemnification. Notwithstanding the provisions of
Section 13, no party to this Agreement shall be obligated to indemnify any other
party except to the extent the cumulative amount of losses to such party exceeds
Ten Thousand Dollars ($10,000) whereupon the full amount of such losses shall be
recoverable in accordance with the terms hereof.
14. Parent Stock. The Parent Stock to be issued to the Seller hereunder
shall be subject to this Section 14.
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14.1 Lock-Up. In addition to applicable federal and state securities laws
restricting the public sale of the Parent Stock to be issued to the Seller
hereunder, the Seller and the Members hereby irrevocably agree that (i) for a
period of one year after the Closing Date they will not offer, pledge, sell or
otherwise transfer directly or indirectly, any of the Parent Stock or enter into
any agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the shares of Parent Stock received hereunder and
(ii) for a period of two years after the Closing Date, they will not offer,
pledge, sell or otherwise transfer, directly or indirectly, or enter into any
agreement which transfers, in whole or in part, the economic consequences of
ownership of more than twenty-five (25%) of the shares of Parent Stock received
hereunder (each such restrictions adjusted for any stock splits,
recapitalizations, mergers or other similar events). The Seller and the Members
agree that the foregoing shall be binding upon the Seller, the Members and their
respective successors, assigns, heirs, and personal representatives. The
restrictions set forth in clause (ii) shall automatically expire in the event of
a change of control of Parent. For purposes hereof, change of control shall mean
(a) the transfer of more than 50% of the issued and outstanding stock of the
Parent to an acquiror (excluding the sale of such stock for cash in an offering
in which no one individual/entity acquires in excess of thirty percent (30%) of
the issued and outstanding stock of the Parent on a diluted basis in connection
with such sale), or (b) a statutory merger of the Parent where the shareholders
of the Parent own less than fifty percent (50%) of the issued and outstanding
stock of the surviving entity.
14.2 Unregistered Stock; Investment Intent. The Seller and the Members
acknowledge and agree that the shares of Parent Stock to be delivered to the
Seller pursuant to this Agreement have not been and will not be registered under
the Securities Act of 1933, as amended (the "Act") and therefore may not be
resold without compliance with the Act. The Sellers and Members represent and
warrant that the Parent Stock to be acquired by the Seller and the Members
pursuant to this Agreement is being acquired solely for their own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Seller and
the Members covenant, warrant and represent that none of the shares of Parent
Stock issued to the Seller will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all of the applicable provisions of the Act and the rules and regulations
of the Securities and Exchange Commission and applicable state securities laws.
14.3 Able to Bear Risk; Sophisticated Investors; Information Statement.
The Seller and each of the Members jointly and severally represent and warrant
that they are able to bear the economic risk of an investment in Parent Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment. Xxxxx Xxxxxxxx and Xxxx Xxxxxxxx represent and warrant that
they are each an "accredited investor" within the meaning of Regulation D of the
Act. Each of the Members represent and warrant that they (or their Purchaser
Representative) (i) fully understand the nature, scope and duration of the
limitations on transfer contained in this Agreement; (ii) have received a copy
of the Company's information statement dated August 9, 1999 (the "Information
Statement"); and (iii) have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits and risks of the
proposed investment and therefore have the capacity to protect their own
interests in connection with the
33
acquisition of the Parent Stock. The Seller and each of the Members represent
and warrant that they have had an adequate opportunity to ask questions and
receive answers from the officers of the Parent concerning any and all matters
relating to the acquisition of Parent Stock as contemplated by this Agreement
including, without limitation, information regarding the business of the Parent
and its affiliates and information disclosed in the Information Statement. The
Seller and each of the Members have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction. Xxxx Xxxxxxxxx and Xxxx Xxxxxxxxx have each appointed Xxxxx
Xxxxxxxx as their purchaser representative (as defined in Regulation D under the
Act) pursuant to a letter in the form attached hereto as Exhibit 14.2.
14.4 Restrictive Legends. The certificates evidencing the Parent Stock to
be received by the Seller and/or the Members hereunder will bear legends
substantially in the form set forth below and containing such other information
as the Parent may deem appropriate. References in such legend to "THE COMPANY"
shall refer to the Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT") OR ANY STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE
SECURITIES OR BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE
IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY) OF COUNSEL
SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHERMORE SUBJECT TO A
LOCK-UP AGREEMENT WITH THE COMPANY DATED AS OF AUGUST 17, 1999, A COPY OF
WHICH MAY BE OBTAINED BY CONTACTING THE SECRETARY OF THE COMPANY.
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
15. Publicity; Securities Laws. The Seller and the Members acknowledge
that the Buyer is a subsidiary of a publicly held company that is therefore
subject to certain disclosure requirements under federal securities laws. The
Seller, the Members and their representatives shall not directly or indirectly,
make any public comment, statement or communication with respect to, or
otherwise disclose or permit the disclosure of the existence of discussions
regarding, the Agreement between the parties or any of the terms, conditions or
other aspects of the Agreement. The Seller further understands that this
Agreement represents information concerning the Buyer which has not been
previously disclosed to the public and which may be
34
material, all as determined in accordance with applicable laws, rules and
regulations of the United States and the several states concerning securities
(collectively, the "Securities Laws"). The Seller and the Members agree not to
take any action in connection with this Agreement in violation of the Securities
Laws, including but not limited to trading in the common stock of the Parent
while in possession of material non-public information.
16. Expenses. Each party shall be responsible for its own
transaction-related fees and expenses incurred in connection with this Agreement
(including without limitation legal, accounting, and consulting fees and
expenses); provided, however, that in the event of a breach of the Agreement by
any party hereunder, the non-breaching party shall be entitled to recover all of
its reasonable costs incurred in pursuing the transactions contemplated by this
Agreement, including without limitation, legal and accounting fees and expenses.
17. Entire Agreement; Amendment; Waiver. This Agreement and the schedules
and exhibits attached hereto constitute the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreement, representations and understandings of the parties. No
supplement, modification, or amendment of this Agreement will be binding unless
executed in writing by all of the parties. No waiver of any of the provisions of
this Agreement will be effective unless in writing; no waiver will constitute a
waiver of any other provision; and no waiver of a breach of any provision of
this Agreement will operate to waive any subsequent breach.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or Liability of any third persons to any party to this
Agreement, nor will any provision give any third persons any right of
subrogation or action against any party to this Agreement.
20. Successors and Assigns. No assignment or transfer by the Seller or the
Buyer of the respective rights hereunder shall be made prior to the Closing
without the prior written consent of the other party, except that Buyer may
transfer its rights hereunder to an affiliate. This Agreement will be binding
on, and will inure to the benefit of, the parties to it and their respective
heirs, executors, administrators, permitted successors and assigns.
21. Further Assurances. The Members from time to time will execute and
deliver and cause the Seller to execute and deliver such additional documents
and instruments and take such additional actions as may be necessary to carry
out the transactions contemplated by this Agreement. If requested by the Buyer,
the Seller and the Members will prosecute or otherwise enforce in its own name
for the benefit of the Buyer any claims, rights or benefits that are transferred
to the Buyer under this Agreement and that require prosecution or enforcement in
the
35
Seller's name. Any prosecution or enforcement of claims, rights or benefits
under this Section 21 will be solely at the Buyer's expense unless the
prosecution or enforcement is made necessary by a breach of this Agreement by
the Seller.
22. Survival. All representations, warranties, covenants and agreements of
the parties contained in this Agreement, or in any instrument, certificate, or
opinion provided for in it, shall survive the Closing (unless the damaged party
had actual knowledge of any misrepresentation or breach of warranty at the time
of Closing) and continue in full force and effect for a period of eighteen (18)
months from the Closing Date.
23. Notices. Any notice, consent, approval or other communication required
or permitted hereunder will be in writing and will be given (i) by delivery in
person, (ii) by certified mail, return receipt requested, postage prepaid, (iii)
by commercial overnight courier, fees prepaid, or (iv) by facsimile transmission
(with telephone confirmation of receipt), as follows:
(a) If to the Seller and/or the Members:
WebWay, LLC
c/o Xxxxx Xxxxxxxx
000 X-0 Xxxx Xxxx Xxxx
Xxxx Xxxxxxxxx, XX 00000
Phone: 000-000-0000
Xxxxx Xxxxxxxx and Xxxx Xxxxxxxx
000 X-0 Xxxx Xxxx Xxxx
Xxxx Xxxxxxxxx, XX 00000
Phone: 000-000-0000
Xxxx Xxxxxxxxx
00 Xxxxxxxxx Xxxxx
Xxxx, XX 00000
Phone: 000-000-0000
Xxxx Xxxxxxxxx
000 Xxxxxxxx Xxxxxxxxx
Xxxxxx, XX 00000
Phone: 000-000-0000
With a copy to:
Xxxxxxx, Xxxxxxxx Xxxxxxxxxx & Xxxxx
000 Xxxxx Xxxxxx
00
Xxxxxx, XX 00000-0000
Attn: Xxxxxxxx X. Xxxxxxxx, Esq.
Phone: 000 000-0000
Fax: 000 000-0000
(b) If to the Buyer:
Insite Internet VI 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.
24. 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.
37
25. Governing Law. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and construed
in accordance with the laws of the State of New York without reference to its
laws governing conflicts of law.
38
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SELLER:
WEBWAY, LLC
By: /s/ Xxxxx Xxxxxxxx
-----------------------------------
Xxxxx Xxxxxxxx, Manager
MEMBERS:
/s/ Xxxxx Xxxxxxxx
---------------------------------------
Xxxxx Xxxxxxxx
/s/ Xxxx Xxxxxxxx
---------------------------------------
Xxxx Xxxxxxxx
/s/ Xxxx Xxxxxxxxx
---------------------------------------
Xxxx Xxxxxxxxx
/s/ Xxxx Xxxxxxxxx
---------------------------------------
Xxxx Xxxxxxxxx
BUYER:
INSITE INTERNET VI ACQUISITION CO., INC.
By: /s/ Xxxx X. Xxxxx
-----------------------------------
Xxxx X. Xxxxx, President
XXXXXXXXXXXXX.XXX, INC.
By: /s/ Xxxx X. Xxxxx
-----------------------------------
Xxxx X. Xxxxx, President
39
SCHEDULE 2.1
Assets
All assets and all properties and rights of the Seller 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 Seller; (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 Seller and rights
to recover from infringement thereon, whether express or implied; (d) goodwill
and going concern value of the Seller; (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; (k), cash and cash equivalents
in the minimum amount of Twenty Thousand Dollars ($20,000) and all other current
assets on hand as of the Closing Date; (l) all Seller's rights to the name,
"WebWay" and any variations or similar names used in the Business; (m) all
rights, privileges, claims, causes of action and options relating or pertaining
to the Business or the Assets; (n) the TV Data Receivable, if the same is not
paid in full prior to the Closing and (o) all other and additional privileges,
rights, interest, properties and assets of the Seller 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.
Notwithstanding the foregoing, the assets specifically do not include the
"Excluded Assets" as defined in Section 2.2 of this Agreement.
40
