Exhibit 10.25
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
INTRODUCTION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 5th day of December, 1999 by and among
XxxxxxxXxxxxx.xxx, Inc., a Delaware corporation (the "Parent"), BOL Acquisition
Co. II, Inc., a New York corporation ("BOL"), (the Parent and BOL are sometimes
collectively referred to herein as the "Buyer") Telesupport, Inc., a New York
corporation, (the "Company"), and Xxxxxx Xxxxxxxx and Xxxxx Xxxxxx, the holders
of all of the issued and outstanding shares of capital stock of the Company (the
"Stockholders").
BACKGROUND
A. The Parent, BOL and the Company intend to effect a merger of the Company into
BOL in accordance with this Agreement and the New York Business Corporation Law
(the "Merger"). Upon consummation of the Merger, the Company will cease to
exist, and BOL will continue to exist as the surviving corporation of the
Merger.
B. It is intended that the Merger qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and that this Agreement constitute a plan of reorganization for
such purposes.
C. This Agreement has been adopted and approved by the respective boards of
directors of the Parent, BOL and the Company, and the shareholders of BOL and
the Stockholders have each unanimously approved this Agreement by written
consent.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual and dependent promises
and the representations and warranties hereinafter contained, the parties hereto
agree as follows:
SECTION 1 DESCRIPTION OF THE MERGER TRANSACTION.
1.1 MERGER OF THE COMPANY INTO BOL. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
SECTION 1.2), the Company shall be merged with and into BOL, and the separate
existence of the Company shall cease.
1.2 EFFECTIVE TIME. The effective time of the Merger (the "Effective
Time") shall occur at the time a properly executed certificate of merger for the
merger of the Company into BOL, conforming to the requirements of the New York
Business Corporation Law (the "Merger Certificate") shall be delivered and
accepted for filing by the Secretary of State for New York. At the Effective
Time, the Company shall be merged with and into BOL in accordance with the
Merger Certificate and the separate existence of the Company shall cease and BOL
shall continue as the surviving corporation (the "Surviving Corporation").
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(a) The Certificate of Incorporation of BOL shall become the
Certificate of Incorporation of the Surviving Corporation; and, subsequent to
the Effective Time, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until changed as provided by law.
(b) The bylaws of BOL shall become the bylaws of the Surviving
Corporation; and, subsequent to the Effective Time, such bylaws shall be the
bylaws of the Surviving Corporation until they shall thereafter be duly amended.
(c) The Board of Directors of the Surviving Corporation shall
be set forth on EXHIBIT 1.3 hereto and shall hold office subject to the
provisions of the laws of the Surviving Corporation's state of incorporation and
of the Certificate of Incorporation and bylaws of the Surviving Corporation.
(d) The officers of the Surviving Corporation shall be set
forth on EXHIBIT 1.3 hereto, each of such officers to serve, subject to the
provisions of the Certificate of Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the New York Business
Corporation Law. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of BOL shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of the Company shall be merged with
and into BOL, and BOL, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time, the separate existence of the Company shall
cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all taxes, including those due and owing and those accrued, and all other
choses in action, and all and every other interest of or belonging to or due to
the Company and BOL shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and BOL; and the title to any real estate, or interest
therein, whether by deed or otherwise, vested in the Company and BOL, shall not
revert or be in any way impaired by reason of the Merger. Except as otherwise
provided herein, the Surviving Corporation shall thenceforth be responsible and
liable for all the liabilities and obligations of the Company and BOL and any
claim existing, or action or proceeding pending, by or against the Company or
BOL may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in its place. Neither the rights of creditors nor
any liens upon the property of the Company or BOL shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and BOL shall
attach to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
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(a) As of the Effective Time, all of the shares of capital
stock of the Company, no par value per share ("Company Stock"), issued and
outstanding immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, shall be automatically
converted to, in the aggregate, that number of shares of common stock of the
Parent, par value $.01 per share ("Parent Stock") equal to $3,000,000 divided by
the average NASDAQ National Market price (as defined below) of the Parent's
common stock for the twenty (20) business days ending on the second business day
immediately preceding the Closing date (the "Merger Consideration").
(b) The "average NASDAQ National Market price" shall mean the
average of the closing sales prices or, in case no such reported sale takes
place on any given day, the average of the reported closing bid and asked prices
for such day. In either case, the prices would be as reported by The Nasdaq
Stock Market, Inc.
1.6 DELIVERY OF MERGER CONSIDERATION/ESCROW OF SHARES/SET-OFF.
(a) At the Closing, the Stockholders shall deliver their
certificate(s) representing all outstanding shares of Company Stock to counsel
for the Parent to hold in escrow until the Effective Time. At the Effective
Time, the Stockholders shall receive, pro rata, the aggregate Merger
Consideration set forth in SECTION 1.5 above provided, however, that a number of
shares of Parent Stock included in the aggregate Merger Consideration with a
value of $1,125,000 (the "Escrow Shares") shall be delivered into escrow with
the Parent's counsel (the "Escrow Agent") of which (i) $1,000,000 shall be held
for a period of one year from the Closing Date and (ii) $125,000 shall be held
for a period of two years from the Closing Date, all pursuant to the Escrow
Agreement attached hereto as EXHIBIT 1.6. In addition to all other rights and
remedies of the Parent, BOL and the Surviving Corporation for breach by the
Company or the Stockholders of the representations and warranties of the Company
and the Stockholders herein, both at law and in equity, the Parent shall have
the right to set-off against the Escrow Shares for any claims of the Parent or
the Surviving Corporation arising under the indemnity provisions of SECTION 12
below (pending resolution of such claims as provided in Section 13.6 below) and
in accordance with the Escrow Agreement. Such right of setoff shall be in
addition to the Parent or BOL's right to seek damages or obtain any other remedy
at law or in equity to which the Parent or BOL would be entitled by virtue of
such breach.
(b) The Stockholders shall deliver to counsel for the Parent
at the Closing the certificates representing Company Stock, duly endorsed in
blank by the Stockholders or accompanied by duly executed stock powers, to hold
in escrow until the Effective Time. The Stockholders shall cure any deficiencies
with respect to the endorsement of the certificates or other documents of
conveyance with respect to Company Stock or with respect to the stock powers
accompanying any Company Stock.
(c) At the Effective Time, counsel for the Parent shall
release the certificates representing shares of Company Stock to the Parent and
such certificates shall be canceled. As of the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of the Company thereafter.
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(d) No certificates representing fractional shares of Parent
Stock shall be issued upon the surrender of certificates which, prior to the
Effective Time, represented shares of Company Stock. In lieu of any such
fractional shares, the Stockholders will be paid an amount in cash based on the
average NASDAQ National Market Price (as defined above) of Parent Stock for the
20 business days ending on the second business day preceding the Closing Date.
1.7 CLOSING. The closing of the Merger (the "Closing") shall occur on or
before the tenth business day after satisfaction or waiver of all of the
conditions set forth in SECTION 6 AND 7 hereof at the offices of Xxxxx &
Xxxxxxx, LLP, 000 Xxxxx Xxxx Xxxxxxxx, Xxxxxxxxxx, Xxxxx Xxxxxx 00000; at 10:00
a.m., or at such other place and time or date as may be mutually agreed upon by
the parties hereto. The actual date of the Closing is referred to herein as the
"Closing Date". At the Closing, the Parent, BOL and the Company shall take all
actions necessary to effect the Merger (including filing the Merger Certificate
which shall become effective at the Effective Time) and to effect the conversion
and delivery of shares referred to in SECTION 1.6 hereof. Simultaneously with
the Closing, BOL Acquisition Co. III, Inc., a wholly owned subsidiary of the
Parent ("BOL III") shall purchase substantially all of the assets and assume
certain liabilities of Telecon Communications Corp., a New York corporation
("Telecon").
SECTION 2 [INTENTIONALLY OMITTED]
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement to
the Parent and BOL to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and the Stockholders hereby jointly and
severally make to the Parent and BOL the representations and warranties
contained in this SECTION 3, which shall be true and correct as of the date
hereof and as of the Closing Date.
3.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Certificate of
Incorporation of the Company as amended to date, certified by the Secretary of
New York and the bylaws certified by the Secretary of the Company and heretofore
delivered to the Parent's counsel, are complete and correct, and no amendments
thereto are pending. The stock records and minute books of the Company which
have heretofore been delivered to the Parent's counsel are correct and complete.
The Company is duly qualified to do business as a foreign corporation in each
jurisdiction in which it owns, operates or leases real property and in each
other jurisdiction in which the failure to be so qualified or registered would
have a material adverse effect on the properties, assets, business, financial
condition and prospects of the Company.
3.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in SCHEDULE 3.3, the
Company has no direct or indirect subsidiaries and owns no securities issued by
any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Except as set forth in SCHEDULE 3.3, the Company does not own or have any direct
or
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indirect interest in or control over any corporation, partnership, joint venture
or entity of any kind. Except as set forth in Schedule 3.3, the Stockholders do
not own or have any direct or indirect interest in or control over any
corporation, partnership, joint venture or entity of any kind which is in the
business of selling internet access service, web site design or hosting
services, long distance or local telecommunications products or services, or any
other business which is related to or could reasonably be beneficial to the
operations of the Company, the Parent or BOL except for investments in publicly
traded securities in which the Stockholder owns no more than 5% of the
outstanding common stock of the issuer of such securities. For purposes of this
Agreement, the term "subsidiary" means, with respect to any person, any
corporation 20% or more of the outstanding voting securities of which, or any
partnership, joint venture or other entity 20% or more of the total equity
interest of which, is directly or indirectly owned by such person.
3.4 CAPITAL STOCK. The total authorized capital stock of the Company
consists solely of the shares listed on SCHEDULE 3.4. All of the issued and
outstanding shares of the Company Stock are duly authorized and validly issued,
are fully paid and nonassessable, are owned of record and beneficially by the
Stockholders as set forth in SCHEDULE 3.4, and all such shares were offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance of securities. Further, none of
such shares were issued in violation of the preemptive rights of any past or
present stockholders. No shares of the Company Stock are held in the treasury of
the Company except as set forth on SCHEDULE 3.4. The Stockholders hold of record
and own beneficially all of the Company Stock, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), taxes, security interests, mortgages, pledges,
liens, encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. None of the Stockholders are a party to any
option, warrant, or other contract or commitment that could require any
Stockholder to sell, transfer, or otherwise dispose of any Company Stock (other
than this Agreement). None of the Stockholders are a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of any
Company Stock. SCHEDULE 3.4 contains a complete and correct listing of the
stockholders of the Company at the date hereof, together with their residence
addresses and the number and class of the capital stock of the Company owned by
each such stockholder. There are no outstanding subscriptions, options,
warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
shares of capital stock of any class or other equity interests of the Company.
The Company has never acquired any treasury stock except as set forth on
SCHEDULE 3.4.
3.5 AUTHORITY OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders each have full right, power and
authority to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by it or any of them pursuant to or as
contemplated by this Agreement and to carry out the transactions contemplated
hereby and thereby. The execution, delivery and performance by the Company of
this Agreement and each such other agreement, document and instrument have been
duly authorized by the Company's Board of Directors, and have been approved by
the Stockholders by a unanimous written consent vote. This Agreement and each
agreement,
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document and instrument to be executed and delivered by the Company or by the
Stockholders pursuant to or as contemplated by this Agreement (to the extent it
contains obligations to be performed by the Company and/or the Stockholders)
constitutes, or when executed, delivered and approved by the Company
Stockholders will constitute, valid and binding obligations of the Company
and/or the Stockholders, enforceable in accordance with their respective terms.
The execution, delivery and performance by the Company and/or the Stockholders
of this Agreement and each such other agreement, document and instrument:
(i) does not and will not violate any provision of
the Certificate of Incorporation or bylaws of the Company;
(ii) except as otherwise indicated on SCHEDULE 3.5
hereto, does not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to the Company or require
the Company to obtain any court, regulatory body, administrative agency
or other approval, consent or waiver, or make any filing with, any
federal, state, local or foreign governmental body, agency or official
("Governmental Entity") that has not been obtained or made; and
(iii) except as otherwise indicated on SCHEDULE 3.5 hereto, does
not and will not result in a breach of, constitute a default under, accelerate
any obligation under, or give rise to a right of termination of any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award, whether written or oral, to which the
Company and/or the Stockholders is a party or by which the property of the
Company 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 Company, 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 Company, 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 Company.
Except as disclosed on SCHEDULE 3.5, there are no Stockholder agreements with
respect to the ownership or operation of the Company, and any such agreements
shall be terminated prior to the Closing.
3.6 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. SCHEDULE 3.6(a) lists and describes
briefly all the real property owned or leased by the (the "Real Property").
(i) TITLE. Except as set forth on SCHEDULE 3.6(a), to
the knowledge of the Stockholders, there are no unrecorded mortgages,
deeds of trust, ground leases, security interests or similar
encumbrances, liens, assessments, licenses, claims, rights of first
offer or refusal, options, or options to purchase, or any covenants,
conditions, restrictions, rights of way, easements, judgments or other
encumbrances or matters affecting title to the Real Property. There are
no leases, tenancies or occupancy rights of any kind affecting any of
the Real Property.
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(ii) SECURITY INTERESTS. There is not now, nor, as a
result of the consummation of the transactions contemplated hereby,
will there be, any mortgages, deeds of trust, ground leases, security
interests or similar encumbrances on the Real Property.
(iii) COMMISSIONS. There are no brokerage or leasing
fees or commissions or other compensation due or payable on an absolute
or contingent basis to any person, firm, corporation, or other entity
with respect to or on account of any of the Real Property, and no such
fees, commissions or other compensation shall, by reason on any
existing agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), there is no material defect in the physical condition
of any material improvements located on or constituting a part of any
of the Real Property, including, without limitation, the structural
elements thereof, the mechanical systems (including without limitation
all heating, ventilating, air conditioning, plumbing, electrical,
elevator, security, telecommunication, utility, and sprinkler systems)
therein, the roofs or the parking and loading areas (collectively, the
"Improvements"). All of the Improvements located on or constituting a
part of any of the Real Property, including, without limitation, the
structural elements thereof, the mechanical systems therein, the roofs
and the parking and loading areas are in generally good operating
condition and repair.
(v) UTILITIES. The Company has not received any
written notice of any termination or impairment of the furnishing of,
or any material increase in rates for, services to any of the Real
Property of water, sewer, gas, electric, telecommunication, drainage or
other utility services, except ordinary and usual rate increases
applicable to all customers (or all customers of a certain class) of a
utility provider. The Company has not entered into any agreement
requiring it to pay to any utility provider rates which are less
favorable than rates generally applicable to customers of the same
class as the Company.
(vi) COMPLIANCE. Except as set forth on SCHEDULE
3.6(a), the Company 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, and except in either case as set forth in SCHEDULE 3.6(a)
hereto.
(vii) GOVERNMENT AUTHORIZATIONS. The Company has not
received any notice of any plan, study or effort by any Governmental
Entity which would adversely affect the present use, zoning or value to
the Company of any of the Real Property or which would modify or
realign any adjacent street or highway in a manner materially adverse
to the Company. All facilities have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations, except where the failure to do so would not have a
material adverse effect on the Company.
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(viii) ZONING. The Company has not received any
notice of any zoning violations. All buildings and improvements
situated on the Real Property were built pursuant to validly issued
building permits. Certificates of occupancy were issued for all such
structures as built, and all such structures have been maintained as
built since such certificates were issued.
(ix) REAL PROPERTY TAXES. Except as set forth in said
SCHEDULE 3.6(a), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any
portion thereof, which are outstanding or unpaid. Each property
constituting part of the Real Property is assessed as a separate and
distinct tax lot.
(x) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements affecting
the Real Property or any portion thereof (the "Service Contracts") is
set forth on SCHEDULE 3.6(a). All such Service Contracts are terminable
upon no more than thirty (30) days written notice, at no cost, except
as specified in SCHEDULE 3.6(a).
(b) PERSONAL PROPERTY. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Company and/or Telecon
having a fair market value of at least $10,000 (the "Equipment"), is contained
in SCHEDULE 3.6(b) hereto. All of the Equipment and other machinery, equipment
and personal property of the Company is located on the Real Property or used in
the operation of the Company. Except as specifically disclosed in SCHEDULE
3.6(b) or in the Company Financial Statements (as hereinafter defined), the
Company has good and marketable title to all of the personal property owned by
it. 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 or in the Financial
Statements. The Financial Statements reflect all personal property of the
Company, subject to dispositions and additions in the ordinary course of
business consistent with this Agreement. Except as otherwise specified in
SCHEDULE 3.6(b) hereto, all leasehold improvements, furnishings, machinery and
equipment of the Company are in generally good repair, normal wear and tear
excepted, have been well maintained, and conform in all material respects with
all applicable ordinances, regulations and other laws.
3.7 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has delivered to the Parent the following
financial statements, copies of which are attached hereto as SCHEDULE 3.7:
(i) Combined financial statements of the Company and
Telecon for the fiscal year ended December 31, 1998, compiled by
Washburn, Ellingwood, Xxxxxxx & Thaisz utilizing the accrual method of
accounting and certified by the Vice President of the Company as to the
truth and accuracy of such financial statements with respect to the
representations made in this Section 3.7 (the "Year End Company
Financial Statements"); and
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(ii) Draft management prepared financial statements
of the Company and Telecon as of September 30, 1999 (herein the "Company
Balance Sheet Date") and statements of income, stockholders' equity and
cash flows for the nine (9) months then ended, certified by the Vice
President of the Company as to the truth and accuracy of such financial
statements with respect to the representations made in this Section 3.7
(the "Interim Company Financial Statements", together with the Year-End
Company Financial Statements, the "Company Financial Statements").
The Year-End Company Financial Statements have been prepared in accordance with
GAAP based on the accrual method of accounting (except that the Interim Company
Financial Statements are subject to normal year-end audit adjustments and do not
include footnotes). The Interim Company Financial Statements have been prepared
in accordance with GAAP based on the accrual method of accounting applied
consistently in accordance with the Year End Company Financial Statements
(except that the Interim Company Financial Statements are subject to normal
year-end audit adjustments and do not include footnotes). The Company Financial
Statements present fairly in all respects the financial condition of the Company
at the dates of said statements and the results of their operations for the
periods covered thereby.
(b) As of the Company Balance Sheet Date, the Company had no
material 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 Company Balance Sheet Date) of a type required to be reflected or reserved
against on a balance sheet prepared in accordance with GAAP except liabilities
which are stated or adequately reserved for on the Company Financial Statements
or reflected in Schedules furnished to Parent hereunder as of the date hereof.
(c) As of the date hereof, the Company has no material
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) of a type required to be reflected or reserved
against on a balance sheet prepared in accordance with GAAP except liabilities
(i) stated or adequately reserved for on the appropriate Company Financial
Statement or the notes thereto, (ii) reflected in Schedules furnished to Parent
hereunder on the date hereof or (iii) incurred in the ordinary course of
business of the Company consistent with prior practices.
3.8 TAXES.
(a) The Company 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 Company through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing authority,
whether disputed or not (other than current taxes the liability for which is
adequately
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reserved for on the financial statements provided to the Parent pursuant to
SECTION 3.7 hereof). The Company has no unpaid tax liability for prior tax years
exceeding $25,000 and the Company and the Stockholders agree, jointly and
severally, to indemnify and hold the Buyer and its officers, directors, agents
and affiliates harmless from and against any liability for unpaid taxes of the
Company and the Stockholders.
(b) Except as set forth in SCHEDULE 3.8, the Company has in
accordance with applicable law filed all federal, state, local and foreign tax
returns required to be filed by it through the date hereof and all such returns
correctly and accurately set forth the amount of any Taxes relating to the
applicable period. For every taxable period of the Company, the Company has
delivered or made available to Parent complete and correct copies of all
federal, state, local and foreign income tax returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company.
SCHEDULE 3.8 attached hereto sets forth all federal tax elections under the
Internal Revenue Code of 1986, as amended (the "Code"), that are in effect with
respect to the Company or for which an application by the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company any deficiency or claim for additional Taxes or a claim that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code. The
Stockholders have paid all taxes due and filed all tax returns relating to
distributions from the Company as a "Subchapter S" corporation under the Code.
Further, the Company has at all times maintained its status as a Subchapter S
corporation under the Code, and the Company and the Stockholders will indemnify
and hold harmless BOL and the Parent in respect of any liabilities, costs or
other claims made upon the Buyer by the IRS or any other federal, state or local
governmental entity in respect of any inadvertent termination of the Company's S
Corporation status as a result of any actions by the Company or the Stockholders
since inception of the Company and prior to Closing, including but not limited
to any distributions, stock transfers, or other events that may terminate an S
election under applicable sections of the Code in force at the time of any such
event.
(d) Except as set forth in SCHEDULE 3.8 attached hereto, there
has not been any audit of any tax return filed by the Company, no audit of any
tax return of the Company is in progress, and the Company has not been notified
by any tax authority that any such audit is contemplated or pending. Except as
set forth in SCHEDULE 3.8, no extension of time with respect to any date on
which a tax return was or is to be filed by the Company is in force, and no
waiver or agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code applied to it, (ii) the Company has not agreed
to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise and (iii) the Company has never made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances would obligate it to make any payments, that will not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income tax returns all
10
positions taken therein that could give rise to a penalty for underpayment of
federal Tax under Section 6662 of the Code. The Company has never had any
liability for unpaid Taxes because it is a member of an "affiliated group" (as
defined in Section 1504(a) of the Code). The Company has never filed, nor has it
ever been required to file, a consolidated, combined or unitary tax return with
any entity. The Company is not a party to any tax sharing agreement.
(f) The Company computes its federal taxable income under the
cash basis method of accounting.
(g) For purposes of this SECTION 3.8, all references to
Sections of the Code shall include any predecessor provisions to such Sections
and any similar provisions of federal, state, local or foreign law.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company as of
the respective balance sheet dates in the Company Financial Statements 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. Except as set
forth in SCHEDULE 3.9, the Company has no accounts or loans receivable in excess
of $1,000 from any person, firm or corporation which is affiliated with the
Company. For purposes hereof, "affiliate" means any Stockholder, or any business
entity which controls, or is controlled by, or is under common control with the
Company.
3.10 INVENTORIES. The Company maintains less than $80,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1998 through the date hereof, the Company has
conducted its business only in the ordinary course and consistent with past
practices and except as disclosed in SCHEDULE 3.11 there has not been:
(a) Any change that is material and adverse to the
business, assets, liabilities, results of operations or financial
condition of the Company taken as a whole (a "Material Adverse
Change"); provided that a Material Adverse Change does not include the
impact of any of the following: (A) changes in applicable law of
general applicability or the implementation thereof; (B) actions taken
by the Company with the express written consent of the Buyer; (C)
circumstances affecting the Internet access, long distance telephone,
natural gas sales and related business generally; and (D) the effects
of the transactions contemplated by this Agreement;
(b) Except for the endorsement of checks in the
ordinary course of business, any material contingent liability incurred
by the Company 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 or claim of, the Company
except for the cancellation or compromise of accounts receivable in the
ordinary course of the Company's business not exceeding an aggregate of
$15,000;
11
(c) Any mortgage, encumbrance or lien placed on any
of the properties of the Company 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 Company 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 Company costing more than
$25,000;
(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 Company;
(f) Any declaration, setting aside or payment of any
dividend by the Company, or the making of any other distribution in
respect of the capital stock of the Company, any direct or indirect
redemption, purchase or other acquisition by the Company of its own
capital stock, any issuance or sale of any securities convertible into
or exchangeable for debt or equity securities of the Company or any
grant, issuance or exercise of options, warrants, subscriptions,
preemptive rights, agreements, arrangements or commitments of any kind
for or relating to the issuance, sale, registration or voting of any
shares of capital stock of any class or other equity interests of the
Company;
(g) Any claim of unfair labor practices asserted
against the Company; any change in the compensation (in the form of
salaries, wages, incentive arrangements or otherwise) payable or to
become payable by the Company to any of its officers, employees, agents
or independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment
or arrangement made to or with any of such officers, employees, agents
or independent contractors; any entering into any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any officer, director or employee of the
Company except for employment arrangements providing for salary or
wages of less than $20,000 per annum and any oral agreement terminable
at will by the Company;
(h) Any change with respect to the officers or senior
management of the Company, or any grant of any severance or termination
pay to any officer or employee of the Company;
(i) Any payment or discharge of a material lien or
liability of the Company which was not shown on the Company Financial
Statements or incurred in the ordinary course of business thereafter;
(j) Any obligation or liability incurred by the
Company to any of its officers, directors or stockholders, or any loans
or advances made by the Company to any of its officers, directors,
stockholders, except normal compensation and expense allowances payable
to officers or employees;
12
(k) Any change in accounting methods or practices
other than to comply with new accounting pronouncements, credit
practices or collection policies used by the Company;
(l) Any other material transaction entered into by
the Company 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 Company to take any of the actions specified in paragraphs
(i) through (xii) above.
3.12 BANKING RELATIONS. All of the arrangements which the Company has
with any banking institution are described in SCHEDULE 3.12 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.
3.13 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY
RIGHTS. All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or used in its
respective business as presently conducted (the "Proprietary Rights") are listed
in SCHEDULE 3.13 attached hereto. All of the material patents, registered
trademarks and copyrights of the Company and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in SCHEDULE 3.13: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company 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 adverse claims. The Company has
not received written notice that its present or contemplated activities or
products infringe any such patents, trade names, trademarks or other proprietary
rights of others. Except as set forth in SCHEDULE 3.13: (i) no other person has
an interest in or right or license to use, or the right to license others to
use, any of said patents, patent applications, trade names, trademarks,
copyrights or other proprietary rights; (ii) there are no written claims or
demands of any other person pertaining thereto and no proceedings have been
instituted, or are pending or threatened, which challenge the rights of the
Company in respect thereof; (iii) none of the patents, trade names, trademarks,
copyrights or other proprietary rights listed in said schedule is subject to any
outstanding order, decree, judgment or stipulation, or is being infringed by
others; and (iv) no proceeding charging the Company with infringement of any
adversely held patent, trade name, trademark or copyright has been filed or is
threatened to be filed.
13
3.14 TRADE SECRETS AND CUSTOMER LISTS. The Company has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products presently sold, manufactured, licensed, under development or
produced by it, including products licensed from others. Any payments required
to be made by the Company for the use of such trade secrets, inventions,
customer lists and secret processes are described in SCHEDULE 3.14. The Company
is not using or in any way making use of any confidential information or trade
secrets of any third party, including without limitation, a former employer of
any present or past employee of the Company or any of the predecessors of the
Company.
3.15 CONTRACTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 3.15 (complete and accurate copies of which have
been delivered to the Parent), the Company is neither a party to nor subject to:
(i) any plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement
payments, profit sharing, severance or termination pay, collective
bargaining or the like, or any contract or agreement with any labor
union;
(ii) any employment contract or contract for services
which requires the payment of $50,000 or more annually or which is not
terminable within thirty (30) days by the Company without liability for
any penalty or severance payment other than pursuant to the Company's
severance policies existing on the date hereof;
(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $25,000 each;
(iv) any other contracts or agreements creating any
obligation of the Company of $20,000 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 Company or any successor
or assign within six months after the date hereof without payment of a
penalty other than customer contracts entered into in the ordinary
course of the Company's business;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of
business;
14
(viii) any contract with any sales agent or
distributor of products of the Company or any subsidiary;
(ix) any contract containing covenants limiting the
freedom of the Company 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 $25,000 whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or
licensee);
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money and any related security agreement;
(xiii) any contract or agreement with any officer,
employee, director or stockholder of the Company or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
(xv) any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any
voting agreements, voting trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
(b) To the best of the Company's and the Stockholders'
knowledge, all material contracts, agreements, leases and instruments to which
the Company is a party or by which the Company is obligated are valid and are in
full force and effect and constitute legal, valid and binding obligations of the
Company and the other parties thereto, enforceable in accordance with their
respective terms. To the best of the Company's and the Stockholders' knowledge,
neither the Company nor any other party to any contract, agreement, lease or
instrument of the Company is in default in complying with any provisions
thereof, and no condition or event or facts exists which, with notice, lapse of
time or both would constitute a default thereof on the part of either of the
Company or on the part of any other party thereto in any such case that could
have a material adverse effect on the properties, assets, financial condition or
prospects of either of the Company. SCHEDULE 3.15 indicates whether any of the
agreements, contracts, commitments or other instruments and documents described
therein requires consent or approval to be transferred to the Surviving
Corporation as a result of the transactions contemplated herein.
3.16 LITIGATION. SCHEDULE 3.16 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
SCHEDULE 3.16, there is no litigation or governmental or administrative
proceeding or investigation pending or, to the best of the
15
Company's and the Stockholders' knowledge, threatened against the Company which
may have an adverse effect on the properties, assets, business, financial
condition or prospects of the Company or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
3.17 COMPLIANCE WITH LAWS. The Company 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 business of the Company, and except as set forth
in SCHEDULE 3.17 hereto, the Company 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 the Company is not in compliance with
any such statute, ordinance, order, rule or regulation, except where the failure
to be in compliance would not have a material adverse effect on the Company.
3.18 INSURANCE. SCHEDULE 3.18 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, Liability, and workers' compensation coverage and bond and surety
arrangements) to which the Seller has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and (e) a description of any retroactive
premium adjustments or other loss-sharing arrangements. With respect to each
such insurance policy: (i) the policy is legal, valid, binding, enforceable, and
in full force and effect and will continue to be so through the Closing Date;
(ii) neither the Seller nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (iii) no party to the policy has
repudiated any provision thereof. SCHEDULE 3.18 describes any self-insurance
arrangements affecting the Seller.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, product liability, warranty or other similar claims against the
Company alleging that any of its products or services are defective or fail to
meet any product or service warranties except as disclosed in SCHEDULE 3.19
hereto. The Company 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 Company (the "Company
Products") is defective or unsafe or fails to meet any product warranty or any
standards promulgated by any such Governmental Entity. There have been no
recalls ordered by any such Governmental Entity with respect to any Company
Product. There is no (i) fact relating to any Company Product that may impose
upon the Company a duty to recall any Company Product or a duty to warn
customers of a defect in any Company Product, (ii) latent or overt design,
manufacturing or other defect in any Company Product, or (iii) liability for
warranty or other claim or return with respect to any Company Product except in
the ordinary course of business consistent with the past experience of the
Company for such kind of claims and liabilities.
16
3.20 FINDER'S FEES. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Permits") required from Governmental Entities in order for
the Company to conduct its business. The Company has obtained all the Permits,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
3.21, none of the Permits is subject to termination by their express terms as a
result of the execution of this Agreement by the Company or the consummation of
the Merger, and no further Permits will be required in order to continue to
conduct the business currently conducted by the Company subsequent to the
Closing. Except as disclosed in SCHEDULE 3.21 or in any other schedule hereto,
the Company is neither subject to nor bound by any agreement, judgment, decree
or order which may materially and adversely affect its properties, assets,
business, financial condition or prospects.
3.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in
SCHEDULE 3.22 hereto, no Stockholder, officer, employee or director of the
Company 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 material competitor, supplier or customer of
the Company or any organization, person or entity with whom the Company is doing
a material amount of business.
3.23 EMPLOYEE BENEFIT PROGRAMS.
(a) SCHEDULE 3.23 sets forth a list of every Employee Program
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
date hereof.
(b) Each Employee Program which has been maintained by a Company
and which has at any time been intended to qualify under Section 401(a) or
501(c)(9) of the Code, has received a favorable determination or approval letter
from the IRS regarding its qualification under such section and has, in fact,
been qualified under the applicable section of the Code from the effective date
of such Employee Program through and including the Closing (or, if earlier, the
date that all of such Employee Program's assets were distributed). No event or
omission has occurred which would cause any such Employee Program to lose such
qualification under the applicable Code section.
(c) Except as otherwise disclosed on SCHEDULE 3.23, there has not
been any failure of any party to comply with any laws applicable to or the terms
of any Employee Programs that have been maintained by the Company, except for
any failures to comply that, individually or in the aggregate, would not have a
material adverse effect on the properties, assets, business, financial condition
or prospects of the Company. With respect to any Employee Program now or
heretofore maintained by the Company, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA
17
or other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which could result, directly
or indirectly (including without limitation through any obligation of
indemnification or contribution) in any taxes, penalties or other liability to
the Company or any Affiliate (as defined below). No litigation, arbitration, or
governmental administrative proceeding or investigation or other proceeding
(other than those relating to routine claims for benefits) is pending or
threatened with respect to any such Employee Program.
(d) Neither the Company nor any Affiliate has ever maintained any
Employee Program subject to Title IV of ERISA.
(e) Except as otherwise disclosed on SCHEDULE 3.23, with respect
to each Employee Program maintained by the Company within the three years
preceding the date hereof, complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered to the Parent: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; and (vi) any
documents evidencing any loan to an Employee Program that is a leveraged
employee stock ownership plan.
(f) Each Employee Program maintained by the Company as of the date
hereof is subject to amendment or termination by the Board of Directors of the
Company without any further liability or obligation on the part of the Company
to make further contributions to any trust maintained under any such Employee
Program following such termination and the Company has not made any written or
oral representations to the contrary to its employees.
(g) For purposes of this SECTION 3.23:
(i) "Employee Program" means (a) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer welfare arrangements (within the meaning
of ERISA Section 3(40)), plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (b) all stock
option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in subsection (a) above. In
the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization;
18
(ii) an entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or
their spouses, dependents, or beneficiaries);
(iii) an entity is an "Affiliate" of a Company for
purposes of this SECTION 3.23 if it would have ever been considered a
single employer with the Company under ERISA Section 4001(b) or part of
the same "controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(c) and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
3.24 ENVIRONMENTAL MATTERS.
(a) Except as used in connection with routine maintenance and as
set forth in SCHEDULE 3.24 hereto, (i) the Company has never generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below); (ii) to the best knowledge of the Company and the
Stockholders, no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released, or disposed of at any site presently or
formerly owned, operated, leased, or used by the Company, or has ever come to be
located in the soil or groundwater at any such site; (iii) to the best knowledge
of the Company and the Stockholders, no Hazardous Material has ever been
transported from any site presently or formerly owned, operated, leased, or used
by the Company for treatment, storage, or disposal at any other place; (iv) to
the best knowledge of the Company and the Stockholders, the Company does not
presently own, operate, lease, or use, nor has it previously owned, operated,
leased, or used any site on which underground storage tanks are or were located;
and (v) to the best knowledge of the Company and the Stockholders, no lien has
ever been imposed by any Governmental Entity on any property, facility,
machinery, or equipment owned, operated, leased, or used by the Company in
connection with the presence of any Hazardous Material.
(b) Except as set forth in SCHEDULE 3.24 hereto, (i) the Company
has no liability under, nor has the Company ever violated in any material
respect, any Environmental Law (as defined below); (ii) any property owned,
operated, leased, or used by the Company and any facilities and operations
thereon are presently in compliance in all material respects with all applicable
Environmental Laws; (iii) the Company has never entered into or been subject to
any judgment, consent decree, compliance order, or administrative order with
respect to any environmental or health and safety matter or received any request
for information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law (as defined below);
and (iv) neither the Company nor any Stockholder has any reason to believe that
any of the items enumerated in clause (iii) of this paragraph will be
forthcoming.
19
(c) Except as set forth in SCHEDULE 3.24 hereto, to the best
knowledge of the Company and the Stockholders, no site owned, operated, leased,
or used by the Company contains any asbestos or asbestos-containing material,
any polychlorinated biphenyls ("pcb's") or equipment containing pcb's, or any
urea formaldehyde foam insulation.
(d) For purposes of this SECTION 3.24, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, or contaminant,
as defined or regulated under any Environmental Law or any other substance which
may pose a threat to the environment or to human health or safety; (ii)
"Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; (iii) "Environmental Law" shall mean any
environmental laws, regulation, rule, ordinance, or by-law at the foreign,
federal, state, or local level, existing as of the date hereof; and (iv) the
Company shall mean and include the Company, its predecessors and all other
entities for whose conduct the Company is or may be held responsible under any
Environmental Law.
3.25 LISTS OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) SCHEDULE 3.25 hereto contains a list of all current directors
and officers of the Company and a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive base salary from the Company during the current fiscal year of $20,000
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) SCHEDULE 3.25 sets forth a true and complete list of all
suppliers of the Company to whom the Company made payments aggregating $40,000
or more during the most recent complete fiscal year, showing, with respect to
each, the name, address and dollar volume involved.
3.26 EMPLOYEES; LABOR MATTERS. As of the date hereof, the Company
employed the number of full-time employees and part-time employees described on
SCHEDULE 3.26. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in SCHEDULE 3.26, upon
termination of the employment of any of said employees, the Company will not by
reason of the Merger be liable to any of said employees for so-called "severance
pay" or any other payments. Except as set forth in SCHEDULE 3.26 attached
hereto, the Company has no policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment. The Company is in compliance in all material respects with all
applicable laws and regulations respecting labor, employment, fair employment
practices, terms and conditions of employment, and wages and hours. No charges
of employment discrimination or unfair labor practices have been brought against
the Company, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations existing, pending or
threatened against or involving the Company. There are no grievances, complaints
or charges that have been filed against the Company under any dispute resolution
procedure (including, but not limited to, any proceedings under any dispute
resolution procedure under any collective bargaining agreement).
20
No collective bargaining agreements are in effect or are currently being or are
about to be negotiated by the Company. Except for the Stockholders, the Company
has not received written notice of pending or threatened changes with respect to
the senior management or key supervisory personnel of the Company.
3.27 CUSTOMERS. SCHEDULE 3.27 sets forth any customer who accounted for
more than 5% of the combined sales of the Company and Telecon for the most
recent complete fiscal year of the Company (collectively, the "Customers"). No
Customer has given notice to the Company of its intention to terminate, to
cancel or otherwise materially and adversely modify its relationship with the
Company or to decrease materially or limit its usage or purchase of the services
or products of the Company. For purposes of this SECTION 3.27, each customer
account of the Company and Telecon shall be deemed a separate customer,
notwithstanding the fact that in some instances a single person or entity may
have more than one customer account.
3.28 Y2K. The Company has taken the actions described in SCHEDULE 3.28
to assess, evaluate, test and correct all of the hardware, software, embedded
microchips and other processing capabilities of computer and telecommunication
systems it uses in any material portion of its business, 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. To
the best of the Company's and the Stockholders' knowledge, computerized services
provided by third parties to the Company such as billing and payroll services
will be able to function accurately and without interruption or ambiguity using
date information before, during and after January 1, 2000.
3.29 [Intentionally Omitted]
3.30 DISCLOSURE. This Agreement, including the Schedules hereto
prepared by the Stockholders and the Company, together with the other
information furnished to the Parent and BOL by the Company and the Stockholders
in connection herewith, does not contain an untrue statement of material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading. If, prior to the 90th day after the date of the Closing, the Company
or the Stockholders become aware of any fact or circumstance which would affect
the accuracy of a representation or warranty of the Company or the Stockholders
in this Agreement, in any material respect, the Company and the Stockholders
shall immediately give notice of such fact or circumstance to the Parent and
BOL. However, subject to the provisions of SECTION 4.7, such notification shall
not relieve either the Company or the Stockholders of their respective
obligations under this Agreement, and subject to the provisions of SECTION 4.7,
at the sole option of the Parent and BOL, the truth and accuracy of any and all
warranties and representations of the Company and of the Stockholders at the
date of this Agreement and on the Closing Date and immediately prior to at the
Effective Time, shall be a precondition to the consummation of this transaction;
provided that, solely for purposes of this pre-Closing condition, and not for
purposes of evaluating compliance with or breach of any representation or
warranty post-Closing, "truth and accuracy" shall mean "truth and accuracy in
all material respects" provided such representation or warranty is not otherwise
qualified by materiality.
SECTION 4 COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
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4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Effective Time, the Stockholders will cause the Company to do and the Company
will do the following, unless Parent and BOL shall otherwise consent in writing:
(a) conduct its business only in the ordinary course consistent
with past practices, refrain from changing or introducing any method of
management or operations except in the ordinary course of business and in a
manner consistent with past practices and maintain levels of working capital
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 costing more than $15,000 and from mortgaging,
pledging, subjecting to a lien or otherwise encumbering any of its properties or
assets;
(c) refrain from incurring or modifying any contingent liability as
a guarantor or otherwise with respect to the obligations of others, and from
incurring or modifying any other contingent or fixed obligations or liabilities
except in the ordinary course of business and in a manner consistent with past
practices;
(d) refrain from making any change in its incorporation documents,
by-laws or authorized or issued capital stock or from acquiring any securities
issued by any other business organization other than short-term investments in
the ordinary course of business;
(e) refrain from declaring, setting aside or paying any dividend,
making any other distribution in respect of its capital stock, making any direct
or indirect redemption, purchase or other acquisition of its capital stock,
issuing, granting, awarding, selling, pledging, disposing of or encumbering or
authorizing the issuance, grant, award, sale, pledge, disposition or encumbrance
of any shares of, or securities convertible or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class of the Company or entering into any agreement or
commitment with respect to any of the foregoing;
(f) refrain from making any change in the compensation payable or
to become payable to any of its officers, employees or agents, except for
reasonable increases in salary or wages in the ordinary course of business that
are consistent with past practices, or granting any severance or termination pay
to, or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or any Stockholder or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
22
(g) refrain from making any change in its borrowing arrangements or
modifying, amending or terminating any of its contracts except in the ordinary
course of business, or waiving, releasing or assigning any material rights or
claims;
(h) use reasonable efforts to prevent any change with respect to
its management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business organization
and to preserve the goodwill of and business relationships with all suppliers,
customers and others having business relations with it, and to maintain its
properties and facilities, including those held under leases, in as good a
working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) use reasonable efforts to have in effect and maintain at all
times all insurance of the kind, in the amount and with the insurers set forth
in SCHEDULE 3.18 or equivalent insurance with any substitute insurers approved
by Parent;
(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) permit Parent and its authorized representatives (including
without limitation Parent's attorneys, accountants, and pension and
environmental consultants), upon reasonable prior notice, to have full access to
all of its properties, assets, books, records, business files, executive
personnel, tax returns, contracts and documents and furnish to Parent and its
authorized representatives such financial and other information with respect to
its business or properties as Parent may from time to time reasonably request.
4.3 CONSENTS AND APPROVALS. The Company and the Stockholders shall use
their best efforts to obtain or cause to be obtained prior to the Closing Date
all necessary consents and approvals to the performance of the obligations of
the Company and the Stockholders under this Agreement, including, without
limitation, the consents and authorizations described in SCHEDULE 3.15 and such
other authorizations, waivers, approvals, consents and permits as set forth in
Schedule 3.21 as may be necessary to transfer to BOL and/or to retain in full
force and effect without penalty subsequent to the Effective Time all contracts,
permits, licenses and franchises of or applicable to the businesses of the
Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On the date hereof
Stockholders will execute and deliver a unanimous written consent in lieu of a
meeting in accordance with applicable law for the purpose of authorizing the
transactions contemplated hereby. The recommendation of the Board of Directors
will remain in effect at all times prior to the Effective Time. The Stockholders
hereby agree to vote all shares of capital stock of the Company held of record
by them or over which they exercise voting control in favor of the Merger, this
23
Agreement and the consummation of the transactions contemplated hereby and shall
not demand appraisal or dissenter's rights in connection with the merger under
the New York Business Corporation Law.
4.5 EXCLUSIVE DEALING. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to SECTION 9, neither
the Company nor the Stockholders shall, nor shall any of them permit any
director, officer, employee or agent of either of them 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, or any equity interest in, the Company or any merger or business combination
with the Company (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than Parent and BOL and their 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.
4.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Effective Time, the Stockholders shall neither sell, exchange, deliver,
assign, pledge, encumber nor otherwise transfer or dispose of any Company Stock
owned beneficially or of record by the Stockholders, nor grant any right of any
kind to acquire, dispose of, vote or otherwise control in any manner such shares
of Company Stock; provided, however, that notwithstanding anything to the
contrary stated herein, any transferee, executor, heir, legal representative,
successor or assign of the Stockholders shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent and BOL 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 Company or the
Stockholders contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any material failure of the Stockholders or
the Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such person hereunder. The delivery of any notice
pursuant to this SECTION 4.7 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
(ii) modify the conditions set forth in SECTION 7 or elsewhere or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
4.8 AMENDMENT OF SCHEDULES. The Company and the Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders 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 Stockholders 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 Stockholders agree to
notify the Parent of such changes in writing and to summarize all such changes
via the bring-down certificate on the Closing Date. Notwithstanding the
foregoing sentence, the truth and accuracy
24
of any and all representations and warranties of the Stockholders 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 Parent (provided that, solely for
purposes of this pre-Closing condition, and not for purposes of evaluating
compliance with or breach of any representation or warranty post-Closing, "truth
and accuracy" of a representation or warranty shall mean "truth and accuracy in
all material respects" of such representation or warranty, provided that such
representation or warranty is not otherwise qualified by materiality), and
Parent shall not be deemed to have consented to any amendment or supplement to a
Schedule prepared by the Stockholders after the date hereof or to have waived
any of its rights or remedies for breach hereof, with respect to any matter
hereafter arising or discovered that constitutes or reflects an event or
occurrence that would be reasonably likely to have a material adverse effect on
the business of the Company, unless the Parent acknowledges and consents to such
amendment or supplement.
4.9 FURTHER ASSURANCES. The Company and the Stockholders 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.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND BOL.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date hereof and
as of the Closing Date, the Parent and BOL hereby represent and warrant to the
Stockholders and the Company jointly and severally as set forth in this SECTION
5.
5.2 ORGANIZATION AND QUALIFICATION OF THE PARENT AND BOL. The Parent
and BOL are corporations duly organized, validly existing and in good standing
under the laws of Delaware and New York, respectively, with full corporate power
and authority to own or lease their respective properties and to conduct their
respective businesses in the manner and in the places where such properties are
owned or leased and where such business is currently conducted or proposed to be
conducted. Each of the Parent and BOL is duly qualified to do business as a
foreign corporation in each jurisdiction in which it owns, operates or leases
real property and in each other jurisdiction in which the failure to be so
qualified or registered would have a material adverse effect on the properties,
assets, business, financial condition and prospects of the Parent and BOL,
respectively.
5.3 AUTHORITY. All necessary corporate action has been taken by the
Parent and BOL to authorize the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by the Parent and/or BOL pursuant to this Agreement. This Agreement
and each agreement, document and instrument to be executed and delivered by the
Parent and/or BOL pursuant to this Agreement (to the extent it contains
obligations to be performed by the Parent and/or BOL) constitutes, or when
executed and delivered by the Parent and/or BOL will constitute, valid and
binding obligations of the Parent and/or BOL enforceable in accordance with
their respective terms, subject, however, to the extent the enforceability may
be limited by the effect of bankruptcy, insolvency or similar laws affecting
creditors' rights generally or by principles of equity..
25
5.4 NO CONFLICTS. The execution, delivery and performance by the Parent
and BOL of this Agreement and each such other agreement, document and
instrument: (i) does not and will not violate any provision of the Certificate
of Incorporation or bylaws of the Parent or BOL; and (ii) will not result in a
breach of, constitute a default under, accelerate any obligation under, or give
rise to a right of termination of any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award, whether written or oral, to which the Parent or BOL is a
party or by which the property of the Parent or BOL 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 Parent or
BOL, 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 Parent or BOL, 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 Parent or BOL. Except
for the filing of the Certificate of Merger with the Secretary of State of New
York, 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 Parent or BOL is required in connection
with the execution, delivery or performance of this Agreement by the Parent or
BOL or the consummation of the transactions contemplated by this Agreement by
the Parent or BOL, the failure of which to obtain would (i) prevent the Closing,
or (ii) have a material adverse effect on the Stockholders. The Stockholders
acknowledge that in order to issue the Parent Stock to the Stockholders pursuant
to this Agreement, the Parent and BOL will rely upon a private placement
exemption based in part upon certain representations and warranties of the
Stockholders contained herein.
5.5 SEC FILINGS. The Parent has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since the closing of the Parent's initial public
offering on May 17, 1999 (the "Parent SEC Documents"). As of its filing date,
each Parent SEC Document filed, as amended or supplemented, if applicable, (i)
complied in all material respects with the applicable requirements of the
securities Act or the Exchange Act, as applicable, and the rules and regulations
thereunder and (ii) did not, at the time it was filed, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading.
5.6 FINANCIAL STATEMENTS. Each of the consolidated financial statements
(including, in each case, any related notes) contained in the Parent SEC
Documents, including any Parent SEC Documents filed from the date of this
Agreement until the Closing, complied or will comply in all material respects
with the applicable published rules and regulations of the SEC with respect
thereto, was or will be prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q or 8-K promulgated by the SEC), and fairly presented or
will fairly present the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
26
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
5.7 PARENT STOCK.
(a) The Parent Stock to be delivered to the Stockholders at the
Closing, when delivered in accordance with the terms of this Agreement, will
constitute valid and legally issued shares of the Common Stock of the Parent,
fully paid and non-assessable. Such Parent Stock will constitute restricted
securities and will be subject to the lock-up provisions and other transfer
restrictions imposed under this Agreement and under applicable federal and state
securities laws as described in SECTION 8 below. A portion of the Parent Stock
will also be subject to the escrow provisions described in Section 1.6 hereof.
(b) The Parent's issuance of the Parent Stock (i) has been duly
authorized by all requisite corporate action by the Parent, and (ii) will not
violate the Parent's Certificate of Incorporation or Bylaws of the Parent or any
provision of any indenture, mortgage, agreement, contract or other instrument to
which the Parent is a party or by which the Parent or any of its properties or
assets is bound as of the date hereof, or result in a breach of or constitute
(upon notice or lapse of time or both) a default under any such indenture,
mortgage, agreement, contract or other instrument or result in the creation or
imposition of any lien, security interest, mortgage, pledge, charge or other
encumbrance, of any nature whatsoever, upon any properties or assets of the
Parent.
(c) As of the date hereof, the authorized capital stock of the
Parent consists of (a) 39,000,000 shares of common stock, $.01 par value per
share, of which, as of September 30, 1999, 7,318,944 shares were issued and
outstanding, fully paid and non-assessable; and (b) 1,000,000 shares of
preferred stock, $.01 par value per share, of which, as of September 30, 1999,
no shares were issued and outstanding. As of September 30, 1999, (i) options to
acquire 297,500 shares of common stock were outstanding, and (ii) warrants to
purchase 320,000 shares of common stock were outstanding.
5.8 LITIGATION. Except as disclosed in the Parent SEC Documents, there
is no litigation or governmental or administrative proceeding or investigation
pending or to the knowledge of such parties threatened against the Parent or BOL
which would result in any change that is material and adverse to the business,
assets, liabilities, results of operations or financial condition of the Parent
and BOL taken as a whole (a "BIZZ MAC") or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
5.9 COMPLIANCE WITH LAWS. Neither the Parent nor BOL has received
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would result
in a BIZZ MAC.
5.10 DISCLOSURE. This Agreement, together with the other information
furnished to the Company and the Stockholders by the Parent and BOL in
connection herewith, does not contain an untrue statement of material fact or
omit to state a material fact necessary to make the
27
statements herein and therein, in light of the circumstances under which they
were made, not misleading.
SECTION 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARENT AND BOL.
6.1 INTRODUCTION. The obligations of the Parent and BOL 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 6.
6.2 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date, the
Parent shall have had sufficient time to review the unaudited balance sheets of
the Company as of the last day of the month ended immediately prior to the
Closing Date (or, if the Closing occurs on or before the 22nd day of a month, as
of the last day of the month before the last full month before the Closing Date)
and the management prepared statements of income, cash flow and stockholders'
equity for the period then ended, disclosing no Material Adverse Change from the
Company Financial Statements originally furnished by the Company as set forth in
SCHEDULE 3.7. In addition, prior to the Closing Date, the Parent and BOL shall
have had sufficient opportunity to review the audited combined balance sheet of
the Company and Telecon as of December 31, 1998 and the draft audited combined
balance sheet of the Company and Telecon as of December 31, 1999 (assuming the
Closing occurs by April 15, 2000) and the draft audited statements of income,
cash flow and stockholders' equity of such companies for the periods ended on
such dates as audited by the Parent's accounting firm at the Parent's sole
expense in accordance with GAAP, and the Parent shall be satisfied in all
respects that such financial information does not disclose any Material Adverse
Change from the Company Financial Statements.
6.3 NO MATERIAL ADVERSE CHANGE. Since the Company Balance Sheet Date,
the Company shall not have suffered a Material Adverse Change, and the Parent
shall have received on the Closing Date a certificate signed by the President of
the Company and each of the Stockholders to such effect.
6.4 [Intentionally Omitted]
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Xxxxxxx Xxxx Xxxxxxx Xxxxx & Goodyear, LLP, counsel to the Company and the
Stockholders, dated the Closing Date, in substantially the form annexed hereto
as EXHIBIT 6.5.
6.6 [Intentionally Omitted]
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to the Parent (i) a certificate,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the New York Secretary of State, showing that the Company is a
subsisting corporation organized under the law of the State of New York and (ii)
a franchise tax report duly issued by the New York State Department of Taxation
and finance showing that all New York State franchise and/or income tax returns
and tax for the Company prior to the date of such certificate have been filed
and paid. The Company shall also have delivered to the Parent prior to the
Closing a recent copy of the Company's Certificate of Incorporation and all
amendments thereto duly certified by the Secretary of State of New York.
28
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in SECTION 3 and
elsewhere in this Agreement 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 Company and the Stockholders 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
Company or the Stockholders on or before the Closing Date; and the Company and
the Stockholders shall have delivered to the Parent a certificate dated the
Closing Date signed by the Company's President and by the Stockholders to the
foregoing effect.
6.9 APPROVALS AND CONSENTS. The Company and the Stockholders shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the businesses of the Company
subsequent to the Effective Time, and the Company and the Parent 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 Parent, 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 the Merger or
the Company's permits, leases, licenses and franchises, to avoid a breach,
default, termination, acceleration or modification of any material agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award as a result of
the execution or performance of this Agreement, or otherwise in connection with
the execution and performance of this Agreement.
6.10 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 Parent or BOL 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.
6.11 PROCEEDINGS SATISFACTORY TO BOL AND THE PARENT. All proceedings to
be taken by the Company and the Stockholders 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 BOL and
the Parent shall be reasonably satisfactory in form and substance in all
material respects to BOL and the Parent and their counsel.
6.12 EMPLOYMENT/CONSULTING AGREEMENTS.
29
(a) XXXXXXXX EMPLOYMENT AGREEMENT. Xxxxxxxx Xxxxxxxx shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as EXHIBIT 6.12(a).
(b) XXXXXXXX EMPLOYMENT AGREEMENT. Xxxxxx Xxxxxxxx shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as EXHIBIT 6.12(b).
(c) XXXXXX CONSULTING AGREEMENT. Xxxxx Xxxxxx shall have executed
and delivered a consulting agreement with BOL or an affiliate in the form
attached hereto as EXHIBIT 6.12(c).
6.13 ESCROW AGREEMENT. The Stockholders shall have executed and
delivered an escrow agreement with BOL in the form attached hereto as EXHIBIT
1.6.
6.14 TELECON. Simultaneous with the Closing, the Parent or a subsidiary
of the Parent shall acquire substantially all of the assets and assume certain
liabilities of Telecon pursuant to an Asset Purchase Agreement between such
parties (the "Telecon Agreement").
SECTION 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
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
Company and the Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Parent and BOL contained in SECTION 5 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 Parent and BOL 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 Parent and BOL on or before the Closing Date; and the Parent and BOL
shall have delivered to the Company a certificate signed by the President of the
Parent and of BOL and dated as of the Closing Date certifying to the foregoing
effect.
7.3 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company 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.
7.4 EMPLOYMENT/CONSULTING AGREEMENTS.
30
(a) Xxxxxxxx EMPLOYMENT AGREEMENT. Xxxxxxxx Xxxxxxxx shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as EXHIBIT 6.12(a).
(b) XXXXXXXX EMPLOYMENT AGREEMENT. Xxxxxx Xxxxxxxx shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as Exhibit 6.12(b).
(c) XXXXXX CONSULTING AGREEMENT. Xxxxx Xxxxxx shall have executed
and delivered a consulting agreement with BOL or an affiliate in the form
attached hereto as Exhibit 6.12(c).
7.5 LEGAL OPINION. The Company shall have received an opinion from
Xxxxx & Xxxxxxx, LLP, counsel to the Parent and BOL, dated the Closing Date, in
substantially the form attached hereto as EXHIBIT 7.5.
7.6 APPROVALS AND CONSENTS. The Parent and BOL shall have made all
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by them in connection with the execution
and delivery of this Agreement, the performance of the transactions contemplated
hereby and the continued operation of the businesses of the Company subsequent
to the Closing Date, and the Company and the Parent 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 Stockholders, from all third parties.,
including, without limitation, approvals required under federal and state
securities laws and/or the securities and Exchange Commission, state "Blue Sky"
laws, other applicable governmental authorities and regulatory agencies,
lessors, lenders and contract parties, required in connection with this
Agreement or the Company's permits, leases, licenses and franchises, to avoid a
breach, default, termination, acceleration or modification of any material
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award as
a result of the execution or performance of this Agreement, or otherwise in
connection with the execution and performance of this Agreement.
7.7 PROCEEDINGS SATISFACTORY TO THE STOCKHOLDERS. All proceedings to be
taken by the BOL and the Parent 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 Company and the
Stockholders shall be reasonably satisfactory in form and substance in all
material respects to the Company and the Stockholders and their counsel.
SECTION 8 PARENT STOCK - TRANSFER RESTRICTIONS.
8.1 LOCK-UP. In addition to applicable federal and state securities
laws restricting the public sale of the Parent Stock to be issued to the
Stockholders hereunder, the Stockholders hereby irrevocably agree that: (i) for
a period of two (2) years after the Closing Date they will not offer, pledge,
sell, assign or otherwise transfer directly or indirectly, fifty percent (50%)
of the Parent Stock, or enter into any agreement that transfers or assigns, in
whole or in part, any of
31
the economic consequences of ownership of such shares of Parent Stock received
hereunder (such restrictions adjusted for any stock splits, recapitalizations,
mergers or other similar events); and (ii) the remaining fifty percent (50%) of
the Parent Stock shall be subject to SEC Rule 144. The Stockholders agrees that
the foregoing shall be binding upon Stockholders and their respective
successors, assigns, heirs, and personal representatives. The Parent agrees to
use best efforts to keep current in filing all reports, statements and other
materials required to be filed with the Securities and Exchange Commission and
to take other reasonable steps as necessary to permit sales of the Parent Stock
delivered hereunder in accordance with Rule 144, provided that any such sales
comply with the lock-up provisions set forth herein.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders
acknowledges and agrees that the shares of Parent Stock to be delivered to the
Stockholders 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 Stockholders represent and
warrant that the Parent Stock to be acquired by Stockholders 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 Stockholders
covenant, warrant and represent that none of the shares of Parent Stock issued
to such Stockholders 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.
8.3 ABLE TO BEAR RISK; ACCREDITED INVESTORS; SOPHISTICATED INVESTORS;
INFORMATION. The Stockholders 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. They
further represent and warrant that they are each "Accredited Investors" within
the meaning of Rule 501 under Regulation D of the Act and further that they (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 within 5 business days of the date of this Agreement
(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 acquisition of the Parent Stock. The
Stockholders 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, the background and experience of
the officers and directors of the Parent, the plans for the operations of the
business of the Parent and information disclosed in the Information Statement.
The Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Stockholders 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.
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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 _____________, 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.
SECTION 9 TERMINATION OF AGREEMENT; EFFECT OF TERMINATION.
9.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the boards of directors of the Parent and the
Company;
(b) either by the Stockholders and the Company, on the one hand, or
by the Parent and BOL, on the other hand, if
(i) the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by
March 31, 2000, 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; provided, however, the parties agree that such date
shall be extended for up to a maximum of sixty (60) days if the
termination date of the Telecon Agreement is extended pursuant to
SECTION 9.1(b)(i) thereof; 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.
9.2 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
33
contained in this Agreement including, but not limited to, legal and audit costs
and out of pocket expenses.
SECTION 10 NON-COMPETITION. For a period of five (5) years from and after the
Closing Date (or, with respect to Xx. Xxxxxxxx, the later of 5 years after the
Closing Date or 2 years after his employment termination date) the Stockholders
shall not directly or indirectly, (i) seek, obtain or accept a "Competitive
Position" in the "Restricted Territory" with a "Competitor" of the Company, the
Parent, BOL or their affiliates (as such terms are hereafter defined) except
that in the event of a termination of Xx. Xxxxxxxx under the terms of his
employment agreement with the Parent which termination is by such employer
"without cause" as defined in such employment agreement, the provisions of this
non-competition covenant shall end with respect to Xx. Xxxxxxxx on the later of
the effective employment termination date or the date of the last installment of
any severance or other payment payable to Xx. Xxxxxxxx in connection with such
termination, or (ii) solicit, directly or indirectly, any customers, clients,
accounts, officers, employees, agents or representatives of the Company, BOL,
the Parent, or their affiliates. For purposes of this Agreement, a "Competitor"
of the Company means any business, individual, partnership, joint venture,
association, firm, corporation or other entity engaged, wholly or partly, in the
business of selling internet access service, web site design, web hosting
services, long distance or local telephone services, or in any related Internet
or telecommunications business along such lines, or in any related Internet or
telecommunications business along such lines which the Company and/or its
affiliates may engage in or actively plan to engage in from time to time during
the term of this covenant; provided, however, with respect to Xx. Xxxxxxxx, a
Competitor shall not include any Internet or telecommunications-related
businesses which were not Competitors of the Parent or its affiliates during Xx.
Xxxxxxxx'x term of employment with the Parent; the "Restricted Territory" means
(i) with respect to any Competitor engaged in the telephony business (i.e. long
distance or local telephone services or similar business) the New England
States, New York, New Jersey, Pennsylvania, Ohio, Delaware, Maryland, District
of Columbia and any other state in which the Company and/or its affiliates are
doing business in at the time of termination of Xx. Xxxxxxxx'x employment and
(ii) with respect to any Competitor not included in subsection (i) of this
sentence, the United States of America; a "Competitive Position" means any
employment with any Competitor of the Company or self-employment whereby any
Stockholder will use or is likely to use any Confidential Information, or
whereby any Stockholder would have duties for such Competitor that are the same
or substantially similar to those actually performed by any Stockholders under
the terms of their employment agreement with the Surviving Corporation. Nothing
contained in this SECTION 10 is intended to prevent any Stockholder from
investing in stock or other securities listed on a national securities exchange
or actively traded on the over the counter market or any corporation engaged,
wholly or partly, in the sale of telecommunications products or services;
provided, however, each Stockholder and members of his or her immediate family
shall not, directly or indirectly, hold more than a total of two percent (2%) of
all issued and outstanding stock or other securities of any such corporation. If
the final judgment of a court of competent jurisdiction declares that any term
or provision of this Section is invalid or unenforceable, the parties hereto
agree that the court making the determination of invalidity or unenforceability
shall have the power to reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement
34
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
SECTION 11 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 THE STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently has in the future may have access to
certain confidential information relating to the Company, the Parent and BOL,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and BOL. The Stockholders agree 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 Parent and BOL 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 Stockholders as is required in the course of
performing his/her duties for the Parent or BOL unless (i) such information
becomes known to the public generally through no breach by the Stockholders 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 Stockholders shall give prior written notice thereof to the Parent and
provide the Parent 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 Stockholders of the provisions of this
section, the Parent shall be entitled to an injunction restraining the
Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Parent 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 Stockholders shall return to the
Parent within a reasonable time all documents containing confidential
information about the Parent.
11.2 THE PARENT AND BOL. The Parent and BOL recognize and acknowledge
that they had in the past and currently have access to certain confidential
information relating to the Company, such as operational policies, customer
lists, and pricing and cost policies, that are valuable, special and unique
assets of the Company. The Parent and BOL agree that, prior to the Closing, or
if the transactions contemplated by this Agreement are not consummated, they
will not use or disclose such confidential information to their 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 Stockholders and to authorized representatives of the Company or the Parent
or BOL 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 Parent or BOL of this covenant, (ii)
disclosure is required by law or the order of any governmental authority under
color of law or
35
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 Parent and BOL shall, if possible,
give prior written notice thereof to the Company and the Stockholders and
provide the Company and the Stockholders 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 Parent or BOL of the
provisions of this Section, the Company and the Stockholders shall be entitled
to an injunction restraining the Parent and BOL from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the Company and the Stockholders 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
Parent and BOL shall return to the Company within a reasonable time all
documents containing confidential information about the Company.
11.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in SECTIONS 11.1 and 11.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
11.4 SURVIVAL. The obligations of the parties under this ARTICLE 11
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
SECTION 12 INDEMNIFICATION.
12.1 INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders jointly and
severally, on behalf of themselves and their respective successors, executors,
administrators, estates, heirs and permitted assigns, agree to indemnify and
hold harmless the Parent, the Surviving Corporation and their respective
officers, directors, employees and agents (individually, a "Parent Indemnified
Party" and collectively, the "Parent 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 Parent 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
Company or the Stockholders in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement as supplemented or amended pursuant to SECTION 4.7 hereof, 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, as so
supplemented; or
36
(b) any breach of any covenant or agreement made by the Company or
the Stockholders 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 Company incurred with respect to
any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor and disclosed to the Parent in SCHEDULE 3.7
hereto (it being understood that such Schedule shall be updated as of the
Closing to reflect tax accruals as of such date consistent with the Company's
past practices); 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 12.1 are hereinafter
collectively referred to as "Parent Indemnifiable Claims". The rights of Parent
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this SECTION 12.1 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 12.1.
The Stockholders shall not be obligated to indemnify the Parent
Indemnified Parties in respect of Parent Indemnifiable Claims except to the
extent the cumulative amount of Losses to Parent Indemnifiable Parties exceeds
$50,000, whereupon all Losses in excess of $25,000 shall be recoverable in
accordance with the terms hereof. (These $50,000/$25,000 thresholds shall not
apply to claims with respect to taxes as described in clause (c) above or as a
result of fraud or intentional misrepresentations by the Stockholders). The
aggregate indemnification obligations of the Stockholders hereunder shall be
limited to the Purchase Price. After payment of such amount, such
indemnification obligations shall terminate.
Notwithstanding the foregoing, with respect to a breach by a Stockholder
of the non-competition provisions contained in Section 10 or the nondisclosure
provisions contained in Section 11.1 hereof, the liabilities of the Stockholders
for any Losses or claims arising from such a breach shall be separate, rather
than joint and several, such that a Stockholder shall not be liable for any
claims or losses of the Parent or BOL arising from the breach of said
noncompetition or non-disclosure provisions committed by another Stockholder.
In the event of a Parent Indemnifiable Claim, the Parent and BOL agree
that the Parent Indemnified Parties shall first apply to the Escrow Agent under
the terms of the Escrow Agreement for satisfaction of any such claims and that
the Company and the Stockholders will not be required to pay such claim
personally unless the amount of unpaid Parent Indemnifiable Claim(s) exceeds the
value of any then remaining Escrow Shares (except to the extent such claim is
based on a breach of the non-competition or non-disclosure provisions set forth
in Sections 10 and 11.1 hereof). The foregoing provision regarding payment from
escrow shall not in any way affect, reduce, limit, decrease or release the
Stockholders' liability for any Parent Indemnifiable Claim. The parties agree
that Parent Indemnifiable Claims arising solely under this Agreement in excess
of the Escrow Shares may be satisfied by the payment of Parent Stock.
37
12.2 INDEMNIFICATION BY THE PARENT AND BOL. The Parent and BOL, jointly
and severally on behalf of themselves and their successors and assigns, agree to
indemnify and hold harmless the Stockholders and their successors, heirs and
assigns (individually, a Stockholder Indemnified Party" and collectively, the
"Stockholder 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
(including all amounts paid in investigation, defense or settlement of the
foregoing) sustained, suffered or incurred by or made against the Stockholders,
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Parent or BOL in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement as supplemented or amended, 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, as so supplemented; and
(b) any breach of any covenant or agreement made by the Parent or
BOL 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.
Claims under clauses (a) through (b) of this SECTION 12.2 are
hereinafter collectively referred to as "Stockholder Indemnifiable Claims." The
rights of Stockholder Indemnified Parties to recover indemnification in respect
of any occurrence referred to in clauses (b) of this SECTION 12.2 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 12.2. The Parent and BOL shall not be obligated to indemnify the
Stockholder Indemnified Parties in respect of any such losses except to the
extent the cumulative amount of such losses to Stockholder Indemnified Parties
exceeds $50,000, whereupon all Losses in excess of $25,000 shall be recoverable
in accordance with the terms hereof. The indemnification obligations of the
Parent and BOL hereunder shall be limited to the unpaid portion of the Purchase
Price plus $2 million. After payment of such amount, such indemnification
obligations shall terminate.
12.3 NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by a Parent
Indemnified Party or a Stockholder Indemnified Party of notice of any claim,
liability or expense to which the indemnification obligations hereunder would
apply, the Indemnified Party shall give notice thereof in writing to the
Indemnifying Party, but the omission to so notify the Indemnified Party promptly
will not relieve the Indemnifying Party from any liability except to the extent
that the Indemnifying Party 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 Indemnifying Party gives written notice to the
Indemnified Party stating that (i) it would be liable under the provisions
hereof for indemnity in the amount of such claim if such
38
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 Indemnifying Party (subject to the consent
of the Indemnified Party which consent may not be unreasonably withheld) and the
Indemnifying Party shall not be required to make any payment with respect to
such claim, liability or expense as long as the Indemnifying Party is conducting
a good faith and diligent defense at its own expense; provided, however, that
the assumption of defense of any such matters by the Indemnifying Party shall
relate solely to the claim, liability or expense that is subject or potentially
subject to indemnification. If the Indemnifying Party assumes the defense of
such claim, then in no event shall the Indemnified Party admit any liability
with respect to, settle, compromise or discharge any such claim without the
prior written consent of the Indemnifying Party which consent shall not be
unreasonably withheld The Indemnifying Party shall have the right, with the
consent of the Indemnified Party, which consent shall not be unreasonably
withheld, to settle any Indemnified Claims by third parties which are
susceptible to being settled provided its obligation to indemnify the
Indemnified Party therefor will be fully satisfied. The Indemnifying Party shall
keep the Indemnified Party apprised of the status of the claim, liability or
expense and any resulting suit, proceeding or enforcement action, shall furnish
the Indemnified Party with all documents and information that the Indemnified
Party shall reasonably request and shall consult with the Indemnified Party
prior to acting on major matters, including settlement discussions.
Notwithstanding anything herein stated, the 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 Indemnifying Party and the 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 Indemnified Party shall be paid by the Indemnifying Party. If no such
notice of intent to dispute and defend is given by the Indemnifying Party, or if
such diligent good faith defense is not being or ceases to be conducted, the
Indemnified Party shall, at the expense of the Indemnifying Party, undertake the
defense of (with counsel selected by the 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 Indemnifying Party, then the
Indemnified Party shall make available all information and assistance that the
Indemnifying Party may reasonably request and shall cooperate with the
Indemnifying Party in such defense.
SECTION 13 MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York without regard to its
conflict of laws provisions.
13.2 NOTICES. Any notice, request, demand other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given (i) if delivered or sent by facsimile transmission, upon receipt, or (ii)
if sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States Post Office facilities
properly addressed with postage prepaid. all notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
39
TO PARENT OR BOL: with a copy to:
XxxxxxxXxxxxx.xxx, Inc. Xxxxx & Xxxxxxx, LLP
0000 Xxxxx 00 000 Xxxxx Xxxx Xxxxxxxx
Xxxx, Xxx Xxxxxx, 00000 Xxxxxxxxxx, XX 00000
ATTN: Xxxx X. Xxxxx, President and ATTN: Xxxxxxx X. Xxxxxxx, Esq.
Chief Executive Officer Phone: (000) 000-0000
Phone: 000-000-0000 Fax: (000) 000-0000
Fax: 000-000-0000
TO THE COMPANY: with a copy to:
Telesupport, Inc. Xxxxxxx Xxxx Xxxxxxx
131 Enterprise Road Xxxxx & Goodyear, LLP
Industrial Park 0 Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000 Xxxxxxxxxxxx, XX 00000
ATTN: Xxxxx Xxxxxx, President ATTN: Xxxxx X. Xxxx, Esq.
Phone: (000) 000-0000 Phone: (000) 000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
TO THE STOCKHOLDERS with a copy to:
Xxxxxx X. Xxxxxxxx III Xxxxxxx Xxxx Xxxxxxx
122 Xxxxxx Xxxxxx Drive Xxxxx & Goodyear, LLP
Xxxxxxxx, XX 00000 0 Xxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Xxxxx X. Xxxxxx ATTN: Xxxxx X. Xxxx, Esq.
0 Xxxxxxxx Xxxxx Phone: (000) 000-0000
Xxxxxxxxx, XX 00000 Fax: (000) 000-0000
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
13.3 PUBLICITY; SECURITIES LAWS. The Stockholders and the Company
acknowledge that the Parent is a publicly held company that is therefore subject
to certain disclosure requirements under federal securities laws. The
Stockholders, the Company 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 Stockholders further understand that this
Agreement represents information concerning the Parent and BOL which has not
been previously disclosed to the public and which may be material, all as
determined in accordance with applicable laws, rules and regulations of the
United States and the several states concerning securities (collectively, the
"Securities Laws"). The Stockholders and the Company agree not to take any
action in connection with this
40
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.
13.4 ENTIRE AGREEMENT. This Agreement, including any schedules, annexes
and/or exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
13.5 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may assign his rights or delegate his obligations hereunder without
the prior written consent of the Parent. This Agreement and the obligations of
the parties hereunder shall be binding upon and enforceable by, and shall inure
to the benefit of, the parties hereto and their respective successors,
executors, administrators, estates, heirs and permitted assigns, and no others.
13.6 JURISDICTION; VENUE; ATTORNEY'S FEES. Each party hereto agrees
that any dispute regarding this Agreement shall be resolved in a 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 shall award
costs and expenses (including reasonable attorney's fees) to the prevailing
party and/or parties in any litigation.
13.7 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
13.8 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "Affiliate" of a person shall mean a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
13.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
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13.10 AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified, nor may compliance with any condition or covenant set forth herein be
waived, except by a writing duly and validly executed by the Parent, BOL, the
Company and the Stockholders, or, in the case of a waiver, the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
13.11 SURVIVAL. All representations, warranties, agreements, covenants
and agreements of the parties contained in this Agreement, or in any instrument,
certificate, or opinion provided for in it, shall survive the Closing (even if
the damaged party knew or had reason to know of any misrepresentation or breach
of warranty at the time of Closing) and continue in full force and effect for a
period of 24 months; provided, however, (i) that the representation and warranty
set forth in Section 3.6(a)(i), (ii) and (iii) shall terminate on the Closing
Date and (ii) that any representation and warranty with respect to any tax
matter shall survive for the period of the applicable statute of limitation or
repose.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
PARENT
------
ATTEST: XxxxxxxXxxxxx.xxx, Inc.
By: /S/ XXXX X. XXXXX
-------------------------------
Xxxx X. Xxxxx, President
and Chief Executive Officer
BOL
---
ATTEST: BOL Acquisition Co. II, Inc.
By: /S/ XXXX X. XXXXX
-------------------------------
Xxxx X. Xxxxx, President
and Chief Executive Officer
COMPANY
-------
ATTEST: Telesupport, Inc.
-----------------
By: /S/ XXXXX XXXXXX
------------------------------- -------------------------------
, Secretary Xxxxx Xxxxxx, President
WITNESS: STOCKHOLDERS
/S/ XXXXXX XXXXXXXX
-----------------------------------
Xxxxxx Xxxxxxxx
WITNESS:
/S/ XXXXX XXXXXX
------------------------------- -----------------------------------
Xxxxx Xxxxxx
43
