Exhibit 10.26
ASSET PURCHASE AGREEMENT
INTRODUCTION
THIS ASSET PURCHASE AGREEMENT (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. III, Inc., a New York
corporation ("BOL"), (the Parent and BOL are sometimes collectively referred to
herein as the "Buyer"); Telecon Communications Corp., a New York corporation
(the "Company"); and Xxxxxx Xxxxxxxx, Xxxxx Xxxxxx, and Xxxxxxxx Xxxxxxxx, the
holders of all of the outstanding capital stock of the Company (referred to
individually as a "Stockholder" and collectively as the "Stockholders").
BACKGROUND
A. The Company is the owner of certain assets described herein. The Company
desires to sell to BOL, and BOL desires to purchase from the Company,
substantially all of the assets of the Company for the consideration and upon
the terms and conditions set forth in this Agreement.
B. This Agreement has been adopted and approved by the respective Board 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. PURCHASE AND SALE OF ASSETS; CLOSING.
1.1 SALE AND TRANSFER OF ASSETS. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as defined in SECTION
1.4 below), the Company agrees to sell, convey, transfer, assign and deliver to
BOL, and BOL agrees to purchase from the Company, the assets and property of the
Company described on EXHIBIT 1.1 attached hereto (the "Assets"), free and clear
of all liens, pledges, security interests, charges, claims, restrictions and
encumbrances of any nature whatsoever except for those certain liens and
security interests which secure liabilities which are to be assumed by BOL
pursuant to Section 1.7 below ("Permitted Liens"). For purposes of this
Agreement, the Assets will also mean and include all assets and property
acquired hereafter by the Company before the Closing Date but will not include
the assets and property of the Company disposed of as permitted by this
Agreement or the "Excluded Assets" as defined in SECTION 1.2 below.
1.2 EXCLUDED ASSETS. "Excluded Assets" shall mean (a) income and other
tax records of the Company (copies of which have been made available to BOL),
provided, however, the Company will retain these records for a period of not
less than five (5) years after the Closing and make them available to the Buyer
upon the Buyer's request; (b) the Company's corporate seal, Certificate of
Incorporation, minute book and stock ledger and (c) any other assets listed on
EXHIBIT 1.2 hereof.
1.3 PURCHASE PRICE. The aggregate purchase price (the "Purchase Price")
for the Assets will be $15,000,000, subject to the escrow provisions set forth
in SECTION 1.4 below and the post-closing adjustments set forth in SECTION 2
below, which shall be payable at the Closing as described in Section 1.5 below,
as follows: (i) $10 million in cash, certified check, or wire transfer; and (ii)
$5 million in cash, certified check or wire transfer or, at the sole option of
the Buyer, two (2) promissory notes in the principal amounts of $3,000,000 and
$2,000,000 respectively in the forms attached hereto as EXHIBIT 1.3(a) AND
1.3(b) (collectively, the "Notes"). In addition, Buyer shall pay the Company or
the Stockholders as additional Purchase Price an amount equal to 50% of the
"Ordinary Income Tax Differential" payable by the Company or the Stockholders on
up to 55% of the combined accounts receivable of the Company and Telesupport,
Inc. as reported on the Closing Date Balance Sheet as of the Closing Date. For
purposes hereof, "Ordinary Income Tax Differential" means the difference between
the dollar amount of tax payable by the Company or the Stockholders on the sale
of its accounts receivable (a) on a capital gain tax rate basis and (b) on an
ordinary income tax rate basis, if applicable. By way of illustration, if the
combined accounts receivable of the Company and Telesupport as of the Closing
Date is $2,000,000, and the differential between the ordinary income rate and
the capital gains rate is the difference between 20% and 45%, Buyer would pay up
to 25% of 50% of $1,100,000, or $137,500. The Stockholders shall provide draft
tax returns to the Buyer's accountants by April 1, 2000 for a determination of
the Ordinary Income Tax Differential, whereupon the parties shall have 10 days
to resolve any disputes over the amounts to be paid to the Company or the
Stockholders, subject to the same dispute resolution procedures set forth in
Section 2.3. The amount payable hereunder shall be paid to the Company or the
Stockholders within 5 days of the final determination of such amount
1.4 ESCROW/SET-OFF. At the Closing, the Company shall simultaneously
deliver $2,000,000 of the Purchase Price in cash or, if the Buyer elects to
deliver the Notes as part of the Purchase Price, then the Company shall instead
simultaneously deliver the $2,000,000 Note attached hereto as Exhibit 1.3(b)
into escrow pursuant to the Escrow Agreement attached hereto as EXHIBIT 1.4 (the
"Escrow Deposit"). In addition to all other rights and remedies of the Buyer 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 Buyer
shall have the right to set-off against the Escrow Deposit (i) for any claims of
Buyer arising under SECTION 2 below (pending resolution of such claims as
provided in SECTION 2), or (ii) 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 and BOL's right to seek damages or obtain any other
remedy at law or in equity to which Buyer and BOL shall be entitled by virtue of
such breach.
1.5 CLOSING.
(a) Within ten (10) business days after satisfaction or waiver of
all of the conditions set forth in SECTION 6 AND 7 hereof, including but not
limited to the issuance of any necessary consent, approval or order of the New
York Public Commission ("PSC"), the closing shall take place 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 (hereinafter referred to as the "Closing"). The
actual date of the Closing is referred to herein as the "Closing Date". At the
Closing, the Parent, BOL, the
2
Stockholders and the Company shall take all actions necessary to effect the
transfer and delivery of the Assets to BOL as stated in SECTION 1.1 hereof.
Simultaneously with the Closing, the Parent or BOL Acquisition Co. II, Inc., a
wholly owned subsidiary of the Parent ("BOL II"), and the stockholders of all
the issued and outstanding shares of capital stock of Telesupport, Inc., a New
York corporation ("Telesupport"), shall effect a merger of Telesupport into BOL
II. In the event the Note is delivered to the Company at the Closing, the Parent
shall increase the Purchase Price under that certain Agreement and Plan of
Merger of even date herewith by and among the Parent, BOL II and the
Stockholders of Telesupport from $3,000,000 to $4,000,000 payable in restricted
shares of common stock of the Parent, provided all other terms of such merger
agreement shall remain the same.
(b) The parties agree that time is of the essence in completing the
consummation of the transactions contemplated hereby. Accordingly, the Buyer,
the Company and the Stockholders, on behalf of themselves and their respective
affiliates, covenant and agree to cooperate in good faith and take all steps as
may be reasonably necessary or proper to expeditiously and diligently complete
the consummation of the transactions contemplated hereby.
1.6. GOVERNMENT APPROVAL APPLICATIONS AND THIRD PARTY CONSENTS. As soon
as practicable, but in no event later than five business days after the date
this Agreement is executed, the parties hereby agree to prepare and file with
the PSC and vigorously prosecute all documents and take all action which may be
necessary to obtain authorization, approval or consent of the PSC to the
transactions contemplated by this Agreement. The Buyer, the Company and the
Stockholders will cooperate in providing the PSC with any additional information
requested by the PSC. Provided that the economic benefit to the Buyer, the
Company and the Stockholders contemplated by this Agreement is not diminished,
each of the Buyer and the Company agree to make such amendments and
modifications as may be required to obtain the approval of the PSC, provided
that such changes are permitted by this Agreement. With respect to any other
regulatory authority or third party whose consent or approval may be required in
connection with this Agreement or the sale of the Assets to the Buyer, the
Company and the Stockholders will use best efforts following the execution of
this Agreement to promptly prepare and file any necessary documents to obtain
the approval of such parties as contemplated under SECTION 6.9 below or
otherwise for the due and punctual consummation of the transactions contemplated
by this Agreement.
1.7 ASSUMPTION OF LIABILITIES. At the Closing, BOL will assume those
certain trade debts, liabilities, obligations and contracts of the Company,
specifically described on EXHIBIT 1.7 (the "Assumed Liabilities"). BOL will not
be liable for any of the obligations or liabilities of the Seller of any kind
and nature other than those specifically listed or described on EXHIBIT 1.7.
Without limiting the foregoing, BOL shall not assume any liability, whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, for (i) any tax including, but not limited to, income tax, taxes
imposed on the Company or the Stockholders because of the sale of the Assets,
other than as expressly set forth on Exhibit 1.7; (ii) any liabilities or
expenses of the Company or the Stockholders incurred in negotiating and carrying
out their obligations under this Agreement; (iii) any obligations incurred by
the Company or the Stockholders after the Closing; (iv) any liabilities or
obligations incurred by the Company or the Stockholders in violation of, or as a
result of the Company or the Stockholders' breach of, this Agreement; (v)
3
any intercompany payables or outstanding loans or lines of credit of the
Company; (vi) for any litigation involving the Company, including but not
limited to matters listed on SCHEDULE 3.16; and (vii) liabilities for any
severance, accrued vacation/sick day or other employee benefits of the Company
whether or not resulting from the transactions contemplated hereby.
1.8 ALLOCATION. The total purchase price will be allocated among the
items of the Assets in proportion to their fair market value and in accordance
with Section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The allocation (or the method by which the allocation
will be determined) is set forth in EXHIBIT 1.8. In connection with their filing
of Federal income tax returns, the parties will file Treasury Forms 8594
consistent with this allocation.
1.9 REAL ESTATE.
(a) CONVEYANCE OF PREMISES. With respect to that certain parcel of
real estate included in the Assets with an address at 000 Xxxxxxxxxx Xxxxx,
Xxxxxxxxx, Xxx Xxxx as described in EXHIBIT 1.1 hereto (the "Premises"), the
Company agrees to sell and convey the Premises to BOL at the Closing by delivery
of a good and sufficient Bargain and Sale Deed in the form attached hereto as
EXHIBIT 1.9, running to BOL or to such nominee as the Buyer may designate to the
Company at or prior to the Closing, and said deed shall convey a good, clear,
record, marketable and insurable (as specified in Section 6.14 herein) title
thereto, free from all mortgages, liens, restrictions, easements or other
encumbrances or matters of record, except:(i) real estate taxes assessed for the
then current tax fiscal year which are not due and payable on the date of the
delivery of such deed; (ii) any liens for municipal betterments assessed after
the Closing Date; (iii) any restrictions, easements and other burdens on the
Premises of record, including the Protective Covenants for the Johnstown
Industrial Park, subject to the provisions of Section 6.14 hereto. The Company
shall also deliver to the Buyer at the Closing all documents required by the
title company to remove the standard title exceptions from the title commitment
and the subsequent title policy to be obtained by the Buyer, and such other
customary closing documents as may be reasonably requested by the Buyer,
including but not limited to a Xxxx of Sale for fixtures and other personal
property and an affidavit of non-foreign status for purposes of exemption from
FIRPTA withholding.
(b) RISK OF LOSS. The risk of loss or damage to the Premises by
fire or other casualty prior to the Closing is assumed by the Company.
Notwithstanding anything contained herein to the contrary, in the event that
prior to the Closing, any part of the Premises is destroyed or damaged by fire
or any other cause whatsoever or condemnation or eminent domain proceedings are
initiated against all or any portion of the Premises, the Company shall
immediately give notice to the Buyer thereof, and whether or not such notice is
given, the following paragraphs shall be applicable:
(i) If the Premises shall be damaged from any cause (including
condemnation or eminent domain proceedings) to the extent that the
estimated cost to repair or restore such damage can reasonably be
expected to be not more than $100,000, which damage the Seller shall
not have repaired or replaced prior to the earlier of (i) thirty (30)
days after receiving notice of such damage or (ii) the Closing Date,
the Buyer may, by giving notice within fifteen (15) days after
receiving notice of such damage from
4
Seller or any third party, either (x) terminate this Agreement with
the same effect of a termination as provided in subparagraph (ii)
hereof, or (y) accept the Premises in its damaged condition, whereupon
all proceeds of insurance or condemnation awards paid or payable to
the Company by reason of such damage, destruction or condemnation
shall be paid to and made payable to and assigned to the Buyer at the
Closing.
(ii) If the Premises shall be damaged from any cause
(including condemnation or eminent domain proceedings) to such extent
that the estimated cost to repair or restore such damage can reasonably
be expected to exceed $100,000 and such damage would cause an
interruption of the Company's business activities for more than 30 days
which interruption is not fully covered by business interruption
insurance, the Buyer may, by giving notice to the Company within
fifteen (15) days after receiving notice of such damage from Seller or
any other third party, terminate this Agreement, in which case neither
party shall have any further rights or obligations hereunder. If the
Buyer does not exercise such right to terminate, all proceeds of
insurance or condemnation awards paid or payable to the Company by
reason of such damage, destruction or condemnation shall be paid to and
made payable to and assigned to the Buyer at the Closing.
(c) MAINTENANCE OF PREMISES. From the date hereof until the
Closing Date, the Company shall: (i) maintain the Premises in good order,
condition and repair, reasonable wear and tear and damage by fire and other
insured-against casualty excepted; (ii) continuously maintain in full force and
effect a policy or policies of fire and extended coverage insurance on the
Premises in such amounts as shall be reasonably required by the Buyer from time
to time but in no event less than the amount which is currently in place on the
Premises; (iii) take all such actions as may be reasonably necessary to preserve
the value of the Premises.
(d) ACTIONS REQUIRING BUYER'S CONSENT. From the date hereof
until the Closing Date, the Company shall not take any of the following actions
with respect to the Premises without first obtaining the Buyer's prior written
consent which consent the Buyer may give or withhold in the Buyer's sole
discretion:(i) make or permit any structural modifications of or additions to
the Premises; (ii) mortgage or otherwise encumber or permit liens (whether
inchoate or not) upon the Premises; (iii) enter into any agreements relating to
the operation or maintenance of the Premises the term of which agreements shall
extend beyond the date of the Closing; or (iv) enter into any lease, assignment
of lease, license, contract or other agreement with respect to the use or
occupancy of the Premises.
(e) ADJUSTMENTS. Real estate taxes assessed for the year of
the Closing Date shall be pro-rated between the Company and the Buyer, the
Company paying pro-rata for the period of such year up to the Closing Date and
the Buyer paying or assuming the balance of such taxes. Any and all taxes
assessed for all prior periods shall be paid in full by the Company on or before
the Closing Date. The Company shall pay the documentary stamps for recording the
deed to the Premises. Any unpaid betterment or improvement assessments
constituting a lien against the Premises payable in installments shall be
apportioned, the Company paying all installments due for prior periods and a pro
rata share of the current installment, the Buyer taking subject to the lien of
any such assessment and assuming the balance.
5
(f) ACCESS. Prior to the Closing, the Company agrees to provide
the Buyer and the Buyer's duly authorized agents with reasonable access to the
Premises upon reasonable prior advance notice to enable the Buyer to inspect and
examine the Premises, take measurements, perform tests and for any other
legitimate purpose. The Buyer acknowledges and agrees that such right of access
shall be conducted in a manner so as not to unreasonably interfere with the
current use of the Premises.
SECTION 2. POST CLOSING ADJUSTMENTS
2.1 POST-CLOSING NET EQUITY ADJUSTMENT BASED ON THE CLOSING DATE
BALANCE SHEET. Within sixty (60) days after the Closing, BOL shall engage KPMG
LLP to audit a combined balance sheet of the Company and Telesupport prepared in
accordance with generally accepted accounting principles ("GAAP") as of 5:00 PM
(EST) on the day of the Closing (the "Closing Date Balance Sheet"). Such Closing
Date Balance Sheet will utilize the accrual method of accounting notwithstanding
any other accounting method(s) that the Company or Telesupport may have been
using in the past in connection with its financial statements and taxes. If the
aggregate Stockholders' equity as shown on the Closing Date Balance Sheet (which
shall mean total assets, exclusive of any doubtful accounts receivable, less
total liabilities, inclusive of any contingent liabilities) is less than
$1,465,000 (the amount of such shortfall being hereafter known as the "Net
Equity Deficiency"), the Company shall pay to BOL, within ten (10) days of the
date of determination of the Net Equity Deficiency (subject to the dispute
resolution procedure set forth in SECTION 2.3 below) in cash, by certified check
or by wire transfer of immediately available funds, an amount equal to 100% of
the Net Equity Deficiency; provided, however, that BOL shall have the option,
upon notice to the Company and the Stockholders, at its sole discretion and
notwithstanding any language to the contrary in the Escrow Agreement, to receive
all or a portion of the Escrow Deposit to satisfy any such Net Equity
Deficiency.
2.2 POST-CLOSING ADJUSTMENT FOR DEFICIENCY OR SURPLUS IN 1999 EBITDA.
To the extent that the combined audited "EBITDA" (Earnings before Interest,
Taxes, Depreciation and Amortization) of the Company and Telesupport for the
fiscal year ended December 31, 1999, is (i) less than $1,450,000, the Purchase
Price shall be reduced by an amount equal to $11.25 for each dollar in combined
EBITDA less than $1,450,000 (the "1999 Combined EBITDA Deficiency"), or (ii)
greater than $1,750,000, the Purchase Price shall be increased by an amount
equal to $11.25 for each dollar in combined EBITDA greater than $1,750,000 (the
"1999 Combined EBITDA Surplus"). For example, in the event of a 1999 Combined
EBITDA Deficiency of $100,000, the aggregate price payable to the Company shall
be reduced by $1,125,000 (i.e. the $100,000 shortfall multiplied by $11.25),
and, alternatively, in the event of a 1999 Combined EBITDA Surplus of $100,000,
the aggregate price payable to the Company shall be increased by $1,125,000
(i.e. the $100,000 surplus multiplied by 11.25). Any such adjustment shall be
based on income statements prepared by BOL's accountants on or before April 30,
2000, and utilizing the accrual method of accounting notwithstanding any other
accounting method(s) that the Company or Telesupport may have been using in the
past in connection with their financial statements and taxes, showing combined
audited EBITDA for the Company and Telesupport for the year ended December 31,
1999 (the "1999 Income Statements"). To the extent any reduction in the purchase
price shall be required under this SECTION 2.2, the Company shall pay to BOL,
within ten (10) days of the date of determination of the 1999 Combined EBITDA
Deficiency (subject to the dispute resolution procedure set forth in
6
SECTION 2.3 below) 100% of such Deficiency in cash, by certified check or by
wire transfer of immediately available funds. To the extent any increase in the
purchase price shall be required under this SECTION 2.2, the Parent shall pay to
the Company, within ten (10) days of the date of determination of the 1999
Combined EBITDA Surplus (subject to the dispute resolution procedure set forth
in the SECTION 2.3 below) 100% of such Surplus in cash, by certified check or by
wire transfer of immediately available funds. BOL agrees that (i) expenses of
the Company and Telesupport specifically attributable to the transactions
contemplated by this agreement (including legal and accounting fees) up to a
maximum of $100,000, which shall be supported by sufficiently detailed written
invoices or other written documentation provided to Buyer, and (ii) gross
receipts taxes, if any, shall be excluded from the computation of EBITDA.
Notwithstanding anything else herein, the total Purchase Price paid to the
Company, after all adjustments pursuant to SECTIONS 2.1 and SECTION 2.2 herein,
combined with the total purchase price to be paid by BOL II for all outstanding
stock of Telesupport after adjustments for any Net Equity Deficiency and/or 1999
Combined EBITDA Deficiency or Surplus, shall not be less than $17 million ($18
million if the Notes are delivered at the Closing) nor greater than $19 million
($20 million if the Notes are delivered at the Closing) (subject in either case
to reduction as a result of any indemnity claims by the Parent or BOL under
SECTION 12 below as a result of any breach of a representation, warranty or
condition herein by the Stockholders and/or the Company); provided, however,
that in the event the combined audited EBITDA of the Company and Telesupport for
the year ended December 31, 1999 is less than $1,300,000 as reasonably
determined by BOL prior to the Closing based on actual or draft income
statements for 1999 as prepared by BOL's accountants prior to the Closing, the
Buyer shall have the absolute and unconditional right to terminate this
Agreement upon written notice to the Stockholders without any liability
whatsoever to the Company, Telesupport and/or their respective stockholders, and
in such event this Agreement shall be of no further force or effect.
2.3 DISPUTE RESOLUTION PROCEDURE FOR ADJUSTMENTS BASED ON THE CLOSING
DATE BALANCE SHEET AND 1999 AUDITED EBITDA. Notwithstanding anything in this
SECTION 2 to the contrary, if there is any Net Equity Deficiency and the Company
and/or the Stockholders dispute any item contained on the Closing Date Balance
Sheet, or if there is any dispute over the amount of any 1999 Combined EBITDA
Surplus or Deficiency based on the 1999 Income Statements, the Company or the
Stockholders shall notify BOL in writing of each disputed item (collectively,
the "Disputed Amounts"), and specify the amount thereof in dispute within thirty
(30) business days after the delivery of the Closing Date Balance Sheet or the
delivery of the 1999 Income Statements, as applicable. If BOL and the Company
and/or the Stockholders cannot resolve any such dispute, then such dispute shall
be resolved by an independent nationally recognized accounting firm which is
reasonably acceptable to BOL and the Company/Stockholders (the "Independent
Accounting Firm"). The determination of the Independent Accounting Firm shall be
made as promptly as practical and shall be final and binding on the parties,
absent manifest error which error may only be corrected by such Independent
Accounting Firm. Any expenses relating to the engagement of the Independent
Accounting Firm shall be allocated between BOL and the Company so that the
Company's aggregate share of such costs shall bear the same proportion to the
total costs that the Disputed Amounts unsuccessfully contested by the
Company/Stockholders (as finally determined by the Independent Accounting Firm)
bear to the total of the Disputed Amounts so submitted to the Independent
Accounting Firm.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
7
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, except as set forth in SCHEDULE 3.2. The
copies of the Certificate of Incorporation of the Company as amended to date,
certified by the Secretary of State of New York and the bylaws certified by the
Secretary of the Company and heretofore delivered to the 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 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 (the "Company Shares") listed on SCHEDULE 3.4. All
of the issued and outstanding Company Shares are duly authorized and validly
issued, are fully paid and nonassessable, and are owned of record and
beneficially by the Stockholders as set forth in SCHEDULE 3.4. No shares of
capital stock of the Company are held in the treasury of the Company except as
set forth on SCHEDULE 3.4. 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 Shares. SCHEDULE 3.4 contains a
8
complete and correct listing of the stockholders of the Company at the date
hereof, together with their residences addresses and the number of Company
Shares 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, 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
9
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 Company (collectively referred to
as the "Real Property").
(i) REAL PROPERTY OWNED BY THE COMPANY. The Company
has good and marketable title to the Real Property which it owns, free
and clear of any security interest, easement, covenant, or other
restriction, except for installments of special assessments not yet
delinquent and recorded easements, covenants, and other restrictions
which do not impair the current use, occupancy, or value, or the
marketability of title, of the property subject thereto. The legal
description for such property contained in the deed thereof describes
such parcel fully and adequately, the buildings and improvements are
located within the boundary lines of the described parcels of land, are
not in violation of applicable setback requirements, zoning laws, and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), and do not encroach on any
easement which may burden the land, and the land does not serve any
adjoining property for any purpose inconsistent with the use of the
land, and the property is not located within any flood plain or subject
to any similar type restriction for which any permits or licenses
necessary to the use thereof have not been obtained. There are no
parties (other than the Company and Telesupport) in possession of the
Real Property owned by the Company.
(ii) 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.
(iii) 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.
(iv) 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 of any
existing agreement, become due after the date hereof.
(v) 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
10
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.
(vi) 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.
(vii) 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.
(viii) 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 failure to do so would not have a material
adverse effect on the Company.
(ix) ZONING. The Company has not received any notice
of any zoning violations.
(x) 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.
(xi) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements affecting
the Real Property or any portion thereof (the "Service Contracts") to
which the Company is a party 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).
11
(b) PERSONAL PROPERTY. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Company 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 information, copies of which are attached hereto as SCHEDULE 3.7:
(i) Combined financial statements of the Company and
Telesupport for the fiscal year ended December 31, 1998, compiled by
Washburn, Ellingwood, Xxxxxxx & Xxxxxx 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");
(ii) Draft management prepared combined financial statements
of the Company and Telesupport 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
Year-End 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.
12
(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 (i)
liabilities 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. The Vice President
of the Company shall further certify that as of the date hereof, the combined
revenues of the Company and Telesupport for the month of October, 1999 shall be
not less than $850,000 and the combined EBITDA of the Company and Telesupport
for such month shall not be less than $125,000.
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 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 $50,000 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 on 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
13
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 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 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.
14
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company as of
the respective balance sheet dates and all accounts receivable arising
thereafter or hereafter to the Closing Date, arose or will arise from valid
sales in the ordinary course of business, and to the best knowledge of the
Company and the Stockholders are fully collectible. 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. On the Closing Date, the Company will prepare and deliver to the Buyer
an Accounts Receivable aging report as of the close of business on the preceding
business day which will be certified by the President or Vice President of the
Company as to the material truth and accuracy of such report with respect to the
representations made in this SECTION 3.9.
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 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;
(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;
15
(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 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;
(k) Any change in accounting methods or practices, credit
practices or collection policies used by the Company other than to comply with
new accounting pronouncements;
(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 (a) through (l)
above.
16
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.
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.
17
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 written 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 written contract or agreement for the sale
or lease of its products or services not made in the ordinary course of
business;
(viii) any contract with any sales agent or
distributor of products of the Company or 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);
18
(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 Parent as a result
of the transactions contemplated herein.
3.16 LITIGATION.
(a) 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 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.
(b) Buyer and the Stockholders agree that all costs, expenses,
fees and other liabilities in connection with that certain lawsuit identified as
Telecon Communications Corporation v. Caroga Enterprises pending in New York
State Supreme Court, Xxxxxx County, are and will hereafter be the responsibility
of the Stockholders, and Buyer shall be indemnified and held harmless against
any such costs, expenses, fees and liabilities in connection therewith
19
by the Stockholders, and all rights, benefits and future payments, if any, shall
be an Excluded Asset for purposes of this Agreement and shall belong to the
Stockholders and not to Buyer.
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. 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 Company 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 Company 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 Company.
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.
20
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 Stockholders, 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) maintained (as such term is further defined below) by the
Company at any time during the three-year period ending on the date hereof. The
Company acknowledges that the Buyer is not assuming any obligations under any
Employee Program. None of the Assets are subject to any lien in favor of or
enforceable by the Pension Guaranty Corporation or any similar lien under state
or federal law governing employment benefits. All Employee Programs shall
further be considered Excluded Assets for purposes of this Agreement, and the
Company and the Stockholders shall indemnify, defend and hold Buyer harmless
from any losses, liabilities, obligations, damages, actions, costs, claims, and
expenses (including reasonable attorneys' fees) arising in connection with any
Employee Program. The Company and the Stockholders have no knowledge that any
current employee of the Company will refuse employment with Buyer at the
Closing.
(b) Neither the Company nor any Affiliate has ever maintained
any Employee Program subject to Title IV of ERISA.
(c) 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
21
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;
(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); and
(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).
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
22
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.
(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 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
23
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). 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 Telesupport 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 Telesupport 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, either directly or
indirectly, 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 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 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 Stockholders, on behalf of the Company and of the
Stockholders at the date of this Agreement and on the Closing Date, 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" 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.
24
SECTION 4. COVENANTS OF THE STOCKHOLDERS AND THE COMPANY.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Stockholders and the
Company covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, the Stockholders will cause the Company to do and the Company will
do the following, unless the 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;
25
(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 for BOL to operate the business of the
Company using the Assets acquired 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 Closing Date all contracts,
permits, licenses and franchises of or applicable to the businesses of the
Company.
4.4 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 any Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of the Company 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,
26
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 its representatives, or (iii) otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do any of the foregoing.
4.5 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Closing Date, none of the Stockholders shall sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any Company Shares
owned beneficially or of record by such Stockholder, nor grant any right of any
kind to acquire, dispose of, vote or otherwise control in any manner such
Company Shares; provided, however, that notwithstanding anything to the contrary
stated herein, any transferee, executor, heir, legal representative, successor
or assign of any Stockholder shall be bound by this Agreement.
4.6 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 Stockholders contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any Stockholder 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 4.6 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.
4.7 AMENDMENT OF SCHEDULES. The Stockholders agree that, with respect
to the representations and warranties contained in this Agreement, 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 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
27
discovered that constitutes or reflects a Material Adverse Change, unless the
Parent acknowledges and consents in writing to such amendment or supplement.
4.8 FURTHER ASSURANCES. The Stockholders and the Company hereby 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 jointly and severally hereby
represent and warrant to the Stockholders and the Company jointly and severally
as set forth in this SECTION 5.
5.2 ORGANIZATION OF THE PARENT. The Parent and BOL are corporations
duly organized, validly existing and in good standing under their respective
states of incorporation with full corporate power and authority to conduct their
businesses in the manner as now conducted.
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 BOL pursuant to this Agreement. This Agreement and
each agreement, document and instrument to be executed and delivered by the
Parent and 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.
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 other than those liens in favor of the Company contemplated hereby, 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.
5.5 SEC FILINGS. The Parent has timely filed all material 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
28
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
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 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 which
individually or in the aggregate 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.
5.8 COMPLIANCE WITH LAWS. Neither the Parent nor BOL have received any
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would result
in a BIZZ MAC.
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. The Parent and BOL shall also have had sufficient opportunity to
review the audited combined
29
balance sheet of the Company and Telesupport as of December 31, 1998 and the
draft audited combined balance sheet of the Company and Telesupport 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.
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 and 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 each of 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
by BOL using the Assets subsequent to the Closing Date, and the Company and the
Parent shall have received all required authorizations, waivers, consents and
30
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
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.
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 THE PARENT AND BOL. 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 its counsel.
6.12 EMPLOYMENT AGREEMENT; TRANSITIONAL SERVICES; TERMINATION OF
EMPLOYEES.
(a) XXXXXXXX EMPLOYMENT AGREEMENT. Xxxxxxxx Xxxxxxxx shall
have executed and delivered an employment agreement with BOL 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 in the form attached
hereto as EXHIBIT 6.12(c).
(d) TERMINATION OF EMPLOYEES. As of the Closing Date, the
Company shall have terminated all of its employees and the Buyer shall have
hired certain of such former employees as it may, in its sole discretion, need
to operate the business of the Company thereafter, provided, however, that the
Buyer shall have no obligation to hire any such employees (other than pursuant
to the Employment Agreement described above).
31
(e) XXXXX XXXXXXX LICENSE. As of the Closing Date, the Company
and Xxxxx Xxxxxxx shall have entered into a license agreement satisfactory to
BOL providing BOL and its affiliates, successors and assigns with a perpetual,
non-exclusive, royalty free license to use and modify the Constellation Billing
and Customer Care System for its internal business purposes.
6.13 ESCROW AGREEMENT. The Stockholders shall have executed and
delivered an escrow agreement with BOL and the Parent in the form attached
hereto as EXHIBIT 1.6.
6.14 TITLE INSURANCE; SURVEY. The Company will assist Buyer in
obtaining a title insurance commitment, policy, and rider with respect to the
Premises at 000 Xxxxxxxxxx Xxxxx in Johnstown, New York. Such policy shall be a
standard 1992 ALTA Owner's Policy of Title Insurance (or other similar form as
may be acceptable to Buyer) issued by a title insurer satisfactory to the Buyer,
in such amount as the Buyer may determine to be the fair market value of the
Premises (including all improvements located thereon), insuring title to the
Premises to be in the Buyer's name as of the Closing, and with such zoning,
access and other endorsements reasonably required by the Buyer after review of
the title insurance commitment. In the event the Buyer chooses to procure a
current survey of the real property, prepared by a licensed surveyor, such
survey shall not disclose any survey defect or encroachment from or on the
Premises which has not been cured or insured over prior to the Closing.
6.15 TELESUPPORT. Simultaneous with the Closing, the stockholders of
Telesupport and the Parent or BOL II shall merge Telesupport into the Parent or
BOL II.
6.16 BULK SALES. The Buyer waives compliance with the applicable
provisions of Sections 0-000-000 of the Uniform Commercial Code relating to bulk
transfer in connection with this sale of the Assets, subject to the indemnities
of the Company and the Stockholders contained in this Agreement. Nothing in the
SECTION 6.16 will estop or prevent either the Buyer or the Company or
Stockholders from asserting as a bar or defense to any action or proceeding
brought under such provisions that such provisions are not applicable to the
transfer contemplated under this Agreement.
6.17 NAME CHANGE, TELEPHONE NUMBERS AND POST OFFICE BOX ADDRESSES. The
Company will have executed and delivered all such documents for filing as may be
required to change the corporate name of Telecon Communications Corp. to another
name bearing no similarity thereto or to any other trade names of the Company,
including but not limited to duly executed amendments to the Certificate of
Incorporation of the Company. From and after the Closing Date, neither the
Company nor the Stockholders shall use such names or any names similar thereto,
and shall sign such consents and take such other action as the Buyer shall
reasonably request in order to permit the Buyer to use the Telecon name and
transfer telephone numbers and post office box addresses, if any.
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):
32
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 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 AND OTHER AGREEMENTS. BOL shall have executed and
delivered the following employment agreements: (a) Employment Agreement with
Xxxxxxxx Xxxxxxxx in the form attached hereto as EXHIBIT 6.12(a); (b) Employment
Agreement with Xxxxxx Xxxxxxxx in the form attached hereto as EXHIBIT 6.12(b);
Consulting Agreement with Xxxxx Xxxxxx in the form annexed hereto as EXHIBIT
6.12(c).
7.5 LEGAL OPINION. The Company shall have received an opinion from
Xxxxx & Xxxxxxx, LLP 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 by BOL using
the Assets 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
33
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.
7.8 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. Parent shall have delivered to the Stockholders a certificate,
dated as of a date no earlier than twenty (20) days prior to the Closing Date,
duly issued by the Secretary of State of Delaware secretary of State, showing
that the Parent is a subsisting corporation organized under the law of the State
of Delaware and that it has filed all annual reports and paid all franchise
taxes due. BOL shall have delivered to the Stockholders certificates, dated as
of a date no earlier than twenty (20) days prior to the Closing Date, (i) duly
issued by the New York Secretary of State, showing that BOL 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 BOL prior to the date of such certificate have been filed and paid.
Each of the Parent and BOL shall also have delivered to the Stockholders prior
to the Closing a recent copy of its Certificate of Incorporation and all
amendments thereto dully certified by the Secretary of State of Delaware.
7.9 TELESUPPORT. Simultaneous with the Closing, the stockholders of
Telesupport and the Parent or BOL II shall merge Telesupport into the Parent or
BOL II.
7.10 NOTICE OF BULK SALES. The notification to the New York State
Commissioner of Taxation and Finance required under Section 1141(c) of Tax Law
shall have been filed at least ten (10) days prior to the Closing.
7.11 NO MATERIAL ADVERSE CHANGE. If the Buyer elects at the Closing to
deliver the promissory notes contemplated in Section 1.3 above in lieu of cash
in the amount of $5,000,000, there shall not have occurred a BIZZ MAC which
would adversely affect the ability of BOL, or the Parent as guarantor of such
promissory notes, to satisfy the full amount of BOL's payment obligations
thereunder upon the maturity date of such notes.
SECTION 8. [Intentionally Omitted].
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 board 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,
34
the parties agree that such date shall be extended for up to a maximum
of 60 days if approval from the PSC or the Federal Communications
Commission has not been received as of such date through no fault of
the parties hereto and despite the best efforts of the parties hereto
in accordance with Section 1.6 hereof to acquire such approval; 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 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 and Xx. Xxxxxxxx, respectively,
the later of 5 years after the Closing Date or 2 years after his or her
respective 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, BOL, the Parent or
their affiliates (as such terms are hereafter defined), except that in the event
of a termination of either Xx. Xxxxxxxx or Xx. Xxxxxxxx, respectively under the
terms of his or her employment agreement with the Parent or an affiliate of the
Parent, as applicable, which termination by such employer is "without cause" as
defined in such employment agreement, the provisions of this non-competition
covenant shall end with respect to such person on the later of the effective
employment termination date or the date of the last installment of any severance
or other payment payable to such person in connection with his or her
employment, 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 or hosting
services, long distance or local telephone services, 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 and
Xx. Xxxxxxxx respectively, 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 or Xx. Xxxxxxxx'x terms of employment
with the Parent or an affiliate of the Parent, as applicable; 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 or Xx. Xxxxxxxx'x employment, respectively 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,
35
or whereby any Stockholder would have duties for such Competitor that are the
same or substantially similar to those actually performed by the Stockholders
under the terms of their employment agreements 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 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.
36
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 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 by the other parties by injunctions and restraining orders.
11.4 SURVIVAL. The obligations of the parties under this SECTION 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 COMPANY AND THE STOCKHOLDERS. The Company
and 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, BOL, and their
respective officers, directors, employees and agents (individually, a "Parent
Indemnified Party" and collectively, the "Parent Indemnified Parties")
37
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
(b) any breach of any covenant or agreement made by the
Company or any Stockholder 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.
(c) any and all loss, liability, deficiency or damage suffered
or incurred by the Parent or BOL attributable to the use of the acquired assets
prior to the Closing Date except for the Assumed Liabilities, or attributable to
the Excluded Assets, and any and all actions, suits, proceedings, claims,
demands, assessments, encumbrances, investigations, judgments, costs and
expenses (including, but no limited to, legal and accounting fees and expenses)
incident to any of the foregoing.
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 clause (b) 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 Company and the Stockholders shall not be obligated to indemnify
the Parent Indemnified Parties in respect of Parent Indemnifiable Claims and no
Parent Indemnifiable Claims shall be paid from the Escrow Deposit except to the
extent the cumulative amount of Losses to Parent Indemnifiable Parties exceeds
$100,000, whereupon all Losses in excess of $50,000 shall be recoverable in
accordance with the terms hereof. Notwithstanding the foregoing, the
$100,000/$50,000 threshold/deductible shall not apply to (i) Purchase Price
adjustments, (ii) claims with respect to any taxes not specifically assumed by
BOL hereunder, or (iii) as a result of fraud or intentional misrepresentation by
the Stockholders or the Company. The aggregate indemnification obligations of
the Company and the Stockholders hereunder shall be limited to the Purchase
Price of $15,000,000, as adjusted pursuant to Section 2 of this Agreement. After
payment of such amount, such indemnification obligations shall terminate.
38
Notwithstanding the foregoing, solely 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 solely from the
breach of said non-competition 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 directly
unless the amount of unpaid Parent Indemnifiable Claim(s) exceeds the value of
any then remaining Escrow Deposit (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.
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; or
(b) any breach of any covenant or agreement made by the Parent
or BOL in this Agreement (including but not limited to the payment and
performance by the BOL of the Assumed Liabilities) 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; and
(c) any and all loss, liability, deficiency or damage suffered
or incurred by the Company or any Stockholder attributable to the use of the
acquired assets after the Closing Date, and any and all actions, suits,
proceedings, claims, demands, assessments, encumbrances, investigations,
judgments, costs and expenses (including, but no limited to, legal and
accounting fees and expenses) incident to any of the foregoing.
39
Claims under clauses (a) through (c) 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 $100,000, whereupon all Losses in excess of $50,000 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 $5,000,000. 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 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
40
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:
TO THE PARENT AND BOL:
XxxxxxxXxxxxx.xxx, Inc.
0000 Xxxxx 00
X.X. Xxx 0000
Xxxx, XX 00000
ATTN: Xxxx X. Xxxxx, President and Chief Executive Officer
Phone: 000-000-0000
Fax: 000-000-0000
with a copy to:
Xxxxx & Xxxxxxx, LLP
000 Xxxxx Xxxx Xxxxxxxx
Xxxxxxxxxx, XX 00000
ATTN: Xxxxxxx X. Xxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
TO THE COMPANY:
Telecon Communications Corp.
X.X. Xxx 000
Xxxxxxxxx, XX
41
ATTN: Xxxxx Xxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxxxx Xxxx Xxxxxxx Xxxxx & Goodyear, LLP
0 Xxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
ATTN: Xxxxx X. Xxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
TO THE STOCKHOLDERS:
Xxxxxx X. Xxxxxxxx III
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxx, XX 00000
Xxxxx X. Xxxxxx
0 Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxxxx X. Xxxxxxxx
000 Xxxxxxx Xxxxx Xxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
with a copy to:
Xxxxxxx Xxxx Xxxxxxx Xxxxx & Goodyear, LLP
0 Xxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
ATTN: Xxxxx X. Xxxx, Esq.
Phone: (000) 000-0000
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
42
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 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, her or its rights or delegate his, her or its
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 any state court
of competent jurisdiction in the State of New York or in any United States
District Court in the State of New York. Each party irrevocably submits to and
accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court 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.
43
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.
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 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, 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.
13.12 LIQUIDATION AND DISSOLUTION OF THE COMPANY. The Buyer
acknowledges that the Stockholders intend to cause the Company to be liquidated
and dissolved as soon as practicable after the Closing. The liquidation and
dissolution of the Company after the Closing shall not be deemed a breach of any
obligation of the Company under this Agreement. The Stockholders agree (i) to
assume any and all obligations of the Company hereunder and as otherwise
required by law upon such dissolution and (ii) such dissolution shall in no way
reduce, release, modify or limit their obligations hereunder.
44
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.
ATTEST: XxxxxxxXxxxxx.xxx, Inc.
By:/S/ XXXX X. XXXXX
-------------------------------- ----------------------------------
, Assistant Secretary Xxxx X. Xxxxx, President and
Chief Executive Officer
ATTEST: BOL Acquisition Co. III, Inc.
By:/S/ XXXX X. XXXXX
-------------------------------- ----------------------------------
, Assistant Secretary Xxxx X. Xxxxx, President
ATTEST: Telecon Communications Corp.
By:/S/ XXXXX XXXXXX
-------------------------------- ----------------------------------
, Secretary Xxxxx Xxxxxx, President
STOCKHOLDERS:
WITNESS:
/S/ XXXXXX XXXXXXXX
-------------------------------- -------------------------------------
Xxxxxx Xxxxxxxx
WITNESS
/S/ XXXXX XXXXXX
-------------------------------- -------------------------------------
Xxxxx Xxxxxx
WITNESS
/S/ XXXXXXXX XXXXXXXX
-------------------------------- -------------------------------------
Xxxxxxxx Xxxxxxxx
45
