ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made on
May 7, 1998, between XXXXXX XXXXXX CORPORATION, a Pennsylvania corporation
("ESC"); DRAKE TELEPHONE CO., a Pennsylvania corporation ("DTC" and together
with ESC, the "Sellers"); CHOICETEL COMMUNICATIONS, INC., a Minnesota
corporation (the "Purchaser"); XXX XXXXXX, a resident of the State of
Pennsylvania ("Xxxxxx"); and XXX XXXXX, a resident of the State of
Pennsylvania ("Xxxxx", and together with Xxxxxx, the "Shareholders").
BACKGROUND:
A. The Shareholders in the aggregate own all of the outstanding
shares of capital stock of both Sellers.
X. Xxxxxxx together operate a business that provides pay telephone
services in Pennsylvania and is conducted under the name "Xxx Telephone Vending"
(the "Business").
X. Xxxxxxx desire to sell to Purchaser certain assets of the
Business, and Purchaser desires to purchase such assets from Sellers, on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE
Subject to and in reliance upon the representations, warranties and
agreements of the Sellers and Purchaser, and subject to the terms and conditions
of this Agreement:
1.01 SALE AND PURCHASE OF ASSETS. Sellers agree to sell, transfer,
convey and deliver to Purchaser, and Purchaser agrees to purchase from
Sellers, on the date of Closing defined in Section 3.01, at the purchase
price stated in Section 2.01, the Assets. As used in this Agreement, the
term "Assets" means, except as expressly stated herein, all of the assets
used in or relating to the Business, including, but not limited to, the
following:
(a) SITE PROVIDER CONTRACTS. All contracts pertaining to the
provision of pay telephones placed or to be placed into operation at
particular sites pursuant to an agreement therefor ("Site Contracts") with
site owners or operators ("Site Providers"), together with the Sellers'
right to provide pay telephone services to the Site Providers.
(b) EQUIPMENT. All pay telephones, and all furniture, fixtures,
equipment, machines and other tangible assets which are owned by Sellers
and used in connection with the Business as of the date of Closing
including but not limited to those tangible assets set forth on
SCHEDULE 1.01(b), hereto.
(c) TRADE INFORMATION. All of Sellers' customer lists (together
with the right to solicit and service said customers), manuals, forms,
computer programs, business plans or like data respecting the Business or
the conduct thereof, whether existing or created as of the date of this
Agreement or as of the date of Closing.
(d) NAME AND PROPRIETARY INFORMATION. All rights relating to
exclusive use of the name "Xxx Telephone Vending" or any similar or
derivative name, all goodwill relating thereto and to the Business, and the
right to free use of any proprietary information respecting the Business or
the conduct thereof.
(e) EXCLUDED ASSETS. The following assets shall not be sold,
transferred, conveyed or delivered to Purchaser pursuant to this Agreement:
(i) cash and monies in bank accounts, (ii) life insurance policies, (iii)
prepaid expenses, (iv) accounts receivable earned prior to the date of
Closing, (v) dial-around receivables earned prior to the date of Closing,
and (vi) all revenue earned by Sellers prior to the date of Closing
including operator service revenues and any tax or regulatory refunds or
credits, whenever received or credited. In the event Purchaser receives a
credit or a refund, Purchaser shall pay to Sellers the amount of such
credit or refund immediately upon receipt thereof.
ARTICLE II
PURCHASE PRICE; PAYMENT; NO ASSUMPTION OF LIABILITIES
2.01 PURCHASE PRICE. The aggregate purchase price for the Assets (the
"Purchase Price") shall be an amount calculated as follows, subject to a
minimum of $3,800,000 and a maximum of $4,300,000:
(a) Subject to Sections 2.01(b) and (c), below, Purchaser shall
pay to Sellers an amount equal to (i) 27.2 (the "Multiple"), TIMES (ii) the
average monthly cash flow per phone generated from the phones sold
hereunder which are installed and in service as of the date of Closing to
be set forth on a schedule identified as SCHEDULE 2.01(a) to be delivered
at or prior to Closing (collectively, the "Installed Phones") for the 12
full months following the Closing (the "12 Month Period"), TIMES (iii) the
difference between the number of Installed Phones and the number of
Installed Phones removed from service prior to the expiration of the 12
Month Period solely due to the absence of enforceable Site Contracts
therefor which have not been replaced within thirty (30) days of such
removal (provided, however, that any such replacement must have occurred
through the sole efforts of someone other than an employee of Purchaser and
the Site Contract therefor must have terms and be with a Site Provider
reasonably acceptable to Purchaser). For purposes of this Agreement, "cash
flow" shall mean coin revenue received, PLUS operator service and store and
forward receipts, PLUS dial-around compensation received, MINUS line
charges and long distance bills paid, MINUS commissions paid to Site
Providers, MINUS applicable sales, use and/or excise
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taxes which appear on the telephone bills, MINUS the charges described in
Section 2.01(d), below, but only to the extent described therein.
Notwithstanding the foregoing, the removal of any of the Installed Phones
from service prior to the expiration of the 12 Month Period for any
reason other than the absence of an enforceable Site Contract therefor,
including but not limited to removal due to store closing, fire,
vandalism, change in store ownership and expiration of the Site Contract
therefor, shall have no effect on the Purchase Price or the number used
pursuant to (iii), above, to determine the Purchase Price. Due to the
uncertainty of the dial-around compensation rate, the effect of increasing
the local coin rate, and the implementation of changes in the tariff for
local phone service, the Purchase Price as described in this Section
2.01(a) will be determined by the Accountants (as defined below) in
accordance with Section 2.02, below. Purchaser may use any
clearinghouse for the determination and distribution of its dial-around
compensation so long as its clearinghouse distributes all of the
dial-around compensation attributable to the Installed Phones for the
entire 12 Month Period no later than the date American Public
Communications Counsel Services distributes dial-around compensation
for such period.
(b) In the event that eighty-five percent (85%) or more of the
Installed Phones are subject to Site Contracts as of the date of Closing,
the Multiple shall be increased to 27.4.
(c) The Purchase Price shall be reduced by $2,000 for any
Installed Phone removed from service following the 12 Month Period but
before the conclusion of the Accountants' review due to the absence of an
enforceable Site Contract therefor which has not been replaced within
thirty (30) days of such removal (provided, however, that any such
replacement must have occurred through the sole efforts of someone other
than an employee of Purchaser and the Site Contract therefor must have
terms and be with a Site Provider reasonably acceptable to Purchaser). Any
Purchase Price reduction pursuant to this Section 2.01(c) shall be effected
first by reducing the principal amount of the Note (as defined below) to
the extent of the outstanding indebtedness then evidenced thereby and,
thereafter, by a cash refund to Purchaser.
(d) The parties acknowledge that the Federal Communications
Commission has authorized telephone companies to recover certain one-time
costs related to developing a tracking system for dial-around calls
("Tracking Costs"), which costs are anticipated to be passed on to pay
telephone service providers in the monthly line charges. If the portion of
these costs attributable to the Installed Phones are billed to Purchaser in
the 12 Month Period, whether as a one-time charge or spread out over a
number of months, then the Accountants shall allocate such costs over a
36-month period. For example and for illustration purposes only, if $15 of
Tracking Costs are billed to Purchaser in the 12 Month Period, then only $5
of the $15 shall be included as expense for the 12 Month Period in
determining the average monthly cash flow for the 12 Month Period.
Alternatively, if the telephone companies elect to pass on the Tracking
Costs by increasing line charges indefinitely, then the actual amounts paid
therefor by Purchaser in the 12 Month Period would be included in such
calculation as expense.
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2.02 DETERMINATION OF PURCHASE PRICE.
(a) Coopers & Xxxxxxx L.L.P. or, in the event such firm is
unwilling or unable to undertake such engagement, another firm of certified
public accountants selected by Purchaser and reasonably acceptable to
Sellers (in either case, the "Accountants"), shall be engaged to conduct
the review described herein and to determine the cash flow generated by the
Installed Phones. The fees and expenses of the Accountants for the
foregoing services only shall be shared and paid equally by the Purchaser
and the Sellers.
(b) The review by the Accountants shall occur as soon as
reasonably practicable following Purchaser's receipt of the payment(s) for
dial-around compensation attributable to the Installed Phones for the
entire 12 Month Period, which review shall be concluded no later 30 days
after receipt of such payment(s) and a written report thereof shall be
delivered to Purchaser and Sellers within 10 days of the conclusion of the
review (the "Report Date"). The purpose of the review is to determine the
average monthly cash flow from the Installed Phones and the number of
Installed Phones removed from service both prior to the expiration of the
12 Month Period and following the 12 Month Period but before the conclusion
of the Accountants' review due to the absence of enforceable Site Contracts
therefor, all of which will be used by the Accountants to establish the
amount of the Purchase Price.
2.03 PAYMENT.
The Purchase Price shall be paid as follows:
(i) $62,500 paid contemporaneously with the execution of
this Agreement, which payment shall be non-refundable in the
event the transactions contemplated hereby are not consummated
for any reason, except that the Sellers shall refund the full
amount paid herewith in the event any of the representations,
warranties or statements made herein or in any document,
information or exhibit furnished under this Agreement or in
connection with the transactions contemplated hereby, contains
any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements or facts contained
therein not misleading, which refund obligation shall be joint
and several as between the two Sellers, and
(ii) $37,500 payable on or before 5:00 p.m. Philadelphia
Time, Tuesday, May 12, 1998, and
(iii) $3,700,000 payable at Closing in cash, by
certified check or by wire transfer pursuant to Sellers'
instructions, and
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(iv) the balance, if any, to be paid in full no later than
ten (10) days after the Report Date, all as more fully set forth
in the form of promissory note attached hereto as EXHIBIT A (the
"Note"). The Note shall have an initial principal value of
$500,000 and shall be subject to reduction in an amount, if any,
by which $4,300,000 exceeds the amount of the Purchase Price as
determined by the Accountants. Further, the Note shall be
secured by either (i) an irrevocable letter of credit ("LC"),
(ii) a financial performance bond, ("Bond") or (iii) a cash
escrow ("Escrow") as determined by the Purchaser in its sole
discretion and having terms reasonably acceptable to Sellers (in
either case, the "Security Document"), a copy of which in draft
form shall be provided to Sellers no less than ten (10) days
prior to the Closing.
(v) The LC, Bond or Escrow will provide that the initial
draw by Sellers shall be in the amount directed in writing by the
Accountants. In the event either the Purchaser or Sellers
believe the Accountants' determination is incorrect by an amount
in excess of $10,000 the parties agree to meet to resolve the
dispute amicably. In the event an agreement is not reached
within 30 days after the LC, Bond or Escrow is initially drawn
against, the parties agree to submit the matter for binding
resolution in accordance with the Rules of the American
Arbitration Association in a proceeding to be venued in Chicago,
Illinois. The parties to such proceeding hereby agree to equally
share the fees payable to the arbitration panel but shall
otherwise be solely responsible for their respective costs in
connection with such proceeding. Until such time as the parties
amicably resolve the dispute or the arbitration decision is
rendered the balance of the LC, Bond, or Escrow shall remain in
place as security for the Note.
2.04 NO ASSUMPTION OF LIABILITIES. In connection with this Agreement,
neither Purchaser nor any affiliate of Purchaser is assuming or agreeing to
assume or discharge any liability or obligation of Sellers or Shareholders
whatsoever, whether now existing or hereafter incurred, including, without
limitation, any liability or obligation relating to any of the Assets or
the sale thereof, or pursuant to any lease, for the Sellers' office located
at Xxx Xxxx, 000 X. Xxxx, Xxxxxxxxxxx, Xxxxxxxxxxxx or otherwise, pursuant
to which either of the Sellers or either of the Shareholders is a party
except for liabilities assumed as set forth on Schedule 4.04 attached
hereto.
ARTICLE III
CLOSING
3.01 TIME AND PLACE. Subject to satisfaction or waiver of the
conditions to closing set forth in Article VII, below, the closing of the
transaction contemplated by this Agreement
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(the "Closing") shall take place at such time and location as shall be
agreed to by Sellers and Purchaser, but in no event later than
June 30, 1998.
3.02 DELIVERIES. At or before the Closing, and as a condition
precedent to Closing, unless waived in writing by the receiving party:
(a) Sellers shall deliver to Purchaser a fully-executed Xxxx of
Sale in the form attached as EXHIBIT B, and any other document or
instrument reasonably requested by Purchaser to evidence the sale and
transfer of any of the Assets free and clear of any and all claims, liens
or encumbrances of any kind.
(b) Xxxxxx shall execute and deliver to Purchaser an Employment
Agreement in the form of EXHIBIT C (the "Employment Agreement").
(c) The warranties and representations set forth in Article IV,
below, shall be true and correct on the date of Closing, as if then made,
and the Sellers shall deliver to Purchaser a certificate to that effect
signed by its chief executive officer and chief financial officer.
(d) Possession of the Assets shall be relinquished to Purchaser
by Sellers at the Closing.
(e) Purchaser shall deliver the payment required to be paid at
Closing pursuant to Section 2.03(ii), above, and the Note and Security
Document.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS AND SHAREHOLDERS
To induce Purchaser to consummate the transactions contemplated by
this Agreement, the Sellers and Shareholders, jointly and severally, warrant,
represent and covenant with and to Purchaser as follows, all of which
representations, warranties and covenants are made as of the date of this
Agreement and as of the date of Closing:
4.01 CORPORATE STANDING. Each of the Sellers is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite power, authority,
permits and franchises to own, lease and operate its properties and to
carry on the Business as now being conducted. Each of the Sellers is duly
qualified and in good standing as a foreign corporation in all other states
where the character of its properties or the nature of the Business makes
such qualification necessary.
4.02 AUTHORIZATION OF AGREEMENT AND ENFORCEABILITY. The execution and
delivery of this Agreement by each of the Sellers has been duly authorized
by all necessary corporate action and the execution and delivery of this
Agreement by each of the Shareholders is done
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as their respective free acts and deeds. This Agreement has been duly
and validly executed and delivered by the Sellers and the Shareholders
and constitutes the valid and legally binding obligation of the Sellers
and the Shareholders, enforceable against the Sellers and the
Shareholders in accordance with its terms.
4.03 CHARTER AND BY-LAWS. Each of the Sellers has furnished to
Purchaser a good standing certificate issued by the Secretary of State of
Pennsylvania.
4.04 OWNERSHIP OF ASSETS. The Sellers in the aggregate own all of the
Assets free and clear of any and all liabilities, liens, encumbrances,
restrictions, assessments, obligations, charges and options of any kind
whatsoever (collectively, "Liens") except for Liens identified on Schedule
4.04 attached hereto. The Sellers in the aggregate will have at Closing
good and marketable title to the Assets and the absolute right, power and
capacity to sell, assign and deliver the Assets to Purchaser, free and
clear of any and all Liens, except for Liens identified on Schedule 4.04
attached hereto.
4.05 CAPITALIZATION. All of the issued and outstanding shares of the
capital stock of ESC, and all of the issued and outstanding shares of the
capital stock of DTC, are owned in the aggregate by the Shareholders.
There are no shareholder agreements, understandings, or commitments
relating to the right of the Sellers, respectively, to sell the Assets.
4.06 FINANCIAL CONDITION. SCHEDULE 4.06(a) attached hereto is an
unaudited analysis of pay telephone revenues and expenses for each of the
Sellers for the years ended December 31, 1997 and 1996, and for the
interim period ending on the most recent practicable date (the "Latest
Date"), and each of the Sellers will deliver to Purchaser, at Purchaser's
expense, prior to or at the Closing an audited balance sheet and statement
of income and surplus information for the same periods which will confirm
the unaudited analyses set forth on SCHEDULE 4.06(a) (collectively, the
"Financial Statements"). The Financial Statements are and will be complete
and accurate, have been and will be prepared in accordance with generally
accepted accounting principles, consistently applied, and fairly present
and will fairly present the financial condition and results of operations
of Sellers as of the dates and for the periods indicated. There has been
no material adverse change in the financial condition, properties or
business of either of the Sellers since the Latest Date. Neither of the
Sellers has any liabilities, obligations or commitments, whether absolute,
accrued, contingent or otherwise, other than (i) liabilities disclosed or
adequately provided for in the Financial Statements and (ii) liabilities
incurred in the ordinary course of business since the Latest Date which
individually and in the aggregate are not material in amount. At the date
of Closing, neither of the Sellers will have any outstanding liability for
borrowed money, or trade or other payables whether absolute, accrued,
contingent or otherwise, other than those that shall be listed in a
schedule identified as SCHEDULE 4.06(b) to be delivered to Purchaser at
Closing.
4.07 NO MATERIAL ADVERSE CHANGE. The Sellers will notify Purchaser
prior to Closing of any occurrence, event or condition which has occurred
or occurs between the date of the unaudited Financial Statements and the
Closing, and which has a reasonable likelihood
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of adversely affecting the Assets, the Business, business prospects or
the financial condition of Sellers. Since the Latest Date, there have
been no changes in the state, municipal or other non-federal laws,
regulations or orders pertaining to the provision of pay telephone
service or installation of pay telephones which will or would be
likely to materially adversely affect the Business. All known facts
material to the condition (financial or otherwise) of the Business or
the Assets have been disclosed to the Purchaser in this Agreement or
in a writing pursuant hereto.
4.08 CONTRACTS. Each of the Sellers has delivered to Purchaser a
complete and accurate list of all written documents evidencing Liens,
franchises, licenses, leases, employment agreements (including any pension,
profit sharing, bonus or severance pay commitments), and other contracts,
undertakings and commitments to which such Seller is a party or by which it
is bound or to which any of its properties are subject. Each of the
Sellers has performed all material obligations required to be performed by
it under such Liens, franchises, licenses, leases, contracts, agreements
and other undertakings and commitments and is not in material default
thereof. The lease for Sellers' office/warehouse facility can be
terminated by Sellers on no more than thirty (30) days' written notice to
the landlord thereunder, and upon such termination Sellers will have no
further obligation to such landlord. As of the date hereof, eleven (11) of
the Sellers' pay telephones are placed with the Sellers' largest Site
Provider (based on the number of Installed Phones under contract with such
Site Provider). As of the date of Closing, (i) there will be at least 960
Installed Phones and (ii) at least seventy-eight percent (78%) of the
Installed Phones will be subject to a Site Contract. As of the date hereof
and as of the date of Closing, ninety-eight percent (98%) of Sellers' Site
Contracts are and will be in full force and effect, Sellers have not
defaulted on or received either a default notice or a notice of intention
to cancel a Site Contract with respect to more than two percent (2%) of
Sellers' Site Contracts, and ninety-eight percent (98%) of Sellers' Site
Contracts have or will have as of such date the following provisions:
(a) the Site Contract has an initial term of a least five (5)
years, except as indicated on SCHEDULE 4.08(a) attached hereto,
(b) the Site Contract automatically renews at the end of the
current term, except as indicated on SCHEDULE 4.08(b) attached hereto,
(c) Except as indicated on Schedule 4.08(c) attached hereto, the
Site Contract is assignable by Sellers without the consent of the Site
Provider and pursuant to such assignment, the assignee will have all of the
rights, title and interest of the Sellers as though such assignee was an
original party thereto,
(d) Sellers have the exclusive right to operate pay telephones
at the location or locations which are the subject of the Site Contract,
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(e) Except as set forth in Schedule 4.08(a) or 4.08 (b) the Site
Contract cannot be terminated by the Site Provider during the term of the
Site Contract, and
(f) Sellers can terminate the Site Contract in the event the
revenue generated by Sellers' pay telephones at the site is insufficient.
4.09 PROPERTIES. The Sellers in the aggregate own all rights,
properties and other assets necessary to permit Sellers to conduct the
Business in all respects in the same manner as it conducts the Business on
the date hereof, and Sellers in the aggregate have good and marketable
title to all of the Assets and other properties used by them in the
Business, subject to no Liens, leases, mortgages, pledges or charges of any
kind, except as otherwise disclosed in this Agreement or in Schedule 4.04.
All of the tangible Assets are in good working order and repair excluding
normal wear and tear, are of merchantable quality, and are fit for the
particular purpose for which they are intended to be used.
4.10 INSURANCE. Each of the Sellers has delivered or will deliver on
or prior to Closing to Purchaser a complete and accurate schedule listing
and briefly describing all policies of fire, liability, automobile and
other insurance maintained by such Seller. Such policies are in amounts to
provide coverages customarily maintained by similar businesses and are in
full force and effect.
4.11 LITIGATION; COMPLIANCE WITH LAWS. Except as set forth on
SCHEDULE 4.11 hereto, no litigation, proceeding or controversy is pending
or threatened against either of the Sellers before any court or any
governmental agency. Neither of the Sellers has violated or is in
violation of any federal, state, municipal or other laws, regulations or
orders applicable to the Business or Sellers' activities, including but not
limited to those pertaining to the provision of pay telephone service and
installation of pay telephones, and any failure of Sellers to fully comply
with such laws, regulations and ordinances will not have an adverse impact
or prejudicial effect on the Business or the acquisition of the Assets by
Purchaser in accordance with the terms of this Agreement. Sellers' charges
for intrastate long-distance calls comply with all applicable state and
local laws, regulations and orders.
4.12 TAXES. Each of the Sellers has filed all federal, state, county,
municipal, local and other tax returns and information which is required by
law and has paid or made provision for the payment of all taxes due with
respect to such returns and each such return is true and correct. Sellers
and/or Shareholders shall pay all sales, use, ad valorem, value added,
excise, employment, franchise, income and similar tax liabilities
(including any interest and penalties) pertaining to the Business or the
Assets for all periods up to and including the date of Closing. In
addition, Sellers and/or Shareholders shall pay any and all sales, income
and other taxes payable by Sellers in connection with the transfer of the
Assets to the Purchaser. Neither of the Sellers has been notified that its
federal or state income tax returns have been audited by the Internal
Revenue Service or any applicable state revenue department, and neither of
the Sellers has waived any statute of limitations governing federal or
state income tax claims. All taxes, charges, levies and assessments which
either of the
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Sellers is required by law to withhold or collect have been duly withheld
or collected, and to the extent required, have been paid over to the
proper governmental authorities or are held in separate bank accounts for
such purpose.
4.13 OTHER AGREEMENTS. Neither the execution nor the delivery of this
Agreement by the Sellers and Shareholders, nor the performance of any of
their respective obligations hereunder, will result in a breach or
violation of any term or provision of or constitute a default under the
charter or By-laws of either of the Sellers or any indenture, mortgage or
other agreement or instrument to which either of the Sellers or either of
the Shareholders is a party.
4.14 BOOKS AND RECORDS. All of the books of account and other
financial and corporate records of both Sellers have been or prior to
Closing will be made available to Purchaser and its counsel and are in all
material respects complete and correct, are maintained in accordance with
customary business practices, and are accurately reflected in the Financial
Statements.
4.15 LABOR DISPUTES. Each of the Sellers is in compliance with all
laws respecting employment and employment practices, terms and conditions
of employment, and wages and hours and neither of the Sellers is engaged in
any unfair labor practices or has discriminated on the basis of age, sex,
race, religion or national origin in its employment conditions or
practices. There is no unfair labor practice or discrimination complaint
against either of the Sellers pending before or threatened before any
board, department, commission or agency, nor does any basis therefor exist.
4.16 NO BROKERS OR FINDERS. Neither the Sellers nor the Shareholders
have incurred any obligation or liability, contingent or otherwise, for any
broker's or finder's fees or commissions, or other like payments, in
connection with their respective execution and delivery of this Agreement
or the Sellers' sale of the Assets to Purchaser.
4.17 INTELLECTUAL PROPERTY. Neither of the Sellers is a party to any
intellectual property agreements to which the Assets or its use of the
Assets are subject, and the Sellers' use of the Assets does not infringe
on the protected intellectual property rights of others.
4.18 CHARGES FOR INTERSTATE CALLS. Sellers' charges for interstate
calls made from their pay telephones do not exceed $5.00 for the first
three minutes.
4.19 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation, warranty
or statement of the Sellers or the Shareholders in this Agreement or in any
document, information, exhibit or schedule furnished under this Agreement
or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements or facts contained therein
not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As of the date of this Agreement and as of the date of Closing,
Purchaser represents and warrants to the Sellers as follows:
5.01 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota with
full power and authority to conduct the business conducted by it in the
manner in which such business has been conducted.
5.02 AUTHORITY. The execution, delivery and performance of this
Agreement and all transactions contemplated by this Agreement by Purchaser
have been duly authorized by all necessary corporate action. This
Agreement shall be a valid and binding obligation of Purchaser, enforceable
in accordance with its terms, except as limited by bankruptcy,
reorganization, insolvency, moratorium, or other similar laws presently or
hereafter in effect affecting the enforcement of creditors' rights
generally and subject to general equitable principles. Neither the
execution nor the delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement shall conflict with or result
in a breach of the charter or By-laws of Purchaser or any instrument or
agreement binding on Purchaser.
5.03 RETENTION OF EMPLOYEES. Purchaser will not reduce the Sellers'
work force in place as of the date of Closing and for the six (6) months
thereafter; provided however, individual employees may be terminated for
breach of their employment duties or failure to adhere to employment
policies and procedures.
ARTICLE VI
ACTIONS PENDING THE CLOSING
Between the date of this Agreement and the Closing, the parties agree
that they shall conduct themselves as follows:
6.01 CONTINUED CONDUCT OF BUSINESS. The Sellers shall, and the
Shareholders shall cause the Sellers to:
(a) conduct the Business only in the usual and ordinary course;
(b) refrain from amending the charter or By-laws of either of
the Sellers;
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(c) except as conducted in the ordinary course of business,
refrain from making any purchases, sales or transfers of any material
properties; entering into any material contracts or commitments;
mortgaging, pledging, hypothecating, subjecting to a Lien, assigning or
otherwise encumbering any of the Assets or other properties of either of
the Sellers;
(d) refrain from making any change in the compensation or
benefits payable to any of the employees or agents of either of the Sellers
or making any new bonus payment or arrangement or benefit to or with any of
them;
(e) preserve the present relationships with Sellers' customers,
merchants, suppliers and other persons having business dealings with the
Sellers;
(f) maintain the Assets in customary repair, order and
condition;
(g) maintain in force existing insurance policies; and
(h) refrain from selling any of the Assets out of the ordinary
course, change the character of the Business, or take actions which would
materially increase the operating expenses of the Business.
6.02 ACCESS TO RECORDS. Purchaser's representatives, attorneys and
accountants shall have reasonable access to the records and files, audits
and properties of Sellers as well as all information otherwise pertaining
to the Assets and to the business and affairs of Sellers, which information
shall be deemed confidential and shall not be disclosed to any third party
without Sellers' consent. In the event the transactions contemplated
herein are not consummated, Purchaser's representatives, attorneys and
accountants shall return to Sellers all copies of any such information
obtained by them.
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ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
7.01 PURCHASER'S CONDITIONS. Purchaser shall not be required to close
the transaction contemplated by this Agreement unless the following
conditions have been satisfied or waived in writing by Purchaser:
(a) Each of the warranties and representations made by the
Sellers and the Shareholders herein are true and correct;
(b) The Sellers and the Shareholders, respectively, shall have
complied with the covenants required by Article VI, above, and all other
conditions of Closing which are contained in this Agreement;
(c) The Sellers shall have delivered all of the items which are
to be delivered and performed all of the things to be done by it at or
prior to the Closing;
(d) Purchaser shall have received all regulatory approvals
necessary to complete the transactions contemplated hereby;
(e) Sellers shall have delivered to Purchaser a schedule listing
all of the Installed Phones;
(f) Sellers shall have delivered to Purchaser SCHEDULES 2.01(a)
AND 4.06(b), the audited Financial Statements described in Section 4.06,
above, and the insurance policies described in Section 4.10, above; and
(g) Purchaser's Board of Directors shall have approved this
Agreement and the transactions contemplated hereby.
In the event that one or more of the foregoing conditions is not
fulfilled as of the date of Closing, Purchaser may, by written notice to
the Sellers on or prior to the date of Closing, elect not to consummate the
transactions provided for in this Agreement. Notwithstanding the
foregoing, the provisions of Section 2.03(i) and (ii) shall remain in full
force and effect.
7.02 SELLERS' CONDITIONS. The Sellers shall not be required to close
the transaction contemplated by this Agreement unless the following
conditions have been satisfied or waived in writing by the Sellers:
(a) Each of the warranties and representations made by Purchaser
herein are true and correct;
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(b) Purchaser shall have complied with all other conditions of
Closing which are contained in this Agreement; and
(c) Purchaser shall have delivered all of the items which are to
be delivered and performed all of the things to be done by it at the
Closing.
In the event that one or more of the foregoing conditions is not
fulfilled as of the date of Closing, the Sellers may, by written notice to
Purchaser on or prior to the date of Closing, elect not to consummate the
transactions provided for in this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.01 SELLERS' INDEMNIFICATION. The Sellers and the Shareholders,
jointly and severally, agree to indemnify Purchaser and its directors,
officers, employees and agents, and their successors and assigns, against
any and all liabilities, claims or obligations, including costs, expenses
and attorneys' fees, of or against Purchaser, whether accrued, absolute,
contingent or otherwise, arising from, related to or caused by the Sellers'
or the Shareholders' breach of this Agreement or any of the warranties,
representations or covenants of them hereunder, or Sellers' ownership and
operation of the Assets at any time prior to the Closing; provided,
however, that in the event the removal from service of a pay telephone
acquired by Purchaser hereunder arises from, relates to or is caused by the
breach of any of the representations and warranties of Sellers and
Shareholders set forth in Article IV hereof at any time while such
representations and warranties remain in effect (a "Claim for Removed
Phones"), then the damages payable therefor to Purchaser shall be, and be
limited to, an amount per phone so removed equal to the product of:
(a) (i) the Purchase Price (as the same may be adjusted pursuant to the
provisions of Sections 2.01(a) and (c), above), DIVIDED BY
(ii) the number of pay telephones acquired by Purchaser hereunder,
TIMES
(b) (i) the difference between 28 and the number of full months elapsed
between the date of Closing and the date such phone is removed from
service, DIVIDED BY
(ii) 28.
The Sellers and the Shareholders, jointly and severally, shall further
indemnify Purchaser, and its directors, officers, employees and agents, and
their successors and assigns, against
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any and all loss, liability and expense, including reasonable attorneys'
fees, resulting from or arising out of taxes levied, imposed or assessed
by any governmental authority prior to and after the date of Closing
with respect to the income and operations of Sellers for all periods
prior to the date of Closing.
Purchaser shall give notice to the Sellers with respect to each claim
for indemnification hereunder specifying the amount and nature of the
claim, and of any matter which reasonably appears likely to give rise to an
indemnification claim. Failure to give timely notice of a matter which may
give rise to an indemnification claim shall not affect the right of
Purchaser to indemnity; provided, however, that Purchaser shall not be
entitled to indemnification for any loss, cost, damage, liability or
expense resulting directly from Purchaser's delay in promptly notifying the
Sellers of such matter. Purchaser shall give the Sellers a reasonable
opportunity to defend the same at the Sellers' expense and with counsel of
their own selection; provided that Purchaser shall at all times also have
the right to fully participate in the defense at its own expense. If the
Sellers shall, within a reasonable time after notice, fail to defend,
Purchaser shall have the right, but not the obligation, to undertake the
defense of, and to compromise or settle the claim or other matter on
behalf, for the account, and at the risk, of the Sellers and the
Shareholders. If the claim is one that cannot by its nature be defended
solely by the Sellers, then Purchaser shall make available all information
and assistance that the Sellers may reasonably request. Except with the
prior written consent of Purchaser, the Sellers shall not, in defending any
claim, enter into any settlement by which Purchaser is to be bound. The
Sellers shall pay to Purchaser any amounts due hereunder within twenty (20)
days after final judgment or compromise and settlement for payment of a
claim under this Section 8.01; provided, however, that Purchaser shall be
entitled to offset amounts owed by the Sellers and/or the Shareholders
under this Section 8.01 against amounts next due and owing to the Sellers
under this Agreement, the Note or any other agreement between Purchaser, on
the one hand, and either of the Sellers or either of the Shareholders, on
the other hand, and such offset(s) shall be in addition to any other
remedies available to Purchaser. Notwithstanding the foregoing, any Claim
for Removed Phones shall be satisfied first with an offset against the
amount, if any, due and owing to the Sellers under the Note and then as
otherwise provided herein.
8.02 PURCHASER'S INDEMNIFICATION. The Purchaser agrees to indemnify
Sellers and their respective directors, officers, employees and agents, and
their successors and assigns, against any and all liabilities, claims or
obligations, including costs, expenses and attorneys' fees, of or against
either of the Sellers, whether accrued, absolute, contingent or otherwise,
arising from, related to or caused by the Purchaser's breach of this
Agreement or any of the warranties, representations or covenants of it
hereunder, or Purchaser's ownership and operation of the Assets at any time
subsequent to the Closing. The Purchaser shall further indemnify the
Sellers, and their respective directors, officers, employees and agents,
and their successors and assigns, against any and all loss, liability and
expense, including reasonable attorneys' fees, resulting from or arising
out of taxes levied, imposed or assessed by any governmental authority
after the date of Closing with respect to the income and operations of
Purchaser for all periods after the date of Closing.
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Sellers shall give notice to the Purchaser with respect to each claim
for indemnification hereunder specifying the amount and nature of the
claim, and of any matter which reasonably appears likely to give rise to an
indemnification claim. Failure to give timely notice of a matter which may
give rise to an indemnification claim shall not affect the right of Sellers
to indemnity; provided, however, that Sellers shall not be entitled to
indemnification for any loss, cost, damage, liability or expense resulting
directly from Sellers' delay in promptly notifying the Purchaser of such
matter. Sellers shall give the Purchaser a reasonable opportunity to
defend the same at the Purchaser's expense and with counsel of its own
selection; provided that Sellers shall at all times also have the right to
fully participate in the defense at their own expense. If the Purchaser
shall, within a reasonable time after notice, fail to defend, Sellers shall
have the right, but not the obligation, to undertake the defense of, and to
compromise or settle the claim or other matter on behalf, for the account,
and at the risk, of the Purchaser. If the claim is one that cannot by its
nature be defended solely by the Purchaser, then Sellers shall make
available all information and assistance that the Purchaser may reasonably
request. Except with the prior written consent of Sellers, the Purchaser
shall not, in defending any claim, enter into any settlement by which
Sellers are to be bound. The Purchaser shall pay to Sellers any amounts
due hereunder within twenty (20) days after final judgment or compromise
and settlement for payment of a claim under this Section 8.02.
ARTICLE IX
COVENANT NOT TO COMPETE
For a period of five (5) years after the date of Closing, neither the
Sellers nor the Shareholders shall directly or indirectly, either as a
principal, agent, employee, employer, stockholder, co-partner or in any other
individual or representative capacity whatsoever, engage in the States of
Pennsylvania, New Jersey or Delaware in any business directly competitive with
or similar to Purchaser's business as it exists on the date of Closing, and
neither the Sellers nor the Shareholders will directly or indirectly, either as
principal, agent, employee, employer, stockholder, co-partner or in any other
individual or representative capacity whatsoever, solicit, call on, take away,
divert or assist any person in so soliciting, diverting, calling on, or taking
away any customers of Purchaser, employ any of the then or former employees of
Purchaser (including individuals employed by either of the Sellers as of the
date hereof or as of the date of Closing but who subsequently become employees
of Purchaser), or induce any such employees to terminate their employment with
Purchaser. Notwithstanding the foregoing, (i) Purchaser acknowledges Xxxxxx'x
existing investment in Payphone Services, Inc., a New Jersey corporation, and
hereby agrees that Xxxxxx may make additional investments therein but only to
maintain the percentage ownership thereof that he has on the date hereof and,
(ii) Purchaser acknowledges Xxxxx'x existing investment in "Penn Triple S
Vending" and hereby agrees that Xxxxx may (a) make additional investments
therein but only to maintain the percentage ownership thereof that he has on the
date hereof, and (b) provide assistance thereto with respect to its vending
business other than its pay telephone services
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business, (iii) Purchaser further agrees that Xxxxx may engage in any
business directly competitive with or similar to Purchaser's business as it
exists on the date hereof and on the following terms: Xxxxx, on his own
behalf or on behalf of another, may continue to acquire telephones and site
locations and he will pay for all costs associated with installing the
telephones at the new locations. Purchaser will do the installation and
maintain the equipment. Profits from these sites will be divided equally
between Xxxxx and the Purchaser after a $25 monthly per telephone deduction
for service and all other expenses associated with operating the site. After
such telephones have been in service for a full 12 months, Purchaser shall
have the option for a period of 30 days following each 12 month period for
each telephone to purchase the acquired telephones for 28 times cash flow,
which shall be defined as in section 2.01(a) hereof. If Purchaser elects not
to purchase an acquired telephone within said 30 days, it shall belong to
Xxxxx for all purposes. (iv) Purchaser further agrees that Xxxxxx may engage
in any business directly competitive with or similar to Purchaser's business
as it exists on the date of Closing provided that (a) Xxxxxx has not been
employed by Purchaser for at least six (6) months, and (b) Xxxxxx, on his own
behalf or on behalf of another, may thereafter acquire telephones and site
locations and he will pay for all costs associated with installing the
telephones at the new locations. Purchaser will do the installation and
maintain the equipment. Profits from these sites will be divided equally
between Xxxxxx and the Purchaser after a $25 monthly per telephone deduction
for service and all other expenses associated with operating the site. After
such telephones have been in service for a full 12 months, Purchaser shall
have the option for a period of 30 days following each 12 month period for
each telephone to purchase the acquired telephones for 28 times cash flow,
which shall be defined as in section 2.01(a) hereof. If Purchaser elects not
to purchase an acquired telephone within said 30 days, it shall belong to
Xxxxxx for all purposes. Notwithstanding anything to the contrary herein,
neither Xxxxx nor Xxxxxx shall for a period of thirteen (13) months following
the installation of each phone offer to sell such phone(s) to any other
party. The covenants contained herein shall be construed and interpreted in
any judicial proceeding to permit its enforcement to the maximum extent.
Each of the Sellers and each of the Shareholders agree that the restraint
imposed is necessary for the reasonable and proper protection of Purchaser
and its affiliates, and that said restraint is reasonable in terms of subject
matter, duration, and geographic scope. It is understood by and between the
parties that these restrictive covenants are an essential element of this
Agreement and that, but for such covenant, Purchaser would not have entered
into this Agreement. Without intending in any way to limit the remedies
available to Purchaser, each of the Sellers and each of the Shareholders
further understand and agree that damages at law may be an insufficient
remedy to Purchaser if either of them breach their respective covenants not
to compete and that Purchaser may have injunctive relief in any court of
competent jurisdiction to restrain the breach or the threatened breach of or
otherwise specifically to enforce the covenants contained in this Article IX.
ARTICLE X
MISCELLANEOUS
10.01 ADDITIONAL DOCUMENTS. Each of the parties agrees to execute
such additional documents as may reasonably be necessary to carry out the
purposes and intent of this Agreement and to fulfill the obligations of the
respective parties under this Agreement.
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10.02 BINDING ON SUCCESSORS. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties to this Agreement and their
respective successors and assigns.
10.03 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
10.04 ENTIRETY OF AGREEMENT. This Agreement states the entire
agreement of the parties, merges all prior negotiations, agreements and
understandings and states in full all representations, warranties and
covenants which have induced this Agreement, there being no
representations, warranties or covenants other than those stated in this
Agreement. Each party agrees that in dealing with third parties, no
contrary representations will be made.
10.05 AMENDMENT. This Agreement may be modified or amended only by an
instrument in writing, duly executed by the parties.
10.06 SURVIVAL OF REPRESENTATION AND WARRANTIES. The representations,
warranties, covenants and agreements set forth in this Agreement shall
survive for twenty-eight (28) months after the Closing; provided, however,
that the representations and warranties in Section 4.12, above, shall
survive for six (6) years after the Closing.
10.07 HEADINGS. The headings in this Agreement are included for
convenience only and shall not constitute a part of this Agreement.
10.08 NOTICES. Any notice or other communication required or
permitted under any provision of this Agreement shall be in writing and
shall be personally delivered or sent by certified mail, return receipt
requested, and addressed as follows:
To Sellers and
Shareholders: 000 X. Xxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
with a copy to: Xxxxx Xxxxxxx
0000 Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxxxx, XX 00000
To Purchaser: 0000 00xx Xxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attn: Xxxx Xxxxxx
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with a copy to: Xxxxxx X. Xxxxxxxx
Robins, Kaplan, Xxxxxx & Xxxxxx L.L.P.
0000 XxXxxxx Xxxxx
000 XxXxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Either party may change its address by notice given to the other party as
specified above.
10.09 COUNTERPARTS. This Agreement may be executed in multiple
counterparts. Each counterpart shall be deemed an original agreement, but
all counterparts shall constitute only a single agreement.
10.10 GOVERNING LAW AND REMEDIES. This Agreement shall be construed
by and in accordance with the laws of the Commonwealth of Pennsylvania.
Because a breach of the provisions of this Agreement may not adequately be
compensated by money damages, any party shall be entitled, either before or
after the Closing, in addition to any other legal right or remedy available
to it, to an injunction restraining such breach or a threatened breach and
to specific performance of any such provision of this Agreement, and in
either case no bond or other security shall be required in connection
therewith, and the parties hereby consent to the issuance of such an
injunction and to the ordering of specific performance.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE SELLERS:
XXXXXX XXXXXX CORPORATION
By: /s/ Xxx Xxxxxx
------------------------------------
Its President
------------------------------------
DRAKE TELEPHONE CO.
By: /s/ Xxx Xxxxxx
------------------------------------
Its President
------------------------------------
THE SHAREHOLDERS:
/s/ Xxx Xxxxxx
---------------------------------------
Xxx Xxxxxx
/s/ Xxx Xxxxx
---------------------------------------
Xxx Xxxxx
THE PURCHASER:
CHOICETEL COMMUNICATIONS, INC.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Xxxxxxx X. Xxxxxx
President
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