Exhibit 10.2
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 14, 2006
BY AND AMONG
eLEC COMMUNICATIONS CORP.,
CYBD ACQUISITION II, INC.,
AND
CYBER DIGITAL, INC.,
with respect to the stock
of
TELECARRIER SERVICES, INC.
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT, dated as of December 14, 2006 (the
"Agreement"), is entered into by and among eLEC Communications Corp., a New York
corporation having an address at 75 South Broadway Suite 302 White Plains, NY
10601 ("Seller"), CYBD Acquisition II, Inc., a New York corporation and
wholly-owned subsidiary of Cyber Digital (as defined below) having an address at
400 Oser Avenue, Hauppauge, New York 11788 ("Acquisition Sub"), and Cyber
Digital, Inc., a New York corporation having an address at 400 Oser Avenue,
Hauppauge, New York 11788 ("Cyber Digital" and, together with Acquisition Sub,
collectively, "Purchaser").
WHEREAS, Seller owns two hundred (200) shares (the "Shares") of the common
stock, no par value (the "Common Stock"), of Telecarrier Services, Inc., a
Delaware corporation (the "Company"), which Shares constitute 100% of the issued
and outstanding shares of the Common Stock;
WHEREAS, Cyber Digital owns all of the issued and outstanding shares of
the common stock of Acquisition Sub;
WHEREAS, Seller and Laurus Master Fund, Inc. ("Laurus") are party to the
Existing Notes (as defined herein), pursuant to which, among other things, an
aggregate principal balance of $1,258,297.26 remains payable by Seller to
Laurus;
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
even date herewith (the "NRTC Agreement"), by and among Seller, Acquisition Sub
and Cyber Digital, CYBD Acquisition, Inc., a wholly-owned Subsidiary of Cyber
Digital, has agreed to purchase from Seller 100% of the outstanding shares of
the common stock, no par value, of New Rochelle Telephone Corp., a New York
corporation ("NRTC"); and
WHEREAS, Seller desires to sell to Acquisition Sub, and Acquisition Sub
desires to purchase from Seller, the Shares, upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants and provisions herein contained, the parties hereto hereby
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
As used in this Agreement each of the following terms shall have the
following meaning:
1.01 "Affiliate" shall mean an affiliate of a Person as the term
"affiliate" is defined in Rule 144(a)(1) promulgated under the Securities Act of
1933, as amended (the "Securities Act").
1.02 "Audit" shall mean any audit, assessment of Taxes, any other
examination or claim by any Tax Authority, judicial, administrative or other
proceeding or litigation (including
any appeal of any such judicial, administrative or other proceeding or
litigation) relating to Taxes and/or Tax Returns.
1.03 "Business" shall mean the resale by the Company of local and long
distance telecommunications exchange services and other public
telecommunications services.
1.04 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.05 "Computer Equipment" shall mean all computer equipment, devices and
accessories (including personal computers, workstations, servers, data
processing hardware and related telecommunications equipment, media and tools)
used by the Company in the Business.
1.06 "Encumbrance" shall mean, with respect to any Person, any mortgage,
lien (statutory or other), pledge, hypothecation, security interest, charge or
other preference or encumbrance of any kind (including, without limitation, any
agreement to give any of the foregoing), or any sale of accounts receivable or
chattel paper, or any assignment, deposit arrangement or lease intended as, or
having the effect of, security, or any other interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any conditional
sale or other title retention agreement or any capitalized lease or upon or with
respect to any property or asset of such Person (including, in the case of
shares of equity securities, stockholder agreements, voting trust agreements and
other similar arrangements).
1.07 "Existing Notes" shall mean, collectively, (a) that certain Amended
and Restated Secured Term Note, dated as of May 31, 2006, payable by Seller to
Laurus, amending and restating that certain Secured Convertible Term Note, dated
as of February 8, 2005, and (b) that certain Amended and Restated Secured Term
Note, dated as of May 31, 2006, payable by Seller to Laurus, amending and
restating that certain Secured Convertible Term Note, dated as of November 30,
2005.
1.08 "Existing Note Documents" shall mean, collectively, (a) the Master
Security Agreement, dated as of February 8, 2005, among Seller, the Company and
certain other Subsidiaries of Seller in favor of Laurus; (b) the Stock Pledge
Agreement, dated as of February 8, 2005, between Seller and Laurus; and (c) the
Subsidiary Guarantee, dated as of February 8, 2005, from the Company and certain
other Subsidiaries of Seller to Laurus.
1.09 "Existing Office" shall mean that certain office space located at 75
South Broadway, Suite 302, White Plains, New York 10601.
1.10 "GAAP" shall mean generally accepted accounting principles as in
effect in the United States on the Closing Date.
1.11 "Governmental Authority" shall mean any nation or government, any
federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
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1.12 "Intellectual Property" shall mean all of the following, whether now
owned or hereafter arising or acquired: licenses, franchises, permits, patents,
patent rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including, without limitation, those patents,
trademarks and copyrights set forth on Schedule 1.12, and all other rights under
any of the foregoing, all extensions, renewals, reissues, divisions,
continuations and continuations in part of any of the foregoing, and all rights
to sue for past, present and future infringement of any of the foregoing;
inventions, trade secrets, formulae, processes, compounds, drawings, designs,
blueprints, surveys, reports, manuals and operating standards; goodwill,
customer and other lists, in whatever form maintained; and trade secret rights,
copyright rights, rights in works of authorship, and contract rights relating to
computer software programs, in whatever form created or maintained.
1.13 "Investment" shall mean, as applied to any Person, (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest, (including partnership
interests and joint venture interests) of any Person and (ii) any capital
contribution by such Person to any other Person.
1.14 "Landlord Consent" shall mean that certain consent, addressed to
Cyber Digital, CYBD Acquisition, Inc., a wholly-owned subsidiary of Cyber
Digital, and Seller, and substantially in the form attached hereto as Exhibit A,
required to be obtained from South Broadway WP, LLC (the "Landlord") in order to
effect an assignment of that certain Lease Agreement, dated as of August 18,
2003, by and between the Landlord and NRTC, pursuant to Section 22.01(a)
thereof.
1.15 "Leased Tangible Property" shall mean all machinery, furniture,
equipment (including Computer Equipment) and other tangible personal property,
in each case which is subject to a leasehold interest.
1.16 "Legal Proceeding" shall mean any judicial, administrative or
arbitral action, cause of action, suit, arbitration, mediation, claim,
complaint, criminal prosecution, charge, examination or investigation, audit,
demand, compliance review, inspection, hearing or other proceeding (public or
private) by or before a Governmental Authority.
1.17 "Material Adverse Effect" shall mean a material adverse effect on the
Business, the Assets or the liabilities, properties, prospects, condition
(financial or otherwise), performance, operations or results of operations of
the Company, either individually or when aggregated with other such effects.
1.18 "New Note" shall mean that certain Secured Convertible Term Note, to
be dated the Closing Date, to be payable by Cyber Digital or Acquisition Sub (or
another of Cyber Digital's Subsidiaries) to Laurus, in the aggregate principal
amount of $1,300,000.00.
1.19 "New Note Documents" shall mean, collectively, the Securities
Purchase Agreement, the Stock Pledge Agreement, the Master Security Agreement,
the Funds Escrow Agreement, the Subordination Agreement, the Assignment of
Monies Due and to Become Due
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and the Registration Rights Agreement, each to be entered into by and among
Laurus, Acquisition Sub, Cyber Digital and the other Persons party thereto in
connection with the New Note.
1.20 "Owned Tangible Property" shall mean all Computer Equipment and other
machinery, furniture, equipment and other tangible personal property owned by
the Company, used in connection with the Business and identified on Schedule
1.20.
1.21 "Person" shall mean an individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization or other entity, or any Governmental Authority.
1.22 "Proprietary Information" shall mean any process, design, formula,
know-how, information, invention, trade secret, technology, or research,
marketing or other data which has not entered the public domain.
1.23 "Regulatory Approvals" shall mean (a) the approvals and/or consents
of the respective Boards of Public Utilities of the States of New York, New
Jersey and Pennsylvania, and (b) the notification to the U.S. Federal
Communications Commission, in each case necessary to effect the transfer of
control of the Company from Seller to Purchaser as contemplated hereby.
1.24 "Representative" shall mean, with respect to any Person, any officer,
director, principal, manager, member, attorney, accountant, agent, employee,
consultant, financial advisor or other authorized representative of such Person.
1.25 "SEC" shall mean the U.S. Securities and Exchange Commission.
1.26 "Subsidiary" shall mean, with respect to any Person (the "parent"),
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity of which securities or other ownership interests
representing more than 50% of the equity securities or more than 50% of the
voting securities or, in the case of a partnership, more than 50% of the general
partnership interests are, as of such date, owned, controlled or held, directly
or indirectly, by one or more of the parent and its Subsidiaries.
1.27 "Subsisting Contract" shall mean any contract, agreement,
subcontract, commitment, lease, understanding, mortgage, indenture, instrument,
note, option, warranty, purchase order, license, sublicense, franchise,
insurance policy, benefit plan or legally binding commitment, undertaking or
restriction of any kind or nature to which the Company is a party or by which
the Company is bound, or to which any of the Assets are subject, including,
without limitation, Third Party Licenses, telecommunications service agreements,
contracts with local exchange carriers, agency contracts, distributor contracts,
customer contracts, vendor contracts and billing contracts.
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1.28 "Tangible Property" shall mean the Owned Tangible Property and the
Leased Tangible Property, but excluding the Tangible Property identified on
Schedule 1.28.
1.29 "Tangible Property Leases" shall mean any Subsisting Contract
granting a right to use Leased Tangible Property.
1.30 "Taxes" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, wage, employment, excise, utility,
communications, production, occupancy, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, capital levy,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including, without limitation, penalties, additions
to tax, and interest attributable thereto (together with any interest on any
such interest, penalties and additions to tax), and any liability for any of the
above-listed amounts on behalf of any person through operation of law or as a
result of any contractual agreement.
1.31 "Tax Authority" shall mean the Internal Revenue Service (the "IRS")
and any other domestic or foreign authority responsible for the administration
of any Taxes.
1.32 "Tax Returns" shall mean all original and amended federal, state,
local and foreign tax returns, declarations, statements, reports, schedules,
forms and information returns relating to Taxes.
1.33 "Third Party License" shall mean the grant to the Company by any
Person of any right to use any Intellectual Property, Proprietary Information or
other intangible personal property.
ARTICLE II
PURCHASE AND SALE OF SHARES; PURCHASE PRICE
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2.01 Purchase and Sale of the Shares. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as defined below) Seller shall
sell, transfer and assign to Acquisition Sub the Shares and, concurrently
therewith, shall instruct Laurus to cause one or more certificates representing
the Shares, duly endorsed or accompanied by one or more stock powers duly
endorsed in blank, to be issued in the name of, and delivered to, Acquisition
Sub, in consideration of the payment of the Purchase Price as provided in
Section 2.02 hereof.
2.02 Purchase Price. Upon the terms and subject to the conditions of this
Agreement, at the Closing, Acquisition Sub shall purchase, acquire and accept
the Shares from Seller and, in full payment therefor, concurrently therewith,
Cyber Digital or Acquisition Sub shall either (a) issue the New Note in favor of
Laurus, pursuant to which, among other things, an outstanding principal amount
of $500,000 (such amount, the "Purchase Price") shall be payable, which shall be
effected and evidenced as set forth herein, or (b) pay to Laurus an amount in
cash equal to the Purchase Price, in either case, in full satisfaction and
discharge of such outstanding amount equal
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to the Purchase Price which, immediately prior to the Closing, was payable by
Seller to Laurus pursuant to the Existing Notes.
ARTICLE III
CLOSING AND PAYMENT OBLIGATION; TERMINATION
-------------------------------------------
3.01 Closing. The consummation of the purchase and sale transactions
contemplated by this Agreement (the "Closing") shall be held at the offices of
Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York, New York 10022 (or
such other place as the parties hereto may designate) on a date to be specified
by Purchaser and Seller, which date shall be no later than the fifth business
day following the satisfaction or waiver of each condition to Closing set forth
in Article VII (other than conditions that by their nature are to be satisfied
at the Closing, but subject to the satisfaction or waiver of such conditions),
unless another time or date, or both, are agreed to in writing by the parties
hereto. Notwithstanding anything contained in this Section 3.01 to the contrary,
in no event shall the date of the Closing be extended beyond the Outside Date.
The date of the Closing is sometimes herein referred to as the "Closing Date".
3.02 Deliveries by Seller. On the Closing Date, Seller shall deliver (or
shall caused to be delivered on its behalf) to Purchaser the following
agreements and documents:
(a) [Reserved];
(b) the NRTC Agreement, duly executed by Seller;
(c) (i) a certificate of good standing for the Company, dated as of
the Closing Date or the most recent date practicable prior thereto, issued by
the Secretary of State of the State of Delaware; (ii) a certificate of good
standing for the Company, dated as of the Closing Date or the most recent date
practicable prior thereto, issued by the Secretary of State of each of New York,
New Jersey and Pennsylvania; and (iii) a copy of the certificate of
incorporation of the Company, including all amendments thereto, certified as of
the Closing Date or the most recent date practicable prior thereto by the
Secretary of State of the State of Delaware;
(d) a certificate of an authorized officer of Laurus, certifying
that Laurus consents to and approves of the sale of the Shares and the other
transactions contemplated by this Agreement;
(e) evidence that each of the Existing Notes and each Existing Note
Document has been duly terminated, canceled, amended and/or otherwise modified,
such that neither the Company nor Purchaser shall have any liabilities or
obligations thereunder from and after the Closing;
(f) the Landlord Consent, duly executed and delivered by the
Landlord;
(g) evidence that each director of the Company in office immediately
prior to the Closing has tendered to the Company his or her resignation as a
director, effective as of the Closing;
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(h) a certificate of an authorized officer of Seller, certifying the
completeness and accuracy, in all material respects, of all of the
representations and warranties made by Seller in this Agreement, as though made
on and as of the Closing Date; and
(i) such other documents and instruments as in the opinion of
counsel for Purchaser may be reasonably required to effectuate the terms of this
Agreement and to comply with the terms hereof.
3.03 Deliveries by Purchaser. On the Closing Date, Purchaser shall deliver
(or shall caused to be delivered on its behalf) to Seller the following
agreements and documents:
(a) [Reserved];
(b) evidence of Cyber Digital's and Acquisition Sub's due execution
and delivery to Laurus of the New Note and the New Note Documents;
(c) the NRTC Agreement, duly executed by Cyber Digital and CYBD
Acquisition, Inc., a wholly-owned subsidiary of Cyber Digital;
(d) a certificate of an authorized officer of Cyber Digital,
certifying that Purchaser has made and/or obtained all of the Regulatory
Approvals;
(e) a certificate of an authorized officer of Cyber Digital,
certifying the completeness and accuracy, in all material respects, of all of
the representations and warranties made by each of Cyber Digital and Acquisition
Sub in this Agreement, as though made on and as of the Closing Date;
(f) evidence reasonably satisfactory to Seller that Laurus has
applied an amount equal to the Purchase Price to the payment of outstanding
principal of or accrued interest on the Existing Notes; and
(g) such other documents and instruments as in the opinion of
counsel for Seller may be reasonably required to effectuate the terms of this
Agreement and to comply with the terms hereof.
3.04 Further Assurances. After the Closing, at the request of Purchaser
and without further conditions or consideration, Seller shall execute and
deliver from time to time such other instruments of conveyance and transfer and
take such other actions as Purchaser may reasonably request in order to more
effectively consummate the transactions contemplated hereby and to vest in
Acquisition Sub all right, title and interest in and to the Shares.
3.05 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned any time prior to the Closing as follows:
(a) at the election of either Purchaser or Seller at any time after
March 2, 2007 (the "Outside Date"), if the Closing shall not have then occurred
by the close of business on such date, provided that neither Purchaser nor
Seller shall be entitled to terminate this Agreement
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on or after the Outside Date if the principal reason the transactions
contemplated hereby shall not have been consummated by such time is the willful
and material breach by such party (or in the case of Purchaser, by Cyber Digital
or Acquisition Sub) of any of its or their obligations under this Agreement;
(b) by mutual written consent of Purchaser and Seller;
(c) by either Purchaser or Seller, if there shall be in effect any
applicable law or any final nonappealable order of a Governmental Authority of
competent jurisdiction, in each case restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated hereby; it being
agreed that the parties hereto shall promptly appeal any adverse determination
which is not nonappealable (and pursue such appeal with reasonable diligence);
(d) by Purchaser, if (i) Purchaser is not then in material breach of
any of its representations, warranties, covenants or agreements contained in
this Agreement, and (ii) any of the conditions set forth in Section 7.01 is
incapable of fulfillment, or if the breach giving rise to the failure of any
such conditions to be satisfied is capable of being cured, such breach shall not
have been cured within thirty (30) days following receipt by Seller of written
notice of such breach from Purchaser; or
(e) by Seller, if (x) Seller is not then in material breach of any
of its representations, warranties, covenants or agreements contained in this
Agreement, and (y) any of the conditions set forth in Section 7.02 is incapable
of fulfillment, or if the breach giving rise to the failure of any such
conditions to be satisfied is capable of being cured, such breach shall not have
been cured within thirty (30) days following receipt by Purchaser of written
notice of such breach from Seller.
3.06 Procedure Upon Termination. In the event of termination of this
Agreement by Purchaser or Seller, or both, pursuant to the foregoing Section
3.05, written notice thereof shall forthwith be given to the other party, and
this Agreement shall terminate, and the transactions contemplated hereby shall
be abandoned, without further action by Purchaser or Seller.
3.07 Effect of Termination. In the event that this Agreement is validly
terminated in accordance with Sections 3.05 and 3.06, then each of the parties
hereto shall be relieved of their duties and obligations arising under this
Agreement after the date of such termination and such termination shall be
without liability to any of Purchaser or Seller; provided, that no such
termination shall relieve any party hereto from liability for any breach of this
Agreement; provided, further, that (a) the obligations of the parties set forth
in Section 4.07(a) hereof shall survive any such termination and shall be
enforceable hereunder, and (b) no termination shall impair the right of any
party to compel specific performance by any other party of its obligations
hereunder.
ARTICLE IV
ADDITIONAL AGREEMENTS; COVENANTS
--------------------------------
4.01 Agreement Not to Compete, Not to Solicit and to Maintain
Confidentiality.
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(a) For good and valuable consideration, including without
limitation the portion of the Purchase Price allocated in respect of these
covenants, Seller agrees that for a period commencing on the date of this
Agreement and ending three (3) years from the Closing Date (the "Non-Compete
Term"), Seller shall not, and shall use its best efforts to ensure that any
agents, representatives and any other Persons acting on its behalf (Seller and
such agents, representatives, and other Persons being collectively referred to
as the "Restricted Persons") do not, directly or indirectly, for the benefit of
any Restricted Person or any of their respective Affiliates:
(i) induce, persuade, or attempt to induce or persuade any customer
of the Business to divert any of its business away from the Business, or
otherwise terminate its relationship with the Business; or
(ii) hire, retain or attempt to hire or retain any employee or
independent contractor of the Business, or solicit, attempt to solicit,
participate in the solicitation of, or otherwise advise or encourage any
employee, independent contractor, agent, consultant or representative of
the Business to terminate his or her relationship with the Business, in
each case, other than with respect to (i) Paul H. Riss, the current Chief
Executive Officer of Seller, (ii) Frank Tosi, the current Controller of
Seller, and (iii) Lauri Vertrees, the current Operations Manager of
Seller.
(b) Seller acknowledges it has knowledge of certain technical,
commercial and marketing information, data and material regarding the Company
and the Business including, without limitation, lists of customers, trade
secrets and other Proprietary Information of the Company, which Seller has
historically treated as confidential and proprietary (the "Confidential
Information"). Seller agrees that a substantial portion of the Purchase Price is
being paid for such Confidential Information and that it represents a
substantial investment having great economic and commercial value to Purchaser,
and constitutes a substantial part of the value to Purchaser of the Business.
Seller acknowledges that Purchaser would be irreparably damaged if Seller did
not afford such Confidential Information at least the same level of
confidentiality as Seller afforded such Confidential Information prior to the
date hereof, in the ordinary course of business (i.e., if any of the
Confidential Information was disclosed to, or used or exploited on behalf of,
any Person other than Purchaser, the Company or any of their respective
Affiliates). Accordingly, Seller covenants and agrees that Seller shall not, and
shall use its best efforts to ensure that each other Restricted Person does not,
without the prior written consent of Purchaser, disclose, use or exploit any
such Confidential Information, for the benefit of any of such Restricted Persons
or of any third party, except that Seller may disclose, use or exploit a
particular item of Confidential Information if and to the extent (but only if
and to the extent) that such item:
(i) is or becomes publicly known or generally known in the industry
through no act of any Restricted Person or otherwise in violation of this
Section 4.01;
(ii) is required to be disclosed to or by order of a Governmental
Authority or a court of law or otherwise as required by applicable law;
provided, that prior to any such
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disclosure, notice of such requirement of disclosure is provided to
Purchaser and Purchaser is afforded the reasonable opportunity to object
to such disclosure;
(iii) is disclosed to Seller by a third party, provided that such
disclosure is not prohibited by any legal, contractual, fiduciary or other
confidentiality obligation owed to Purchaser; or
(iv) is required to be disclosed to the parties' attorneys,
accountants or other agents or employees in connection with the
transactions contemplated by this Agreement.
4.02 Tax Matters.
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(a) Tax Returns. Seller shall duly prepare, or cause to be prepared,
and file, or cause to be filed at its own expense, on a timely basis all Tax
Returns with respect to the Company, to the extent relating to income taxes, for
any taxable periods ending on or before the Closing Date, as set forth on
Schedule 4.02(a). Such Tax Returns shall be filed on a basis consistent with the
past practice of the Company. Purchaser shall duly prepare, or cause to be
prepared, and file at its own expense, or cause to be filed, all Tax Returns
with respect to the Company for any taxable periods ending after the Closing
Date. Unless Seller's written consent is first obtained or unless required by
applicable law, Purchaser shall not take any action which would in any way alter
the balance of Taxes owing or Tax refunds or credits obtainable with respect to
any period ending on or before the Closing Date.
(b) Cooperation on Tax Matters. Purchaser and Seller shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section 4.02
(including amended Tax Returns for any tax period prior to the Closing Date (or
portions thereof) that Seller may reasonably request Purchaser to file) and any
Audit. Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to such Audit. Neither Purchaser nor Seller shall dispose of any records
relating to Taxes paid or payable by the Company and which are attributable to
Pre-Closing Tax Periods prior to the later of the expiration of the applicable
limitations period on assessment with respect to any such Taxes, the sixth
anniversary of the Closing Date or the final resolution of all litigation
initiated prior to the sixth anniversary of the Closing Date relating to any
such Taxes.
(c) Seller shall be responsible for all income taxes of the Company
for all taxable periods or portions thereof ending on or before the Closing
Date. In the case of any taxable period that includes but does not end on the
Closing Date, the amount of any such Taxes based on or measured by income or
receipts shall be allocated between the portions of such taxable period before
and after the Closing Date based on an interim closing of the books method, and
the amount of any other such Taxes shall be allocated between the portions of
such taxable period that are before and after the Closing Date proportionately
based on the number of days in each such portion.
4.03 Referral of Business. Purchaser agrees that if it is solicited by its
customers or by a potential customer for Voice over Internet Protocol services,
and Purchaser is not providing
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such services at the time of such solicitation, then Purchaser will refer such
customer to Seller. If Seller receives an inquiry from a potential customer who
is seeking traditional wireline telephony services in any jurisdiction in which
Purchaser is then operating, and Seller is not currently selling wireline
services in such jurisdiction, Seller agrees that the potential customer will be
instructed to contact Cyber Digital for such services. In either case, the party
that makes such customer referral will be paid a referral fee of $50 per line by
the other party for any customer line that is actually and successfully
provisioned and billed by such other party.
4.04 Reserved.
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4.05 Reserved.
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4.06 Conduct of the Business Pending Closing. From and after the date
hereof until the Closing, except (x) as required by applicable law, (y) as
otherwise expressly contemplated by this Agreement, or (z) with the prior
written consent of Purchaser:
(a) the Company shall, and Seller shall cause the Company to,
conduct the Business only in the ordinary and usual course consistent with past
practices;
(b) the Company shall, and Seller shall cause the Company to, use
commercially reasonable efforts to (A) preserve the present business operations,
organization and goodwill of the Company and its Subsidiaries, and (B) preserve
the present relationships with customers, suppliers, licensors and licensees of
the Company and its Subsidiaries; and
(c) the Company shall not, and Seller shall not permit the Company
to:
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary and usual course of business and
consistent with past practice of liabilities and obligations incurred in
the ordinary and usual course of business and consistent with past
practice;
(ii) borrow any amount or incur or become subject to any other
liabilities (absolute or contingent), other than trade payables in the
ordinary course of business;
(iii) declare or made any payment or distribution of cash or other
property to Seller or purchase or redeem, or make any agreements to
purchase or redeem, any of its equity securities;
(iv) issue, deliver, sell, pledge or encumber, or authorize, propose
or agree to the issuance, delivery, sale, pledge or encumbrance of, any
shares of capital stock or bonds or any other security (or any right to
acquire such capital stock or other security, including options) of the
Company or any of its Subsidiaries, or any right, options or warrants with
respect thereto;
(v) effect any recapitalization, reclassification or like change in
the capitalization of the Company or any of its Subsidiaries, or declare
or pay dividends on,
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or make other distributions in respect of, any of its capital stock, or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or repurchase,
redeem or otherwise acquire, or modify or amend, any shares of capital
stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(vi) cancel any debts owing to the Company or waive any claims or
rights, except in the ordinary course of business;
(vii) sell, transfer, or otherwise dispose of, any of the Assets;
(viii) dispose of, fail to take reasonable steps to protect, or
permit to lapse, any rights for the use of, any Intellectual Property, or
dispose of, fail to take reasonable steps to protect, or disclose to any
Person any Proprietary Information or Confidential Information;
(ix) make any change in any its methods of accounting or accounting
practices;
(x) write off as uncollectible any notes or accounts receivable,
other than in the ordinary course of business consistent with past
practice;
(xi) make any capital expenditures or capital expenditure
commitments;
(xii) enter into any transaction or series of related transactions
providing for payments in excess of $25,000 in the aggregate, whether or
not in the ordinary course of business;
(xiii) make any material change in the manner in which products or
services are developed or marketed;
(xiv) loan or advance any amount to, or make any payments to or
receive any payments from, or sell, transfer or lease any of its assets
to, any Affiliate, except in the ordinary course of business consistent
with past practice;
(xv) discharge or satisfy any Encumbrance or pay any obligation or
liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business consistent with past practices;
(xvi) make any change in the cash management or working capital
management of the Company and its Subsidiaries other than in the ordinary
course of business;
(xvii) (A) terminate, cancel or request any material change in, or
agree to any material change in, any Subsisting Contract, or (B) enter
into any contract which would constitute a Subsisting Contract as defined
herein, other than in the ordinary course of business consistent with past
practices;
12
(xviii) adopt, agree to adopt, or make any announcement regarding
the adoption of (i) any new pension, retirement or other employee benefit
plan, program or policy or (ii) any amendment to any existing plan, policy
or program;
(xix) increase the compensation, bonuses or benefits of any
employee, officer, director, or consultant of the Company or any of its
Subsidiaries, other than annual increases in the ordinary course of
business consistent with past practices at the regularly scheduled times;
(xx) amend or modify any of the organizational documents of the
Company;
(xxi) make any material election with respect to Taxes or make any
change in any such election;
(xxii) change its methods of accounting in effect at November 30,
2005, except as required by changes in GAAP as agreed to by the Company's
independent public accountants or as may be required by applicable law;
(xxiii) make any charitable contributions or pledges;
(xxiv) settle any pending Legal Proceeding to which the Company or
any of its Subsidiaries is a party, except as otherwise listed on Schedule
4.06(c)(xxiv); or
(xxv) suffer, authorize, agree or commit to take any of the actions
set forth in this subparagraph (c).
4.07 Publicity.
---------
(a) Neither Purchaser, Seller nor the Company, nor any of their
respective Subsidiaries, Affiliates or Representatives, shall issue any press
release or public announcement concerning this Agreement or the transactions
contemplated hereby without obtaining the prior written approval of each of the
other parties hereto, unless, in the reasonable and good faith judgment of
Purchaser or Seller, as the case may be, upon the advice of counsel, disclosure
is otherwise required by applicable law or by the applicable rules of any stock
exchange on which either Cyber Digital or Seller lists securities; provided,
that, to the extent required by applicable law, the party intending to make such
release shall use its commercially reasonable efforts consistent with applicable
law to consult with the other party with respect to the content thereof. The
parties hereto agree that the initial press release to be issued in connection
with the transactions contemplated hereby shall be in a form mutually agreed by
them.
(b) In addition, Purchaser and Seller shall cooperate with each
other in preparing and making one or more internal announcements to the
employees of the Company designed to provide information to such employees with
respect to, among other things, transition issues, in order to promote a smooth
transition.
4.08 Negotiations. From and after the date hereof and until the earlier to
occur of the Closing or the termination of this Agreement pursuant to the terms
hereof, Seller shall not, and
13
shall not permit or cause any of its Subsidiaries, the officers and directors of
Seller, or any Persons controlled by Seller or any of its Subsidiaries, or any
of their respective Representatives, to, directly or indirectly, encourage,
solicit, engage in discussions or negotiations with, or provide any information
to, any Person or group (other than Purchaser or any of Purchaser's
Representatives) concerning any merger involving the Company, sale of all or any
portion(s) of the consolidated assets of the Company, sale of the shares of
capital stock of the Company or any of its Subsidiaries or any other transaction
similar to the transactions contemplated hereby. Seller shall promptly
communicate to Purchaser any inquiries or communications concerning any such
transaction which Seller or its Subsidiaries may receive.
4.09 Notification of Developments. Seller shall give reasonably prompt
notice to Purchaser, and Purchaser shall give reasonably prompt notice to
Seller, of the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which, as the case may be, would cause or be reasonably
expected to cause any condition set forth in Article VII not to be satisfied
from the date hereof to the Closing; provided, however, that the delivery of any
notice pursuant to this Section 4.09 shall not limit or otherwise affect the
remedies available hereunder to a party receiving such notice or the
representations and warranties of the parties contained herein, or the
conditions to the obligations of the parties hereto.
4.10 Access to Information; Cooperation; Financial Statements.
--------------------------------------------------------
(a) During the period commencing on the date hereof and ending on
the earlier of (i) the Closing Date and (ii) the date on which this Agreement is
terminated pursuant to the terms hereof, upon reasonable prior notice to Seller
or the Company, Purchaser shall be entitled, through its Representatives, to
reasonable access (subject to restrictions imposed by requirements of applicable
Law) during normal business hours to the properties, businesses and operations
of the Company and its Subsidiaries and such examination of the books and
records of the Company and its Subsidiaries (including, without limitation, tax
returns, work papers, financial operating data, monthly financial statements and
other documents and information relating to the Company and its Subsidiaries) as
it reasonably requests and, if the Company or Seller so requests, Purchaser or
its Representatives shall be accompanied by a Representative of the Company or
Seller. In addition, the Company shall, and shall cause its Representatives to,
permit Purchaser's senior officers to meet, upon reasonable notice and during
normal business hours, with the chief financial officer and other officers of
the Company responsible for the Company's financial statements and internal
controls to discuss such matters as Purchaser may deem necessary or appropriate,
among other things, in order to enable Purchaser, following the Closing, to
satisfy its obligations under applicable law. Notwithstanding anything herein to
the contrary, (i) no investigation or receipt of information pursuant to this
Section 4.10(a) shall qualify any representation or warranty of Seller or the
conditions to the obligations of Purchaser, (ii) no such investigation or
examination pursuant to this Section 4.10(a) shall be permitted to the extent
that it would require Seller or the Company or any of their Subsidiaries to
provide any information or access that Seller or the Company reasonably believes
could violate any applicable law, or conflict with any confidentiality
obligations to which Seller, the Company or any of their Subsidiaries is bound
or cause the forfeiture of any attorney-client privilege and (iii) prior to the
Closing, without the prior written consent of a Representative of Seller or the
Company (who shall be identified in writing to Purchaser as the Representative
contemplated by
14
this provision), (x) Purchaser shall not contact any suppliers to, or customers
of, the Company or any of its Subsidiaries in respect of this Agreement or the
transactions contemplated hereby, and (y) Purchaser shall have no right to
perform invasive or subsurface investigations of the properties or facilities of
the Company or any of its Subsidiaries.
(b) Without limiting the generality of the foregoing, (i) Seller
shall prepare and deliver to Purchaser, as promptly as practicable, unaudited
financial statements of the Company for the year ended November 30, 2006,
prepared by Seller consistent with its usual and historical practice, and (ii)
Seller shall use its commercially reasonable efforts to cooperate with Purchaser
and to provide such assistance as Purchaser may reasonably request to enable
Purchaser, from and after the Closing, to prepare such financial statements for
Purchaser and its Subsidiaries (including the Company, following the Closing) as
may be required by applicable law or by the applicable rules of any stock
exchange on which Cyber Digital lists securities.
4.11 Reserved.
--------
4.12 Regulatory Approvals.
--------------------
(a) Purchaser shall make or cause to be made all applications,
notifications and/or filings required of it in connection with the Regulatory
Approvals as promptly as practicable and, in any event, within five (5) business
days after the date of this Agreement, and Seller shall cooperate with Purchaser
as may be necessary in connection with each such application, notification
and/or filing, including by furnishing to Purchaser any information in the
possession of Seller or the Company, as the case may be, required for any such
application and/or filing.
(b) Each of Purchaser and Seller, as the case may be, shall use
commercially reasonable efforts to resolve such objections, if any, as may be
asserted by any Governmental Authority with respect to the transactions
contemplated by this Agreement in connection with the Regulatory Approvals. In
connection therewith, if any Legal Proceeding is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement in
connection with the Regulatory Approvals, each of Purchaser and Seller shall
cooperate and use commercially reasonable efforts to contest and resist any such
Legal Proceeding, and to have vacated, lifted, reversed, or overturned any
order, whether temporary, preliminary or permanent, that is in effect and that
prohibits, prevents, or restricts consummation of the transactions contemplated
by this Agreement. In connection with the foregoing, each of Purchaser and
Seller shall use commercially reasonable efforts to take promptly any and all
steps necessary to avoid or eliminate each and every impediment arising in
connection with the Regulatory Approvals that may be asserted by any
Governmental Authority, so as to enable the parties to close the transactions
contemplated by this Agreement as expeditiously as possible.
15
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Simultaneously with the execution and delivery of this Agreement, Seller
shall deliver to Purchaser a disclosure schedule with numbered sections
corresponding to the relevant sections of this Agreement (the "Schedules").
Except as otherwise set forth in the Schedules, Seller represents and warrants
to Purchaser as follows:
5.01 Organization. The Company is duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has no
Subsidiaries. The Company has all requisite power and authority to enable it to
own, lease or otherwise hold its properties and assets and to carry on its
business as presently conducted. The Company is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership, leasing or holding of its properties makes such qualification
necessary, except where the absence of such qualifications, individually or in
the aggregate, would not have, and would not reasonably be expected to have, a
Material Adverse Effect. The Company maintains a company minute book (and other
similar records of organizational or management proceedings), copies of each of
which have previously been provided to Purchaser.
5.02 Shares and Related Matters; No Investments.
------------------------------------------
(a) Seller owns in the aggregate 100% of the issued and outstanding
shares of the Common Stock, which constitute 100% of the issued and outstanding
shares of the capital stock of the Company. As of the Closing (but immediately
prior to the execution of the New Note Documents), the Shares will be validly
issued, fully paid and non-assessable, will be free and clear of all
Encumbrances (other than any Encumbrances created by the Existing Note
Documents), and will not be subject to any pre-emptive rights or other similar
rights of shareholders of the Company. There are no shares of preferred stock of
the Company outstanding.
(b) The Company has no outstanding instruments convertible into or
exchangeable for any capital stock in the Company or containing any profit
participation features, nor does it have outstanding any rights or options to
subscribe for or purchase any instruments convertible into or exchangeable for
any capital stock in the Company. The Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
capital stock or any warrants, options or other rights to acquire any capital
stock in the Company.
(c) There are no preemptive rights or rights of refusal with respect
to the sale of the Shares hereunder. Assuming the truth and accuracy of the
representations and warranties contained in Section 6.08, the offer, sale and
issuance of the Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act and any applicable U.S. state
securities laws, and neither Seller nor any authorized agent acting on its
behalf has taken or will take any action hereafter that would cause the loss of
such exemptions.
(d) The Company does not own or hold any Investment in any Person.
16
5.03 Authorization. Seller has all requisite power and authority to enter
into this Agreement and the other agreements, instruments, documents and
certificates (collectively, the "Related Documents") to be executed and
delivered by Seller in connection with the transactions contemplated hereby and
thereby, and to consummate the transactions contemplated hereby and thereby. All
corporate acts and other proceedings required to be taken by Seller or the
Company to authorize the execution, delivery and performance of this Agreement
and the Related Documents to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, have been duly and properly taken.
5.04 Valid and Binding. This Agreement constitutes (and, when executed and
delivered at Closing, each Related Document will constitute) a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except that (a) such enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
5.05 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority is required to be obtained by Seller in connection with
the execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby, except for (a) informational filings with
the SEC and as may be required under state securities or "blue sky" laws and (b)
the Regulatory Approvals.
5.06 No Violation. Except as set forth on Schedule 5.06, the execution,
delivery and performance of this Agreement and each Related Document by Seller,
and the consummation of the transactions contemplated hereby and thereby, and
the compliance by Seller with the terms hereof and thereof, does not and will
not contravene, conflict with, or result in any violation of or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under, result in the creation or imposition of any
Encumbrance of any kind upon any of the Assets or properties of Seller under, or
impair any of the Company's rights or alter the rights or obligations of any
third party under, any provision of: (a) any Subsisting Contract; (b) the
Certificate of Incorporation or By-laws of Seller; or (c) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to any of the
Assets or properties of Seller. Schedule 5.06 hereto sets forth all necessary
notices, consents, waivers and approvals of parties or third-party beneficiaries
to any Subsisting Contracts as are required thereunder in connection with the
execution, delivery and performance by Seller of this Agreement and the Related
Document and the consummation of the transactions contemplated hereby and
thereby, or for any such Subsisting Contract to remain in full force and effect
without limitation, modification or alteration after the execution, delivery and
performance of this Agreement and the Related Document and the consummation of
the transactions contemplated hereby and thereby, so as to preserve all rights
of, and benefits to, the Company under such Subsisting Contracts. Following the
Closing Date, the Company will be permitted to exercise all of its rights under
the Subsisting Contracts without the payment of any additional amounts or
consideration other than any
17
ongoing obligations, fees, royalties or payments which the Company would
otherwise be required to satisfy, perform or pay pursuant to the terms of such
Subsisting Contracts had the transactions contemplated by this Agreement not
occurred.
5.07 Financial Statements.
--------------------
(a) Seller has furnished or made available to Purchaser copies of
the interim unaudited financial statements of the Company (the "Unaudited
Financial Statements") for the nine months ending August 31, 2006 (the "Interim
Financial Statement Date") and the audited consolidated financial statements of
Seller (the "Audited Financial Statements" and, together with the Unaudited
Financial Statements, the "Financial Statements") for the fiscal years ended
November 30, 2005 and November 30, 2004. The Financial Statements have been
prepared by the Company or Seller on the basis of the books and records
maintained in the ordinary course of business in a manner consistently used and
applied throughout the periods involved. The Financial Statements fairly present
the financial condition and operating results of the Company as of the dates,
and for the periods, indicated therein, subject in the case of the Unaudited
Financial Statements to normal year-end audit adjustments. Except as disclosed
in the Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other Person, firm or corporation. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP applied on a consistent basis during the
periods involved.
(b) The Company has no liabilities except for (i) liabilities
reflected in the Financial Statements and (ii) liabilities which have arisen
after the Financial Statement Date in the ordinary course of business of the
Company.
5.08 Interim Operations. Except as set forth on Schedule 5.08, since the
Interim Financial Statement Date:
(a) the Business has been conducted by the Company only in the
ordinary and usual course consistent with past practices;
(b) there has not occurred any change, event or circumstance that
has had, or could reasonably be expected to have, a Material Adverse Effect;
(c) the Company has not:
(i) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary and usual course of
business and consistent with past practice of liabilities and obligations
incurred in the ordinary and usual course of business and consistent with
past practice;
(ii) borrowed any amount or incurred or become subject to any other
liabilities (absolute or contingent), other than trade payables in the
ordinary course of business, except as set forth on Schedule 5.08(c)(ii);
18
(iii) declared or made any payment or distribution of cash or other
property to Seller or purchased or redeemed, or made any agreements to
purchase or redeem, any of its equity securities;
(iv) issued, delivered, sold, pledged or encumbered, or authorized,
proposed or agreed to the issuance, delivery, sale, pledge or encumbrance
of, any shares of capital stock or bonds or any other security (or any
right to acquire such capital stock or other security, including options)
of the Company or any of its Subsidiaries, or any right, options or
warrants with respect thereto;
(v) effected any recapitalization, reclassification or like change
in the capitalization of the Company or any of its Subsidiaries, or
declared or paid dividends on, or made other distributions in respect of,
any of its capital stock, or issued or authorized the issuance of any
other securities in respect of, in lieu of or in substitution for shares
of its capital stock, or repurchased, redeemed or otherwise acquired, or
modified or amended, any shares of capital stock of the Company or any of
its Subsidiaries or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities;
(vi) canceled any debts owing to the Company or waived any claims or
rights;
(vii) sold, transferred, or otherwise disposed of, any of the
Assets;
(viii) disposed of, failed to take reasonable steps to protect, or
permitted to lapse, any rights for the use of, any Intellectual Property,
or disposed of, failed to take reasonable steps to protect, or disclosed
to any Person any Proprietary Information or Confidential Information;
(ix) made any change in any its methods of accounting or accounting
practices;
(x) written off as uncollectible any notes or accounts receivable,
other than in the ordinary course of business consistent with past
practice;
(xi) made any capital expenditures or capital expenditure
commitments in excess of $10,000 individually or $25,000 in the aggregate,
except as set forth on Schedule 5.08(c)(xi);
(xii) entered into any transaction or series of related transactions
providing for payments by or to the Company in excess of $25,000 in the
aggregate, whether or not in the ordinary course of business;
(xiii) made any change in the manner in which products or services
have been developed or marketed;
(xiv) had any labor dispute or received notice of any grievance with
respect thereto;
19
(xv) loaned or advanced any amount to, or made any payments to or
received any payments from, or sold, transferred or leased any of its
assets to, any Affiliate, except in the ordinary course of business;
(xvi) discharged or satisfied any Encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid
in the ordinary course of business consistent with past practices;
(xvii) made any change in the cash management or working capital
management of the Company other than in the ordinary course of business;
(xviii) (A) terminated, canceled or requested any material change
in, or agreed to any material change in, any Subsisting Contract, or (B)
entered into any contract which would constitute a Subsisting Contract as
defined herein, other than in the ordinary course of business consistent
with past practices, in either case, other than as set forth on Schedule
5.08(c)(xviii);
(xix) adopted, agreed to adopt, or made any announcement regarding
the adoption of (A) any new pension, retirement or other employee benefit
plan, program or policy or (B) any amendment to any existing plan, policy
or program;
(xx) increased the compensation, bonuses or benefits of any
employee, officer, director, or consultant of the Company or any of its
Subsidiaries, other than annual increases in the ordinary course of
business consistent with past practices at the regularly scheduled times,
other than as set forth on Schedule 5.08(c)(xx);
(xxi) amended or modified any of the organizational documents of the
Company;
(xxii) made any material election with respect to Taxes or made any
change in any such election;
(xxiii) made any change in its methods of accounting in effect at
November 30, 2005, except as required by changes in GAAP as agreed to by
the Company's independent public accountants or as required by applicable
law;
(xxiv) made any charitable contributions or pledges, other than as
set forth on Schedule 5.08(c)(xxiv);
(xxv) settled any Legal Proceeding to which the Company is or was a
party, other than as set forth on Schedule 5.08(c)(xxv); or
(xxvi) suffered or agreed to take any of the actions set forth in
this subparagraph (c);
(d) the Business has been conducted by the Company only in the
ordinary and usual course consistent with past practices;
20
(e) the Company has taken no steps to seek protection pursuant to
any bankruptcy law, Seller has no reason to believe that any creditors of the
Company intend to initiate involuntary bankruptcy proceedings against the
Company, and Seller has no knowledge of any fact which would reasonably lead a
creditor to do so; and
(f) none of the Assets has suffered any damage, destruction or
casualty loss (as a result of fire, explosion or otherwise), whether or not
covered by insurance.
5.09 Taxes.
-----
(a) Except as disclosed in Schedule 5.09(a): (i) the Company has
timely filed all Tax Returns that it was required to file under all applicable
laws and regulations on or before November 30, 2006 (such date, the "Financial
Statement Date"); (ii) all such Tax returns were correct and complete and were
prepared in compliance with all applicable laws and regulations; and (iii) the
Company has timely paid all Taxes required to be paid on or before the Financial
Statement Date. The Company has established, on or before the Closing Date, an
adequate reserve on its books and financial records for the payment of all
accrued but unpaid Taxes.
(b) There are no ongoing Audits of the Company and the Company has
not been notified, formally or informally, by any Tax Authority, nor is any
Seller otherwise aware, that any such Audit is contemplated, threatened or
pending, except as disclosed in Schedule 5.09(b).
(c) There are no Legal Proceedings pending or, to the knowledge of
Seller, threatened, against the Company by any Tax Authority for any past due
Taxes with respect to which the Company would be liable, except as disclosed in
Schedule 5.09(c). There has been no waiver or request for a waiver of any
applicable statute of limitations nor any consent or request for the consent for
the extension of the time for the assessment of any Tax against the Company,
except as disclosed in Schedule 5.09(c).
(d) There are no Encumbrances for Taxes (other then Taxes not yet
due and payable) upon any property or assets of the Company, except as disclosed
on Schedule 5.09(d).
(e) No claim has ever been received from an authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction.
(f) The Company is not a party to or bound by any Tax sharing or
allocation agreement or similar contract or assignment or any agreement that
obligates it to make any payment computed by references to the Taxes, taxable
income or taxable losses of any other person. The Company is not liable for the
Taxes of any person for any reason (including without limitation any liability
arising under Treasury Regulation section 1.1502-6, or liability as a transferee
or successor).
(g) Except as disclosed on Schedule 5.09(g), the Company will not be
required to include any item of income in, or exclude any item of deduction
from, taxable income for any Tax period after the Closing as a result of any (i)
change in accounting method under
21
Section 481 of the Code (or any analogous or comparable provision of U.S. state
or local or non-U.S. Tax law), (ii) existing written agreement with a Tax
authority with regard to the Tax liability of Company for any period prior to
the Closing, (iii) deferred intercompany gain or excess loss account described
in Treasury Regulations under section 1502 of the Code (or any corresponding or
similar provision of state, local or non-U.S. Income Tax law) arising from any
transaction that occurred prior to the Closing, (iv) installment sale or open
transaction disposition made prior to the Closing, or (v) prepaid amount
received on or prior to the Closing.
(h) The Company is not a party to any joint venture, partnership or
other written arrangement or contract which would be treated as a partnership
for U.S. Federal income tax purposes for any period for which the statute of
limitations for any Tax on the income therefrom has not expired.
(i) Except as disclosed on Schedule 5.09(i), the Company has not
engaged in any transaction for which their participation is required to be
disclosed under Treasury Regulation section 1.6011-4.
(j) Except as disclosed on Schedule 5.09(j), the Company has not
made any payments, is not obligated to make any payments, and is not a party to
any agreement or other arrangement that would obligate it to make any payments
that would not be deductible under Section 280G of the Code.
5.11 Condition of Property. All Tangible Property of the Company is
maintained in good operating condition, working order and repair, reasonable
wear and tear excepted, and all such Tangible Property is adequate for the uses
to which it is being put. None of such Tangible Property is in need of
replacement, maintenance or repairs except for ordinary, routine and immaterial
maintenance and repairs, the aggregate cost of which is not material.
5.12 Contracts and Commitments.
-------------------------
(a) Schedule 5.12(a) lists each Subsisting Contract (copies of which
have heretofore been delivered to Purchaser) and sets forth and describes in
reasonable detail all currently effective oral agreements and commitments, if
any, to which the Company is a party. (i) Each such Subsisting Contract is in
full force and effect, and constitutes a valid and binding agreement of each of
the parties thereto, enforceable in accordance with its terms; (ii) no such
Subsisting Contract has been breached in any material respect, canceled or
repudiated by the Company or, to Seller's knowledge, by any other party thereto;
(iii) no such other party has indicated in writing or orally to Seller or the
Company that it will stop or decrease the rate of business done with the
Company, or that it desires to renegotiate its arrangements with the Company;
(iv) the Company has performed in all material respects all obligations required
to be performed by it in connection with such Subsisting Contracts, is not in
receipt of any claim of default under any such Subsisting Contract, and is not
in possession of any information that would reasonably indicate that any such
claim or default is or may be forthcoming; and (v) the Company has no present
expectation or intention of not fully performing any obligation pursuant to any
such Subsisting Contract.
22
(b) Schedule 5.12(b) hereto contains an accurate and complete list
of all Tangible Property Leases included in the Business. All such leases are
valid, binding and enforceable against each of the parties thereto in accordance
with their terms. Such leases are in full force and effect; with respect to
each, to the knowledge of Seller, there are no existing defaults, and there is
no event which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default thereunder of a
party thereto.
5.13 Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, all of the properties and assets used by it, which
are set forth on Schedule 5.13 (the "Assets"), free and clear of all
Encumbrances, except as set forth on Schedule 5.13. The items of Tangible
Property of the Company are in good operating condition in all material respects
and are fit for use in the ordinary course of business. The Company owns, or has
a valid leasehold or other interest in, and after the Closing the Company will
continue to own, or have a valid leasehold or other interest in, all assets
necessary for the conduct of the Business as presently conducted by the Company
and to permit Acquisition Sub (through the Company) to continue to conduct the
Business in all respects in substantially the same manner as the Business has
been conducted through the Closing Date, except as set forth on Schedule 5.13.
5.14 Insurance. The Company maintains policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses, as are customary for companies engaged in
businesses similar to the Business to protect the Business, the Assets, and the
employees, properties and operations of the Company and will continue such
insurance in effect through the Closing. These policies are provided through
coverage secured by Seller for assets owned by Seller, and will not be available
to the Company after the acquisition of the Shares by Acquisition Sub and the
consummation of the transactions contemplated hereby.
5.15 Employees and Labor Relations.
-----------------------------
(a) (i) There is no labor strike or work stoppage or lockout
actually pending, or to the knowledge of Seller, threatened, against or
materially affecting the Company; during the past three years there has not been
any such action actually pending against the Company; and, to the knowledge of
Seller, there has not been any such action threatened against or materially
affecting the Company; (ii) none of the employees of the Company is represented
by a union or subject to a collective bargaining agreement and, to the knowledge
of Seller, no union organizational campaign is in progress with respect to the
employees of the Company and no question concerning representation exists
respecting such employees; and (iii) the Company is, and has been, in compliance
in all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours and
is not engaged in any unfair labor practice. Neither the execution and delivery
of this Agreement nor the transactions contemplated hereby, whether alone or in
connection with any other event, will (x) result in any payment (including any
severance, unemployment compensation or golden parachute payment) becoming due
to any employee, former employee, consultant or former consultant, (ii) increase
any benefits otherwise payable to any such persons,
23
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits to any extent.
(b) Schedule 5.15(b) hereto contains the names of all persons
currently employed by the Company in the Business (the "Employees") and accurate
details of the material terms of their employment, including an indication of
which employees are part-time or temporary employees, current salary,
commission, bonus entitlement and profit share arrangements both contractual and
discretionary, life insurance, medical or permanent health insurances, date of
commencement of employment, and description of their function in the Business.
(c) A full copy of the standard terms of the employment of the
Employees and a copy of the terms of employment of each Employee employed on
terms other than the standard terms is attached hereto as Schedule 5.15(c).
(d) There are no loans outstanding from the Company to any of the
Employees.
(e) The Company is, and has been, in compliance with the terms of
employment of each of the Employees, and so far as Seller is aware, no Employee
is in breach of his or her employment relationship with the Company.
(f) None of the Employees has given or received notice of
termination of his or her employment with the Company.
(g) None of the Employees is the subject of any material
disciplinary action nor is any Employee engaged in any grievance procedure and
there is no matter or fact in existence which can be reasonably foreseen as
likely to give rise to the same.
5.16 Licenses; Permits. The Company has duly obtained and now holds all
material licenses, franchises, permits and similar authorizations issued or
granted by any Governmental Authority which are necessary or desirable for the
conduct of the Business by the Company in the States of New York, New Jersey and
Pennsylvania. The Company has complied in all material respects with all
requirements in connection therewith, and the Company is not in default in any
material respect under any of such licenses, franchises, permits or other
similar authorizations. Seller has no reason to believe that all franchises,
permits, licenses, and any similar authorizations necessary for the conduct of
the Business by the Company in the States of New York, New Jersey and
Pennsylvania will not be granted in the ordinary course within a reasonable
period of time after application therefor, and prior to the time the same is
required under applicable law, and no necessary or desirable licenses,
franchises, permits or other similar authorizations that the Company has applied
for have been denied or are expected not to be granted by any Governmental
Authority. The material licenses, franchises, permits and similar authorizations
necessary for the conduct of the Business, other than the Regulatory Approvals,
are set forth on Schedule 5.16.
5.17 Litigation.
----------
24
(a) There is no Legal Proceeding pending or, to the knowledge of
Seller, threatened (or, to the knowledge of Seller, and except as set forth on
Schedule 5.17(a), any valid basis for any of the foregoing):
(i) which is or may be brought against or which involves the
Company or the Business or which arises from any act or omission by
any present or former officer, director, agent or employee of or the
Company;
(ii) which questions or challenges the validity of, or seeks
damages or equitable relief on the basis of, this Agreement or any
action taken or to be taken by Seller pursuant to this Agreement or
in connection with the transactions contemplated hereby; or
(iii) which might affect the right of Acquisition Sub after
the Closing Date to own the Shares or to conduct the Business as
presently conducted;
(b) Seller knows of no facts that could reasonably be expected to
serve as the basis for any Legal Proceeding against the Company, or Acquisition
Sub upon its acquisition of the Shares as contemplated hereby, or any of their
respective present or former directors, officers, or employees, affecting,
involving or relating to the Business or the Assets.
(c) No Governmental Authority has challenged or questioned the legal
right of the Company to conduct its operations as presently or previously
conducted.
5.18 Court Orders, Decrees, and Laws.
--------------------------------
(a) There is no outstanding or, to the knowledge of Seller,
threatened order, writ, injunction, or decree of any court, Governmental
Authority, or arbitration tribunal against the Company affecting, involving or
relating to the Business. The Company is not in violation of any applicable
federal, state or local law, regulation, ordinance, zoning requirement,
governmental restriction, order, judgment or decree affecting, involving or
relating to the Business except where such noncompliance has not had, and could
not reasonably be expected to have, a Material Adverse Effect, and the Company
has not received any notices of any allegation of any such violation. The
foregoing shall be deemed to include laws and regulations relating to the
federal patent, copyright, and trademark laws, state trade secret an unfair
competition laws, and to all other applicable laws, including equal opportunity,
wage and hour, and other employment matters, and antitrust and trade
regulations, safety (including OSHA), environmental (including wetlands),
antipollution, building, zoning or health laws, ordinances and regulations.
(b) Schedule 5.18(b) sets forth, with respect to the Company, all
material approvals, authorizations, certifications, consents, variances,
permissions, licenses, or permits to or from, or filings, notices, or recordings
or registrations to or with, any Governmental Authority (the "Authorizations"),
including, without limitation, all Authorizations permitting the provision by
the Company of local or long distance or international telecommunication
services. The Authorizations constitute all approvals, authorizations,
certifications, consents, variances,
25
permissions, licenses, or permits to or from, or filings, notices, or recordings
to or with, any Governmental Authority that are required for the ownership and
use of the Assets and the conduct of the Business under federal, state, and
local law, regulation, ordinance, or decree, except to the extent that the
failure of the Company to have any of the foregoing would not have, and would
not reasonably be expected to have, a Material Adverse Effect. Except as set
forth on Schedule 5.18(b), the Company is in compliance, in all material
respects, with all terms and conditions of such required Authorizations. All of
the Authorizations are in full force and effect, and to Seller's knowledge, no
suspension or cancellation of any of them is being threatened. Except as set
forth on Schedule 5.18(b), the Company is in compliance, in all material
respects, with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
contained in those laws or contained in any law, regulation, code, plan, order,
decree, judgment, notice, or demand letter issued, entered, promulgated, or
approved thereunder relating to or affecting the Business.
5.19 Employee Benefit Plans.
----------------------
(a) Schedule 5.19 hereto lists each employment, consulting, bonus,
deferred compensation, incentive compensation, severance, termination or
post-employment pay, disability, hospitalization or other medical, dental,
vision, life or other insurance, stock purchase, stock option, stock
appreciation, stock award, pension, profit sharing, 401(k) or retirement plan,
agreement or arrangement, and each other employee benefit plan or arrangement
arising out of the employment or the termination of employment of an employee,
former employee, retiree or sales personnel by the Company (each a "Company
Plan"). Each such Company Plan is sponsored by Seller and not sponsored by the
Company. At Purchaser's request, Seller will work with Purchaser to transfer the
Company's employees to a plan utilized by Purchaser.
(b) All Company Plans have been maintained in compliance with their
terms and applicable law. There are no pending or, to the knowledge of Seller,
threatened claims against the Company with respect to any Company Plan, except
for claims for benefits in the ordinary course. Any Company Plan that provides
medical or health benefits is fully insured. All contributions and premium
payments required to be made with respect to any Company Plan have been timely
made or properly accrued on the Financial Statements.
5.20 Accounts Receivable. All trade accounts receivable of the Company
have arisen in the ordinary course of business in arms-length transactions for
services that are collectible in the ordinary course of business. The Company
has available in its records copies of invoices and of letters of agency with
respect to all such accounts receivable.
5.21 Broker's Fees. No Person has acted, directly or indirectly, as a
broker, finder or financial advisor for Seller in connection with the
transactions contemplated by this Agreement, and neither the Company nor Seller
has incurred any obligation or liability for any broker's, finder's or agent's
fees or commissions in connection with the transactions contemplated by this
Agreement.
5.22 Intellectual Property. The Company owns or has the right to use all
Intellectual Property, free from burdensome restrictions or any licenses to or
rights of others in respect
26
thereof, which are used in or are necessary for the operation of their
respective businesses as presently conducted or proposed to be conducted.
Schedule 5.22 contains a true and correct list and brief description of all
Intellectual Property owned by or licensed to the Company as of the date hereof.
None of the Company's present or contemplated operations or other use of
Intellectual Property infringes any patent, trademark, service mark, trade name,
franchise, copyright, license or other right owned by any other Person, and
there is no pending or, to Seller's knowledge, threatened claim or litigation
against or affecting the Company contesting its right to engage in any such
operation, or contesting the validity of any of the Intellectual Property, and
to Seller's knowledge, there is no basis for any such charge or claim.
5.23 Investment Company Act. The Company is not an "investment company" or
a company controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act"). None
of the sale of the Shares hereunder or the application of the proceeds thereof
or repayment, or the consummation of the other transactions contemplated hereby
or under any other Related Document, will violate any provision of the
Investment Company Act or any rule, regulation or order of the SEC thereunder.
5.24 Bank Accounts; Powers of Attorney; Statutory Deposits. Schedule 5.24
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers and other financial institutions at which
the Company has an account or safe deposit box or maintains a banking,
custodial, trading, trust or other similar relationship, (b) a true and complete
list and description of each such account, box and relationship, and (c) a true
and complete list of all signatories for each such account and box. Except as
set forth on Schedule 5.24, the Company has not granted a power of attorney to
any Person authorizing such Person to make any commitment on behalf of the
Company.
5.25 Related Persons. Except as set forth on Schedule 5.25: (a) no
officer, director or shareholder of the Company or any member of his or her
immediate family or any Affiliate of any of the foregoing (collectively,
"Related Persons") is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them, other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of any Company, and (iii) for other
employee benefits made generally available to all similarly situated employees;
and (b) no Related Person has any direct or indirect ownership interest (i) in
any products, services, facilities, software or other personal property or any
real property owned, leased, licensed or used by the Company, (ii) in any Person
with which the Company has a contractual relationship, or (iii) in any Person
that competes with the Company. No Related Person is, directly or indirectly,
interested in any Subsisting Contract.
5.26 Restrictions on Business Activities. Except as required by or
pursuant to applicable Law, there is no judgment, order, decree, statute, law,
ordinance, rule or regulation of any Governmental Authority binding upon the
Company, its properties or the Assets which has the effect of prohibiting or
materially impairing any Company from (a) acquiring any property or asset, (b)
conducting any business in any location, (c) hiring any Person or consulting
firm, or (d) declaring or paying any dividend or other distribution to its
shareholders.
27
5.27 Disclosure. No representation or warranty in this Article V, in the
Schedules or in any certificate or other Related Document furnished by Seller to
Purchaser in connection with this Agreement contains or will contain any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Acquisition Sub and Cyber Digital hereby each represent and warrant to
Seller as follows:
6.01 Organization. Each of Acquisition Sub and Cyber Digital is duly
incorporated, validly existing and in good standing under the laws of the State
of New York.
6.02 Authorization. Each of Acquisition Sub and Cyber Digital has all
requisite power and authority to enter into this Agreement and the other Related
Documents to be executed and delivered by it in connection with the transactions
contemplated hereby, and to consummate the transactions contemplated hereby. All
corporate acts and other proceedings required to be taken by each of Acquisition
Sub and Cyber Digital to authorize the execution, delivery and performance of
this Agreement and the Related Documents to which it is a party, and the
consummation of the transactions contemplated hereby, have been duly and
properly taken.
6.03 Valid and Binding. This Agreement constitutes (and, when executed and
delivered at Closing, each Related Document will constitute) a valid and binding
obligation of each of Acquisition Sub and Cyber Digital, enforceable against it
in accordance with its terms, except that (a) such enforcement may be limited by
or subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
6.04 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority is required to be obtained by Acquisition Sub or Cyber
Digital in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby, except
for (a) informational filings with the SEC and as may be required under state
securities or "blue sky" laws and (b) the Regulatory Approvals.
6.05 Litigation. There is no Legal Proceeding pending or, to the knowledge
of Acquisition Sub or Cyber Digital, threatened that questions or challenges the
validity of, or seeks damages or equitable relief on the basis of, this
Agreement or any action taken or to be taken by Acquisition Sub or Cyber Digital
pursuant to this Agreement or in connection with the transactions contemplated
hereby; nor to the knowledge of Acquisition Sub or Cyber Digital is there any
valid basis for any such Legal Proceeding.
28
6.06 Disclosure. No representation or warranty in this Article VI or in
any certificate or other Related Document furnished by Purchaser to Seller in
connection with this Agreement contains or will contain any untrue statement of
material fact or omits or will omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading.
6.07 Broker's Fees. No Person has acted, directly or indirectly, as a
broker, finder or financial advisor for Acquisition Sub or Cyber Digital in
connection with the transactions contemplated by this Agreement, and Purchaser
has not incurred any obligation or liability for any broker's, finder's or
agent's fees or commissions in connection with the transactions contemplated by
this Agreement, except in connection with the New Note and the New Note
Documents.
6.08 Securities Matters. Purchaser acknowledges and represents and
warrants to Seller as follows:
(a) Purchaser is familiar with the Business and the Company.
(b) Purchaser has been advised that the Shares may not be sold,
transferred, or otherwise disposed of except as provided herein, and understands
that the Shares have not been registered under the Securities Act, or any state
securities laws, in reliance on an exemption for private offerings or the fact
that the Shares are not securities and, if the Shares are securities, Purchaser
may not be able to resell such Shares unless registered under the Securities Act
and any applicable state securities laws or unless an exemption from such
registration is available.
(c) Purchaser is a "sophisticated investor" with substantial prior
experience in business investments of the type described in this Agreement, and
is aware of and familiar with the risks associated with the Business and the
Company, and would qualify as an "accredited investor" as such is defined in
Rule 501 of Regulation D, as enacted pursuant to Sections 3(b) and 4(2) of the
Securities Act.
(d) Purchaser is acquiring the Shares for its own account, for
investment only and with no present intention of distributing, reselling,
pledging, or otherwise disposing of such Shares, or any portion thereof.
(e) Purchaser is familiar with the type of investment which the
Shares constitute and has reviewed the acquisition of such Shares with its legal
counsel and other advisors to the extent it deems necessary.
(f) Purchaser acknowledges that the Shares may have to be held
indefinitely and that Purchaser can afford to do so, and to lose its entire
investment in the Shares.
(g) Purchaser recognizes that there has been no public market for
the Shares and that after its acquisition of the Shares, there will be no such
market, and Purchaser understands that it cannot expect to be able to freely
liquidate the Shares in case of emergency.
29
(h) Except as otherwise expressly set forth herein, no
representations or warranties have been made to Purchaser by Seller or by any
agent, employee, director or affiliate thereof and, in entering into the
transactions contemplated by this Agreement, Purchaser is not relying upon any
information other than the results of its own independent investigation.
ARTICLE VII
CONDITIONS TO CLOSING
7.01 Conditions Precedent to the Obligations of Purchaser Hereunder. All
obligations of Purchaser hereunder with respect to the purchase of the Shares
are subject to the fulfillment, to the satisfaction of Purchaser and its legal
counsel prior to or at the Closing, of each of the following conditions, except
to the extent that Purchaser may waive any one or more thereof as permitted by
applicable law:
(a) each of the representations and warranties of Seller contained
in Article V hereof, the Schedules hereto and in all certificates and other
documents delivered or to be delivered by Seller or the Company pursuant hereto
or in connection with the transactions contemplated hereby, disregarding all
qualifications and exceptions contained therein relating to materiality or
Material Adverse Effect, shall be true, complete and accurate and correct in all
material respects as of the date when made and at the Closing Date (or, if given
as of a specific date, as of such date);
(b) the Company and Seller shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by each of them on or prior to
the Closing;
(c) no Legal Proceeding by any Governmental Authority or other
Person shall have been instituted or threatened that seeks to restrain, enjoin,
prevent the consummation or otherwise affect the transactions contemplated by
this Agreement or which questions the validity or legality of the transactions
contemplated hereby or the ability of Seller to transfer the Shares hereunder to
Purchaser;
(d) Seller shall have delivered to Purchaser, or shall have caused
to be delivered to Purchaser, each of the items required to be delivered to
Purchaser in accordance with Section 3.02 hereof;
(e) there shall not have occurred any Material Adverse Effect since
the date hereof;
(f) the Regulatory Approvals shall have been obtained and/or made;
(g) the transactions contemplated by the NRTC Agreement shall have
been consummated in accordance with the terms thereof;
(h) at the Closing Date (and immediately prior to the Closing), the
Company shall have on its balance sheet (which shall be evidenced to Purchaser
to its reasonable
30
satisfaction) at least $50,000 in cash or cash equivalents and no less than
$(9,445) in net working capital (exclusive of $54,000 in deferred revenue), as
described and set forth in Schedule 7.01(h); and
(i) Purchaser shall have received the resignations of each of the
directors and officers of the Company in office immediately prior to the
Closing.
7.02 Conditions Precedent to the Obligations of Seller Hereunder. All
obligations of Seller hereunder with respect to the sale of the Shares are
subject to the fulfillment, to the satisfaction of Seller and its legal counsel
prior to or at the Closing, of each of the following conditions, except to the
extent that Seller may waive any one or more thereof as permitted by applicable
law:
(a) each of the representations and warranties of Purchaser
contained in Article VI hereof and in all certificates and other documents
delivered or to be delivered by Purchaser pursuant hereto or in connection with
the transactions contemplated hereby, disregarding all qualifications and
exceptions contained therein relating to materiality or material adverse effect,
shall be true, complete and accurate and correct in all material respects as of
the date when made and at the Closing Date (or, if given as of a specific date,
as of such date);
(b) Purchaser shall have performed and complied in all material
respects with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by it on or prior to the Closing;
(c) the transactions contemplated by the NRTC Agreement shall have
been consummated in accordance with the terms thereof;
(d) no Legal Proceeding by any Governmental Authority or other
Person shall have been instituted or threatened that seeks to restrain, enjoin,
prevent the consummation or otherwise affect the transactions contemplated by
this Agreement or which questions the validity or legality of the transactions
contemplated hereby or the ability of Purchaser to purchase the Shares hereunder
from Seller; and
(e) Purchaser shall have delivered to Seller, or shall have caused
to be delivered to Purchaser, each of the items required to be delivered to
Seller in accordance with Section 3.03 hereof.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
8.01 Survival of Representations and Warranties. All representations and
warranties made by each party hereto in this Agreement or in the attached
Schedules or in any exhibit or certificate delivered pursuant hereto shall
survive the Closing hereunder and any investigation at any time made by or on
behalf of any other party through the first anniversary of the Closing Date;
provided, however, that the representations and warranties of Seller set forth
in Sections 5.01, 5.02, 5.03, 5.04, 5.09 and 5.21, and the representations and
warranties of Purchaser set
31
forth in Sections 6.01, 6.02, 6.03 and 6.04, shall survive until the expiration
of all applicable statutes of limitations (including all periods of extension,
whether automatic or permissive).
8.02 Notice of Damages. If either party seeks indemnity hereunder (the
"Indemnified Party"), the Indemnified Party shall give the other party from whom
indemnity is sought hereunder (the "Indemnitor") prompt notice (hereinafter, the
"Indemnification Notice") of any demands, claims, actions or causes of action
(collectively, "Claims") asserted against the Indemnified Party. Failure to give
such notice shall not relieve the Indemnitor of any obligations which the
Indemnitor may have to the Indemnified Party under this Article VIII, except to
the extent that such failure has materially adversely prejudiced the Indemnitor
under the provisions for indemnification contained in this Agreement. For
purposes of this Article VIII, Acquisition Sub or Cyber Digital, on the one
hand, and Seller, on the other hand, shall be deemed to be the "Indemnified
Party" or the "Indemnitor", as the case may be.
8.03 Agreements to Indemnify.
-----------------------
(a) Subject to the terms and conditions of this Article VIII, Seller
covenants and agrees to indemnify, defend and hold harmless Acquisition Sub,
Cyber Digital and their Affiliates (including any officer, director,
stockholder, partner, member, employee, agent or representative of any thereof)
(a "Purchaser Affiliate") from and against all assessments, losses, damages,
liabilities, costs and expenses, including without limitation interest,
penalties and reasonable fees and expenses of legal counsel chosen by
Acquisition Sub, Cyber Digital or a Purchaser Affiliate (collectively,
"Damages"), imposed upon or incurred by Acquisition Sub, Cyber Digital or any
Purchaser Affiliate arising out of or in connection with or resulting from (i)
any breach of any representation or warranty of, or non-fulfillment of any
covenant or agreement of, Seller contained in or made pursuant to this Agreement
or any Schedule hereto, or any certificate furnished or to be furnished to
Purchaser hereunder or thereunder, or (ii) any of the matters described on
Schedule 8.03(a) hereto; provided, that with respect to each such matter set
forth on Schedule 8.03(a), Seller's indemnification obligations hereunder with
respect thereto shall not exceed the amount set forth opposite such matter on
such Schedule 8.03(a). Seller further covenants and agrees to indemnify, defend
and hold harmless any Purchaser Affiliate and the Company from and against all
Taxes for which Seller is responsible under Section 4.02(c) hereof to the extent
that such Taxes exceed the reserve established therefor.
(b) Each of Acquisition Sub, Cyber Digital and, from and after the
Closing, the Company, covenants and agrees to indemnify, defend and hold
harmless Seller and its Affiliates (including any successor or assign, officer,
director, stockholder, partner, member, employee, agent or representative
thereof) ("Seller Affiliates") from and against all Damages imposed upon or
incurred by such Indemnified Party arising out of or in connection with or
resulting from any breach of any representation or warranty of, or
non-fulfillment of any covenant or agreement of, Acquisition Sub or Cyber
Digital contained in or made pursuant to this Agreement or any certificate or
other instrument furnished or to be furnished to Seller hereunder or thereunder.
(c) The Indemnitor shall reimburse the Indemnified Party promptly
after delivery of an Indemnification Notice certifying that the Indemnified
Party has incurred Damages
32
after compliance with the terms of this Article VIII, provided, however, that
the Indemnitor shall have the right to contest any such Damages in good faith.
8.04 Conditions of Indemnification of Third Party Claims. The obligations
and liabilities of an Indemnitor under Section 8.03 hereof with respect to
Damages resulting from Claims by Persons not party to this Agreement shall be
subject to the following terms and conditions:
(a) Promptly after delivery of an Indemnification Notice in respect
of a Claim, and subject to paragraph (c) of this Section 8.04, the Indemnitor
may elect, by written notice to the Indemnified Party, to undertake the defense
thereof with counsel reasonably satisfactory to the Indemnified Party, at the
sole cost and expense of Indemnitor. If the Indemnitor chooses to defend any
claim, the Indemnified Party shall cooperate with all reasonable requests of the
Indemnitor and shall make available to the Indemnitor any books, records or
other documents within its control that are necessary or appropriate for such
defense.
(b) In the event that the Indemnitor, within a reasonable time after
receipt of an Indemnification Notice, does not so elect to defend such Claim,
the Indemnified Party will have the right (upon further notice to the
Indemnitor) to undertake the defense, compromise or settlement of such Claim for
the account of the Indemnitor, subject to the right of the Indemnitor to assume
the defense of such Claim pursuant to the terms of paragraph (a) of this Section
8.04 at any time prior to settlement, compromise or final determination thereof,
provided, that the Indemnitor reimburses in full all costs of the Indemnified
Party (including reasonable attorney's fees and expenses) incurred by it in
connection with such defense prior to such assumption.
(c) Anything in this Section 8.04 to the contrary notwithstanding,
(i) if the Indemnified Party believes there is a reasonable probability that a
Claim may materially and adversely affect the Indemnified Party, the Indemnified
Party shall have the right to participate in the defense, compromise or
settlement of such Claim, provided that the Indemnitor shall not be liable for
expenses of separate counsel of the Indemnified Party engaged for such purpose,
and (ii) no Person who has undertaken to defend a Claim under Section 8.04(a)
hereof shall, without the written consent of all Indemnified Parties, settle or
compromise any Claim or consent to entry of any judgment which does not include
as an unconditional term thereof the release by the claimant or the plaintiff of
all Indemnified Parties from all liability arising from events which allegedly
give rise to such Claim.
8.05 Pursuit of Claims; Limitation on Indemnification. Any breach of any
representation or warranty as to which a bona fide claim for indemnification has
not been asserted in accordance with Section 8.03 hereof prior to 5:00 p.m., New
York City time, on the date of the expiration of the applicable survival period
set forth in Section 8.01 hereof may not be pursued, and hereby is irrevocably
waived. If a claim for indemnification is made in accordance with Section 8.03
prior to 5:00 p.m., New York City time, on the date of the expiration of the
applicable survival period set forth in Section 8.01, then, notwithstanding such
survival period, the representation or warranty applicable to such claim will
survive until, but only with respect to any such claim that was timely made and
only for the purpose of, the resolution of such claim by final, nonappealable
judgment or settlement. In any event, the parties shall fully cooperate with
33
each other and their respective counsel in accordance with Section 8.04 in
connection with any such litigation, defense, settlement or other attempted
resolution.
8.06 Limitation upon De Minimis Indemnification Obligations. Except for
Claims for the indemnification of any Tax or any breach of Section 5.09 hereof,
no party hereunder shall be required to indemnify the other party hereunder
until such time as the Indemnified Party's actual Damages in the aggregate equal
or exceed $50,000, at which time the Indemnifying Party shall be responsible for
the entire amount of Damages incurred.
ARTICLE IX
RESERVED
--------
ARTICLE X
MISCELLANEOUS PROVISIONS
10.01 Expenses. Except as otherwise provided herein, each of the parties
hereto will pay its own expenses incurred by or on its behalf in connection with
this Agreement or any transaction contemplated by this Agreement, whether or not
such transaction shall be consummated, including without limitation all fees of
its respective legal counsel and accountants.
10.02 Notices. All notices, requests, demands, consents or waivers and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered by hand or by telecopy
(with immediate confirmation), one (1) business day after being sent if by
nationally recognized overnight courier or if mailed, then four days after being
sent by certified or registered mail, return receipt requested with postage
prepaid:
(a) If to Acquisition Sub or Cyber Digital, to:
CYBER DIGITAL, INC.
400 Oser Avenue, Hauppauge, New York 11788
Attention: Chief Executive Officer
Telecopy: 631-231-1446
and to:
KRAMER LEVIN NAFTALIS & FRANKEL LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Scott Rosenblum, Esq.
Telecopy: 212-715-8000
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(b) If to Seller, to:
ELEC COMMUNICATIONS CORP.
75 South Broadway, Suite 302
White Plains, NY 10601
Attention: Chief Executive Officer
Telecopy: 914-682-0820
and to:
PRYOR CASHMAN SHERMAN & FLYNN LLP
410 Park Avenue
New York, New York 10022
Attention: Eric M. Hellige, Esq.
Telecopy: (212) 798-6380
or, in each case, to such other Person or address as any party shall furnish to
the other parties in writing.
10.03 Binding; No Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the other party,
except by operation of law; provided, however, that (i) Acquisition Sub or Cyber
Digital may assign all or part of this Agreement or its rights hereunder (a) to
a Purchaser Affiliate, (b) to Laurus in connection with the New Note and the New
Note Documents and (c) from and after the Closing, to a Person not a party to
this Agreement which acquires all or substantially all of the assets of
Acquisition Sub or Cyber Digital and who assumes all of the obligations of
Acquisition Sub or Cyber Digital hereunder, as the case may be, provided in each
such case that no such assignment shall release Acquisition Sub or Cyber
Digital, as the case may be, from its duties and obligations hereunder, and (ii)
Seller may assign all or part of this Agreement or its rights hereunder to an
Affiliate of Seller who assumes all of the obligations of Seller hereunder,
provided that no such assignment shall release Seller from its duties and
obligations hereunder.
10.04 Severability; Suspension Provisions. If in any jurisdiction, any
provision of this Agreement or its application to any party or circumstance is
restricted, prohibited or unenforceable, such provision shall, as to such
jurisdiction, be ineffective only to the extent of such restriction, prohibition
or unenforceability without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
35
10.05 Governing Law; Arbitration.
--------------------------
(a) All of the terms, conditions, and other provisions of this
Agreement shall be interpreted and governed by reference to the laws of the
State of New York, and any dispute arising therefrom and the remedies available
shall be determined in accordance with such laws without giving effect to the
principles of conflicts of law.
(b) Any disagreement, dispute, controversy or claim arising out of
or relating to this Agreement, or the breach, termination or validity thereof (a
"Dispute"), shall first be negotiated between the Chief Executive Officer of
Seller or his designee (on behalf of Seller), on the one hand, and the Chief
Executive Officer of Cyber Digital or his designee (on behalf of Purchaser), on
the other hand, for attempted resolution by good faith negotiation within thirty
(30) days after the parties have been notified that a Dispute exists.
(c) In the event that respective Chief Executive Officers (or their
designees) are unable to resolve such Dispute within such thirty (30) day
period, said Dispute shall be referred to binding arbitration for resolution in
accordance with the Rules for Non-Administered Arbitration of Business Disputes,
promulgated by the Center for Public Resources, 366 Madison Avenue, New York,
New York 10019 ("CPR") and in effect as of the date of this Agreement.
(d) The arbitration shall be held in New York, New York unless
Seller, on the one hand, and Purchaser, on the other hand, agree to an alternate
location, in which case the arbitration shall be held at such alternate
location. There shall be one arbitrator who shall be an attorney specializing in
mergers and acquisitions law with at least fifteen (15) years of experience and
who shall be appointed from a list of such attorneys maintained by the CPR or a
member of the Judicial Panel of the Center of Public Resources for the
resolution of disputes similar to the Dispute. Each party shall have the right
to exercise two (2) peremptory challenges within 48 hours of being advised of
the selection of an arbitrator.
(e) After consulting with the parties, the arbitrator shall devise
procedures and deadlines for the arbitration with the goal of expediting the
proceeding and completing the arbitration within sixty (60) days after the date
of referral. There shall be no discovery other than limited document discovery
which may be granted to the extent reasonable and necessary as determined in the
discretion of the arbitrator. Neither party shall be entitled to discovery as a
matter of right.
(f) The arbitrator shall render his or her decision and proscribe a
fair and reasonable award within thirty (30) calendar days of the close of the
arbitration proceeding. The arbitrator's award will state the sum of money, if
any, and any equitable relief to be awarded with no statement of reasons. The
parties shall pay their own costs, fees and expenses of the procedures set forth
in this Section 10.05. The arbitrator shall decide the matter as would a United
States District Judge sitting in the case, whether under its diversity or
federal question jurisdiction, except that Federal Rules of Civil Procedure
shall not apply, except as specifically determined by the arbitrator. The
arbitrator shall premise the award upon the claimant's legal right to recovery
based on the terms of this agreement and the applicable law of the State of New
36
York, without regard to conflict of laws rules, together with any applicable
provisions of the laws of the United States.
(g) The arbitrator's award shall be final and binding upon the
parties and their respective heirs, executors, assigns and personal
administrators. Barring the existence of any circumstance specified by law for
the vacatur of the award, the award shall be complied with by the party against
whom it is directed without necessity for an application to the court for
confirmation of the award. A judgment may be entered on the award by any court
having competent jurisdiction. The parties to this agreement hereby consent and
submit their person to the jurisdiction of the United States District Court for
the Southern District of New York and any New York State court in New York
County for the enforcement of these provisions and any award rendered hereunder.
(h) The arbitrator shall not be an employee, director, trustee or
shareholder of any party or an Affiliate of any of the above-referenced Persons,
shall be independent and impartial and shall abide by the Ethical Standards of
Professional Responsibility issued by the Society of Professionals in Dispute
Resolution in effect as of the date of this Agreement. Prior to accepting an
appointment in this case, the arbitrator must promptly disclose any
circumstances likely to create a reasonable inference of bias or conflict of
interest or likely to preclude completion of the hearings within the prescribed
time schedule. The arbitrator may be removed for cause consisting of actual
bias, conflict of interest or other serious potential for conflict.
(i) The proportion in which the parties shall pay the costs, fees
and expenses of the procedures set forth in this Section 10.05 pursuant to
paragraph (e) above shall be split 50-50 between Seller, on the one hand, and
Purchaser, on the other hand. Each party shall pay its own costs (including,
without limitation, attorneys' fees and disbursements) and expenses in
connection with these procedures.
(j) Any negotiations hereunder or any proceedings with an arbitrator
shall be private and confidential. Except as may be required by applicable law,
no party shall make (or instruct the arbitrator or any other Person to make) any
public announcement with respect to the proceedings or decisions without the
prior written consent of the other party hereto. The existence of any Dispute
submitted to an arbitrator hereunder, and the award of such arbitrator, shall be
kept in the strictest confidence by the parties and such arbitrator, except as
may be required in connection with the enforcement of such award or as otherwise
required by applicable law.
(k) Each party hereto irrevocably and unconditionally consents to
the service of any and all process in any such action or proceeding by the
mailing of copies of such process by certified mail to such party and its, his
or her counsel at their respective addresses specified in Section 10.02.
10.06 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
37
10.07 Headings. The title of this Agreement and the headings of the
Sections and Articles of and the Schedules to this Agreement are for reference
purposes only and shall not be used in construing or interpreting this
Agreement.
10.08 Entire Agreement; Amendment; Waiver. This Agreement, including any
exhibits and schedules hereto and other documents, instruments and certificates
delivered pursuant to the terms hereof, sets forth the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof, and
supersedes all prior agreements, promises, covenants, arrangements,
representations or warranties, whether oral or written, by any party hereto or
any officer, director, employee or representative of any party hereto. No
modification or waiver of any provision of this Agreement shall be valid unless
it is in writing and signed by both parties hereto. The waiver of breach of any
term or condition of this Agreement shall not be deemed to constitute a waiver
of any other breach of the same or any other term or condition.
10.09 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person other than the parties hereto and their
successors or assigns any rights or remedies under or by reason of this
Agreement.
10.10 Reference to Days. All references to days in this Agreement shall be
deemed to refer to calendar days, unless otherwise specified.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the day and year first above written.
PURCHASER:
CYBD ACQUISITION II, INC.
By: /s/ J.C. Chatpar
----------------
Name: J.C. Chatpar
Title: President
CYBER DIGITAL, INC.
By: /s/ J.C. Chatpar
----------------
Name: J.C. Chatpar
Title: President & CEO
SELLER:
eLEC COMMUNICATIONS CORP.
By: /s/ Paul H. Riss
----------------
Name: Paul H. Riss
Title: CEO