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Exhibit 10.3
STOCK EXCHANGE AGREEMENT
by and among
ESPERNET.COM, INC.
(a Delaware corporation)
ENTER.NET, INC.
(a Pennsylvania corporation)
and
THE STOCKHOLDERS OF
ENTER.NET, INC.
AUGUST 19, 1999
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STOCK EXCHANGE AGREEMENT
TABLE OF CONTENTS
1. DEFINITIONS..............................................................................................1
2. THE EXCHANGE OF SHARES...................................................................................9
2.1 Basic Transaction...............................................................................9
2.2 Transfer Consideration..........................................................................9
2.3 Adjustments to Cash Portion of the Transfer Consideration......................................11
2.4 Access to Information; Dispute Resolution......................................................12
2.5 Escrow Agreement...............................................................................12
3. CLOSING.................................................................................................13
3.1 Location, Date.................................................................................13
3.2 Deliveries.....................................................................................13
3.3 [RESERVED].....................................................................................13
4. REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS.......................................................13
4.1 Corporate Status...............................................................................13
4.2 Authorization..................................................................................14
4.3 Consents and Approvals.........................................................................14
4.4 Capitalization and Stock Ownership.............................................................14
4.5 Subsidiaries...................................................................................15
4.6 Corporate Records..............................................................................15
4.7 Financial Statements...........................................................................15
4.8 Title to Assets and Related Matters............................................................15
4.9 Owned Real Property............................................................................15
4.10 Leased Real Property...........................................................................16
4.11 Certain Personal Property......................................................................16
4.12 Non-Real Estate Leases.........................................................................16
4.13 Accounts Receivable............................................................................16
4.14 Liabilities....................................................................................17
4.15 Taxes..........................................................................................17
4.16 Legal Proceedings and Compliance with Law......................................................18
4.17 Contracts......................................................................................18
4.18 Insurance......................................................................................20
4.19 Intellectual Property and Software Products....................................................20
4.20 Employees......................................................................................22
4.21 Employee Relations.............................................................................23
4.22 ERISA..........................................................................................23
4.23 Guaranties.....................................................................................24
4.24 Certain Business Relationships with the Company................................................24
4.25 Systems........................................................................................24
4.26 Subscribers....................................................................................25
4.27 Previous Sales; Warranties.....................................................................25
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4.28 Absence of Certain Changes.....................................................................25
4.29 Finder's Fees..................................................................................26
4.30 Additional Information.........................................................................26
4.31 Securities Matters.............................................................................27
4.32 Accuracy of Information........................................................................28
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRER..........................................................28
5.1 Corporate......................................................................................28
5.2 Authorization..................................................................................28
5.3 Consents and Approvals.........................................................................28
5.4 Capitalization and Stock Ownership.............................................................29
5.5 Legal Proceedings..............................................................................29
5.6 Finder's Fees..................................................................................29
5.7 Section 351....................................................................................29
6. TAXES...................................................................................................29
6.1 Transferors Tax Preparation....................................................................29
6.2 Tax Preparation................................................................................29
6.3 Cooperation on Tax Matters.....................................................................30
6.4 Miscellaneous Tax Obligations..................................................................30
7. COVENANTS OF THE COMPANY AND THE TRANSFERORS............................................................30
7.1 Payment of Expenses............................................................................30
7.2 Operation of Business Prior to the Closing.....................................................30
7.3 Preservation of Business.......................................................................31
7.4 Access and Confidentiality.....................................................................31
7.5 Notice of Developments.........................................................................31
7.6 Exclusivity....................................................................................32
7.7 [RESERVED].....................................................................................32
7.8 Audits.........................................................................................32
7.9 Due Diligence..................................................................................32
7.10 Schedules......................................................................................32
8. COVENANTS OF THE ACQUIRER...............................................................................33
8.1 Payment of Expenses............................................................................33
8.2 Tax-Free Exchange..............................................................................33
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRER.....................................................33
9.1 Representations and Warranties; Performance of Obligations.....................................33
9.2 No Litigation..................................................................................33
9.3 No Material Adverse Change.....................................................................34
9.4 Due Diligence Review Complete..................................................................34
9.5 Consents and Approvals.........................................................................34
9.6 Financial Statements...........................................................................34
9.7 IPO............................................................................................34
9.8 Documents to Be Delivered by the Transferors...................................................34
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9.9 [RESERVED].....................................................................................35
9.10 [RESERVED].....................................................................................35
9.11 Financial Condition............................................................................35
9.12 Schedules......................................................................................36
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE TRANSFERORS..................................36
10.1 Representations and Warranties; Performance of Obligations.....................................36
10.2 No Litigation..................................................................................36
10.3 Consents and Approvals.........................................................................36
10.4 [RESERVED].....................................................................................36
10.5 Receipt of Acquirer's Shares And Cash Portion of The Transfer Consideration....................36
10.6 Documents to Be Delivered by the Acquirer......................................................36
10.7 IPO............................................................................................37
11. POST-CLOSING COVENANTS..................................................................................37
11.1 General........................................................................................37
11.2 Transition.....................................................................................37
11.3 Restrictions on Transfer of Acquirer Common Stock..............................................37
12. INDEMNIFICATION.........................................................................................38
12.1 By the Transferors.............................................................................38
12.2 By the Acquirer................................................................................38
12.3 Procedure for Claims...........................................................................38
12.4 Claims Period..................................................................................40
12.5 Third Party Claims.............................................................................40
12.6 Limitation on Indemnification..................................................................40
13. DISPUTE RESOLUTION......................................................................................41
13.1 Good-Faith Negotiations........................................................................41
13.2 Arbitration....................................................................................41
13.3 WAIVER OF JURY TRIAL...........................................................................41
13.4 No Punitive Damages............................................................................41
14. COMPETITION AND CONFIDENTIALITY BY THE TRANSFERORS......................................................42
14.1 Restricted Period..............................................................................42
14.2 Confidentiality................................................................................42
14.3 Affiliates.....................................................................................42
14.4 Injunctive Relief..............................................................................43
15. TERMINATION.............................................................................................43
15.1 Termination of Agreement.......................................................................43
15.2 Effect of Termination..........................................................................44
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16. MISCELLANEOUS...........................................................................................44
16.1 Press Releases and Announcements...............................................................44
16.2 No Third-party Beneficiaries...................................................................44
16.3 Contents of Agreement..........................................................................44
16.4 Amendment, Parties in Interest, Assignment, Etc................................................44
16.5 Interpretation.................................................................................44
16.6 Incorporation of Exhibits, Annexes, and Schedules..............................................45
16.7 Remedies and Set-Off...........................................................................45
16.8 Notices........................................................................................45
16.9 Governing Law..................................................................................46
16.10 Expenses.......................................................................................46
16.11 Counterparts...................................................................................46
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Annexes
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Annex I Transferor List of Company
Annex II Cash Portion of the Transfer Consideration
Annex III Stock Portion of the Transfer Consideration
Annex IV [RESERVED]
Annex V Allocation Summary
Exhibits
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Exhibit A Form of Officer's/Transferor's Certificate of Company
Exhibit B Form of Secretary's Certificate of Company
Exhibit C Form of Escrow Agreement
Exhibit D Form of Opinion of Transferors' Counsel
Exhibit E Employment Agreement - Margo J. Corsa
Exhibit F Employment Agreement - Lawrence R. Corsa
Exhibit G Form of Officer's Certificate of the Acquirer
Exhibit H Form of Secretary's Certificate of the Acquirer
Exhibit I Form of Equity Subscription Agreement
Exhibit J Form of Joinder to Registration Agreement
Exhibit K [RESERVED]
Schedules
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Schedule 4.4 Capitalization and Stock Ownership
Schedule 4.7 Financial Statements
Schedule 4.8 Title to Assets and Related Matters
Schedule 4.10 Real Property
Schedule 4.11 Certain Personal Property
Schedule 4.12 Non-Real Estate Leases
Schedule 4.13 Accounts Receivable
Schedule 4.16 Legal Proceedings and Compliance with Law
Schedule 4.17 Contracts
Schedule 4.18 Insurance
Schedule 4.19 Intellectual Property and Software Products
Schedule 4.20 List of Company Employees
Schedule 4.22 ERISA
Schedule 4.24 Certain Business Relationships with the Company
Schedule 4.26 Subscribers
Schedule 4.30 Additional Information
Schedule 7.2 Transactions Outside the Ordinary Course of Business
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STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") is made as of August
19, 1999, by and among ESPERNET.COM, INC., a Delaware corporation (the
"Acquirer"), ENTER.NET, INC., a Pennsylvania corporation (the "Company"), and
all of the stockholders of the Company listed on ANNEX I hereto (each a
"Transferor" and collectively the "Transferors"). The Acquirer, the Company and
the Transferors are sometimes referred to herein individually as a "Party" and
collectively as the "Parties." Certain other terms are used herein as defined
below in Section 1 or elsewhere in this Agreement.
RECITALS
A. The Company is engaged in the business of providing Internet access
and services, web hosting, web design and Internet related services and support.
B. The Transferors in the aggregate are the owners of all of the issued
and outstanding shares of the capital stock of the Company (the "Company
Shares").
C. This Agreement contemplates a transaction in which the Transferors
will exchange their respective Company Shares for the right to receive the
Transfer Consideration (as hereinafter defined).
D. This Agreement further contemplates that the aforementioned
transaction will occur in conjunction with certain related transactions,
consisting of the IPO (as hereinafter defined) and the transfer of certain other
businesses by their respective owners to the Acquirer (the "Related
Transactions"), and the Parties intend that the receipt of the Acquirer Common
Stock (as hereinafter defined) will be tax-free under Section 351 of the Code
(as hereinafter defined).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
receipt and sufficiency of which is hereby acknowledged, the Parties hereto,
intending to be legally bound, hereby agree as follows:
1. DEFINITIONS.
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Accounts Receivable" means, as of any date any trade accounts
receivable, notes receivable, bid or performance deposits, employee advances and
other miscellaneous receivables included in the Assets of the Company.
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"Acquirer" is defined above in the preamble.
"Acquirer Common Stock" means the common stock, $0.001 par value, of
the Acquirer.
"Acquirer's Independent Public Accountant" means the "Big-Five"
accounting firm engaged by the Acquirer to perform the audits required under
this Agreement.
"Action" is defined in Section 12.5.
"Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"Affiliates" means, with respect to a particular party, persons or
entities controlling, controlled by or under common control with that party, as
well as any officers, directors and majority-owned entities of that party and of
its other Affiliates. As used in this definition, the term "control" means
either (i) the possession, directly or indirectly, of the power to direct or to
cause the direction of the management of the affairs of a Person or the conduct
of the business of a Person, or (ii) the holding of a direct or indirect equity
or voting interest of fifty percent (50%) or more in the Person.
"Agreement" means this Agreement and the annexes, exhibits and
schedules hereto.
"Allocation Summary" means the summary of Transferors and their
respective allocation of the Transfer Consideration attached hereto as ANNEX V.
"Assets" means, with respect to a particular Person, all of the assets,
properties, goodwill and rights of every kind and description, real and
personal, tangible and intangible, that are owned or possessed by such Person.
"Association" is defined in Section 13.2.
"Balance Sheet Date" is defined in Section 4.7.
"Benefit Plans" means all "employee benefit plans" of the Company, as
defined in Section 3(3) of ERISA.
"Business" means, with respect to a particular Person, the entire
business, operations, and facilities of such Person.
"Cash Portion of the Transfer Consideration" is defined in Section
2.2(b) and set forth on ANNEX II.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
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"Churn Rate" means the percentage obtained by dividing the number of
Subscribers that cancel or do not renew their Subscriber Contracts during a
quarter by the average number of Subscribers during that quarter. Average
monthly churn rate is calculated as the quarter's churn rate divided by three.
"Claim Notice" is defined in Section 12.3.
"Claim Response" is defined in Section 12.3.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Period" is defined in Section 2.3(f)(i).
"Company" is defined above in the preamble.
"Company Balance Sheet" is defined in Section 4.7.
"Company Common Stock" means the common stock, no par value, of the
Company.
"Company Financial Statements" is defined in Section 4.7.
"Company Long-Term Debt" means all long-term Liabilities of the Company
as determined in accordance with GAAP consistently applied, including the
current portion of any long-term Liabilities, but specifically excluding the
aggregate amount of any Real Estate Leases and Non-Real Estate Leases, whether
or not the terms are in excess of one year.
"Company Net Current Assets" means current Assets (excluding Accounts
Receivable (i) disputed, (ii) subject to pending or threatened Litigation, or
(iii) aged over 60 days) less current Liabilities (including any prepaid or
discounted subscriber contract but, excluding the current portion of long-term
debt) of the Company, each as determined in accordance with GAAP on an accrual
basis of accounting.
"Company Shares" is defined above in the preamble.
"Company Software" is defined in Section 4.19(e).
"Confidential Information" means information, including any formula,
pattern, compilation, program, device, method, technique or process that (a)
derives independent economic value, actual or potential, from not being
generally known to the public or to other Persons who can obtain economic value
from its disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Without limiting the
foregoing, "Confidential Information" includes lists or descriptions of any
customers, referral sources or organizations; financial statements,
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cost reports or other financial information; Contract proposals, or bidding
information; business plans and training and operations methods and manuals;
personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals.
"Consents" means any consent, waiver, approval, order or authorization
of, or registration, declaration or filing with or notice to, any governmental
authority or other Person.
"Contract" means any written or oral contract, agreement, lease,
instrument or other commitment that is binding on any Person or its property
under applicable Law.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any person or its property under applicable Law.
"Damages" is defined in Section 12.1.
"Deductible Amount" is defined in Section 12.3(c).
"Default" means (a) a breach, default or violation, (b) the occurrence
of an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or a right to receive damages or a payment of
penalties.
"Employment Agreements" mean the Employment Agreements between the
Acquirer and each Transferor substantially in the form of EXHIBITS E and F
hereto and entered into as of the Closing Date.
"Encumbrances" means any lien, mortgage, security interest (other than
security interests for Non-Real Estate Leases), pledge, restriction on
transferability, defect of title or other claim, charge or encumbrance of any
nature whatsoever on any property or property interest.
"Equity Subscription Agreement" means the Equity Subscription Agreement
between each Transferor and the Acquirer, substantially in the form of EXHIBIT I
hereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" means the Escrow Agreement by and among the Escrow
Agent, the Acquirer and the Transferors, substantially in the form of EXHIBIT C
hereto.
"Escrow Agent" means Chicago Title and Trust Company, or other
reputable bank or trust company selected by the Acquirer.
"Escrow Funds" is defined in Section 2.5.
"Escrow Period" is defined in Section 2.5.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" is defined in Section 12.4.
"GAAP" means generally accepted accounting principles.
"Governmental Permit" is defined in Section 4.16(b).
"Indemnified Party" is defined in Sections 12.1 and 12.2.
"Indemnitor" is defined in Section 12.3.
"Intellectual Property" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential Business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information, (e) courseware, classroom items and training materials, (f) other
proprietary rights, and (g) copies and tangible embodiments thereof (in whatever
form or medium).
"IPO" means the first underwritten public offering of the Acquirer
Common Stock pursuant to an effective registration statement under the
Securities Act that will result in an aggregate post-IPO market capitalization
of the Acquirer of at least $100 million (determined by multiplying the
outstanding shares of the Acquirer Common Stock by the IPO offering price).
"LLGM" means LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to the
Acquirer.
"Law" means any statute, law, ordinance, regulation, order or rule of
any federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, record keeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, claim, loss, damage, deficiency, guaranty or endorsement of or by
any person, absolute or contingent, accrued or unaccrued, due or to become due,
liquidated or unliquidated.
"Licensed Software" is defined in Section 4.19(d).
"Liquidated Claim Notice" is defined in Section 12.3.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
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"Material Adverse Effect" means, with respect to a particular Person, a
material adverse effect on the Business, Assets, financial condition, results of
operations, products, competitive position, customers or customer relations of
such Person, determined on a consolidated basis, and when used with respect to
representations, warranties or conditions, means the aggregate effect of all
similar situations unless the context indicates otherwise.
"Non-Real Estate Leases" is defined in Section 4.12.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Outage" means any loss of service to any Business or Systems of the
Company, including but not limited to network access, e-mail, web, news or other
services.
"Owned Software" is defined in Section 4.19(c).
"Party" is defined above in the preamble.
"PBGC" is defined in Section 4.22(e).
"Person" means any natural person, corporation, limited liability
company, partnership, proprietorship, association, trust or other legal entity.
"Prime Rate" is defined in Section 12.3(b).
"POPs" is defined in Section 4.25.
"Real Estate Lease" is defined in Section 4.10.
"Real Property" is defined in Section 4.10.
"Receivable Shortfall" is defined in Section 2.3(f)(ii).
"Registration Agreement" means the joinder to the Registration
Agreement between each Transferor and the Acquirer, substantially in the form of
EXHIBIT J hereto.
"Registration Statement" means the Acquirer's registration statement on
Form S-1 once filed with and deemed effective by the SEC in connection with the
IPO.
"Related Transaction" is defined above in the preamble.
"Required Subscribers" means the number of Subscribers equal to the
product of (i) 18,000 multiplied by (ii) a 20% annual growth rate pro rated for
the period commencing on May 31, 1999 and ending on the Closing Date.
"Response Period" is defined in Section 12.3.
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"Restricted Party" is defined in Section 14.1.
"Restricted Period" is defined in Section 14.1.
"Restricted Territory" is defined in Section 14.1.
"Retail Subscriber" means any customers of the Company who (a) are
currently connected to and receiving Internet related services from the
Company's Systems; (b) are being charged or have pre-paid the Company's standard
retail rates (which rates are set forth on SCHEDULE 4.26) pursuant to the
Company's standard form Subscriber Contracts attached hereto on SCHEDULE 4.26;
(c) have paid such stated rates in full for at least one full month; (d) are not
two or more months delinquent in the payment of any invoice from the Company;
(e) have not, in the preceding two months, been given a waiver or forgiveness of
service charges; (f) have not received any inducement to become connected to the
Company's Systems or to receive or pay for services (other than pursuant to the
Company's customary marketing practices); and (g) have not notified the Company
in writing of their intention to cancel service.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Portion of the Transfer Consideration" is defined in Section
2.2(b) and set forth on ANNEX III.
"Subscriber" means any Retail Subscriber or any Wholesale Subscriber.
"Subscriber Contract" means any Contract whereby the Company provides
services to a Subscriber.
"Systems" means the infrastructure used to provide Internet access and
related services, including network components, communications facilities,
servers, services and service platforms (including for e-mail, news, DNS, web,
authentication and other services), firewalls, power plants, data processing
platforms, MIS systems, office automation systems and internal LAN network
management systems.
"Taxes" means all taxes, duties, charges, fees, levies or other
assessments imposed by any taxing authority (i.e. whether federal, state, local,
municipal or foreign) including, without limitation, all net income, gross
income, gross receipts, value-added, excise, withholding, social security,
personal property, real estate, sales and use, ad valorem, license, lease,
service, severance, stamp, transfer, payroll, employment, unemployment,
disability, severance, customs, duties, alternative, windfall profits, add-on
minimum, estimated and franchise taxes or other similar governmental charge or
imposition (including any interest, penalties or additions attributable to or
imposed on or with respect to any such Tax).
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"Tax Return" means any federal, foreign, state and local governmental
tax return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"Transaction Documents" means this Agreement, the Escrow Agreement, the
Equity Subscription Agreement, the Registration Agreement, the Employment
Agreements and each of the other documents contemplated by this Agreement.
"Transactions" means the transactions contemplated by the Transaction
Documents.
"Transfer" is defined in Section 11.3.
"Transfer Consideration" is defined in Section 2.2(d).
"Transferor" is defined above in the preamble.
"Treasury Regulations" means the regulations, including temporary and
proposed regulations, promulgated by the Treasury Department under the Code
"Unliquidated Claim" is defined in Section 12.3.
"Welfare Plan" is defined in Section 4.22(g).
"Wholesale Subscriber" means any customers of a third-party service
provider who (a) are currently connected to and receiving Internet related
services from the Company's Systems; (b) are being charged or have pre-paid,
directly or indirectly through a third-party service provider, the Company's
standard wholesale rates (which rates are set forth on SCHEDULE 4.26) pursuant
to the Company's standard form Subscriber Contracts attached hereto on SCHEDULE
4.26; (c) have paid such stated rates in full for at least one full month; (d)
are not two or more months delinquent in the payment of any invoice from the
Company; (e) have not, in the preceding two months, been given a waiver or
forgiveness of service charges; (f) have not received any inducement to become
connected to the Company's Systems or to receive or pay for services (other than
pursuant to the Company's customary marketing practices); and (g) have not
notified the Company in writing of their intention to cancel service.
"Year 2000 Compliant" means that all software, hardware, firmware, and
systems (a) include Year 2000 date data century recognition, calculations which
accommodate same century and multi-century formulas and date values, correct
date sort ordering (if date sorting is an included function), and date data
interface values that reflect the century; (b) will not cause an abnormal abend
or abort within the application on account of the date data properly entered
into the application or result in the generation of incorrect values or invalid
outputs involving such date; and (c) provide that all date related user
interface functionalities and data fields include the indication of the correct
century.
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2. THE EXCHANGE OF SHARES.
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Acquirer agrees to exchange with the Transferors, and each
Transferor agrees to exchange with the Acquirer, all of the Company Shares for
the consideration specified below in this Section 2.
2.2 TRANSFER CONSIDERATION.
(a) Generally. The Transfer Consideration exchanged for
Company Shares shall be composed of (i) the Cash Portion of the Transfer
Consideration and (ii) the Stock Portion of the Transfer Consideration. In
addition, the Acquirer shall pay to the Company as payment of employee retention
bonuses (1) $24,000.00 as payment of employee retention bonuses within 24 hours
of execution of this Agreement by wire transfer or certified check delivered the
next day by overnight courier, (2) $100,000.00 as payment of employee retention
bonuses on the Closing Date by wire transfer, and (3) $11,000 as the final
installment of legal and accounting expense reimbursements pursuant to the
letter agreement dated July 14, 1999 between the Acquirer and the Transferors.
(b) Transfer Consideration Adjustments. The Acquirer agrees to
pay to the Transferors the aggregate sum of (i) $7,200,000.00 in U.S. currency
pursuant to ANNEX II, to be adjusted (A) downward by the aggregate amount of all
adjustments made pursuant to Section 2.3, and (B) upward by the amount of cash
paid in lieu of any fractional shares which would otherwise be issued in
accordance with this Agreement (the "Cash Portion of the Transfer
Consideration"); and (ii) $4,800,000 worth of Acquirer Common Stock, consisting
of an aggregate number of shares of Acquirer Common Stock pursuant to ANNEX III,
valued at the midpoint of the IPO offering price per share of the Acquirer
Common Stock as set forth in the final prospectus immediately prior to the
effectiveness of the Registration Statement (the "Stock Portion of the Transfer
Consideration"); in exchange for all of the Company Shares to be purchased by
the Acquirer pursuant to the terms hereof; provided, however, that the Cash
Portion of the Transfer Consideration and the Stock Portion of the Transfer
Consideration may be altered by the Parties prior to the Closing Date by mutual
written agreement; provided, further, that the Transferors may elect to allocate
up to $200,000.00 of the Transfer Consideration to be paid to a Person
designated by the Transferors at least ten (10) business days prior to the
Closing Date or such other type of allocation of the Transfer Consideration as
mutually agreed by the Parties and the Acquirer agrees to reasonably cooperate
with the Transferors in making such allocation provided that any such allocation
does not (I) increase the Taxes of the Company or the Acquirer, (II) decrease
any the Tax attributes that would otherwise be available to the Company or the
Acquirer, (III) affect the tax-free exchange under Section 351 of the Code or
(IV) have a Material Adverse Effect on the Company or the Acquirer. The
Transferors may elect to allocate part of the Stock Portion of the Transfer
Consideration (subject to the $200,000.00 limit set forth above) if such Person
(1) is an "accredited investor" as that term is defined in Rule 501(a) under the
Securities Act, (2) completes an accredited investor qualification statement
satisfactory to the Acquirer, and (3) agrees to be bound by the restrictions set
forth in Section 11.3. Any Acquirer Common Stock issued to such Person shall not
qualify as a tax-free exchange under Section 351 of the Code.
(c) Escrow Payments. At the Closing Date, $600,000.00 of the
Cash Portion of the Transfer Consideration will be paid in cash by wire transfer
of funds to the Escrow Agent by the
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Acquirer to be held in escrow pursuant to Section 2.5 and shall be available to
support the Transferors' indemnification obligations specified in Section 12.
(d) Payment. The balance of the Cash Portion of the Transfer
Consideration shall be paid by the Acquirer to the Transferors at the Closing by
delivery of cash by wire transfer of funds in the amounts set forth on the
Allocation Summary. The Acquirer Common Stock comprising the Stock Portion of
the Transfer Consideration shall be issued on the Closing Date by the Acquirer
and delivered to the Transferors within seven (7) business days after the
Closing in the amounts set forth on the Allocation Summary next to such
Transferor's name. The sum of the Cash Portion of the Transfer Consideration and
the Stock Portion of the Transfer Consideration shall be referred to as the
"Transfer Consideration." Each of (i) the Cash Portion of the Transfer
Consideration and (ii) the Stock Portion of the Transfer Consideration shall be
allocated among the Transferors in dollar amounts set forth on the Allocation
Summary attached hereto as ANNEX V. Cash will be paid in lieu of any fractional
shares which would otherwise be issued in accordance with this Agreement.
(e) Surrender of Certificates. The aggregate Transfer
Consideration (less the Escrow Funds) will be payable and issuable upon the
surrender of the certificates and other documentation specified in Section 3.2.
As to each Transferor who properly surrenders such certificates and other
documentation, the Acquirer will pay and deliver to such Transferor such
Transferor's Transfer Consideration (less the Escrow Funds). If payment is to be
made to a Person other than the Person in whose name a certificate surrendered
is registered, it shall be a condition of payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or similar
Taxes required by reason of the payment to a Person other than a Transferor or
shall establish to the satisfaction of the Acquirer that such Tax has been paid
or is not applicable.
(f) Restricted Stock. None of the Acquirer Common Stock issued
in connection with this Agreement will be registered under the Securities Act.
Each certificate for such the Acquirer Common Stock shall bear a legend
describing the foregoing restrictions.
(g) Optional Conversion of Transfer Consideration to All Cash.
The Acquirer shall have the right in its sole discretion, whether or not the
Acquirer consummates the IPO, to convert the entire dollar value of the Stock
Portion of the Transfer Consideration set forth in Section 2.2(b) to the Cash
Portion of the Transfer Consideration.
(h) Optional Extension of the Termination Date. In the event
the Closing has not occurred prior to the termination set forth in Section
15.1(c), the Transferors shall have the right in their sole discretion, whether
or not a Registration Statement has been filed with the SEC, to extend the
termination date set forth in Section 15.1(c) as follows: (i) to January 31,
2000 in consideration of increasing the Cash Portion of the Transfer
Consideration by $25 per Subscriber on the Closing Date; and (ii) in the event
the Closing has not occurred prior to January 31, 2000, to February 29, 2000 in
consideration of increasing the Cash Portion of the Transfer Consideration by an
additional $25 per Subscriber on the Closing Date. The number of Subscribers
shall be determined by Acquirer's Independent Public Accountants in good faith
within two business days prior to the Closing Date.
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2.3 ADJUSTMENTS TO CASH PORTION OF THE TRANSFER CONSIDERATION.
(a) Net Current Assets Adjustment. The Cash Portion of the
Transfer Consideration shall be adjusted downward dollar for dollar by the
amount that the Company Net Current Assets on the Closing Date is less than the
greater of (i) the Company Net Current Assets on the Company Balance Sheet or
(ii) zero dollars ($0). In the event the Company Net Current Assets exceeds the
amount required by the preceding sentence, the Company may distribute such
excess to the Transferors on or before the Closing Date. The Company Net Current
Assets shall be determined by Acquirer's Independent Public Accountants in good
faith within two business days prior to the Closing Date.
(b) Long-Term Debt Adjustment. The Cash Portion of the
Transfer Consideration shall be adjusted downward on a dollar for dollar basis
by the amount of the Company Long-Term Debt outstanding on the Closing Date. The
Company Long-Term Debt shall be determined by Acquirer's Independent Public
Accountants in good faith, within two business days prior to the Closing Date.
(c) Subscriber Adjustment. The Cash Portion of the Transfer
Consideration shall be adjusted downward $666.66 per each Subscriber by which
the number of Subscribers on the Closing is less than the number of Required
Subscribers. The number of Subscribers shall be determined by Acquirer's
Independent Public Accountants in good faith within two business days prior to
the Closing Date.
(d) Churn Rate Adjustment. The Cash Portion of the Transfer
Consideration shall be adjusted downward $12,000.00 per each 1/10 of one percent
by which the average monthly Churn Rate for the six-month period ending on the
Closing Date is greater than 3.0%. The average monthly Churn Rate for the
six-month period ending on the Closing Date shall be determined by Acquirer's
Independent Public Accountants in good faith within two business days prior to
the Closing Date.
(e) [RESERVED]
(f) Accounts Receivable Adjustment.
(i) Shortfall. The Acquirer and the Transferors agree
that the Cash Portion of the Transfer Consideration shall be adjusted to the
extent that the Accounts Receivable have not been collected by the Acquirer
within sixty (60) days following the Closing Date; provided, however, that
Accounts Receivable that as of the Closing Date are (A) disputed, (B) subject to
pending Litigation or threatened Litigation, or (C) older than sixty (60) days,
shall be treated as having a value of zero dollars ($0) for purposes of this
Section 2.3, but any amounts collected on these accounts shall be credited
towards the Acquirer's collection of the Accounts Receivable. The "Collection
Period" shall refer to the period beginning on the Closing Date and continuing
until the expiration of sixty (60) days thereafter.
(ii) Adjustment to Purchase Price. Within sixty
(60) days following the end of the Collection Period, the Acquirer shall prepare
and furnish to the Transferors a statement setting forth the Accounts Receivable
and all payments made thereon, calculated as of the end of the
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Collection Period, and the amount, if any, owing from the Transferors to the
Acquirer pursuant to Section 2.3 ("Receivable Shortfall"). The Acquirer shall
first set-off any Receivable Shortfall from the Escrow Funds, and, to the extent
the amount of the Receivable Shortfall exceeds the amount of the remaining
Escrow Funds, the Transferors shall be jointly and severally liable to pay the
difference to the Acquirer within ten (10) days after receipt of written demand
therefor.
(iii) Collection of Accounts Receivable. Between
the Closing Date and the end of the Collection Period, the Acquirer shall cause
the Company to use its reasonable best efforts consistent with the Company's
usual and customary collection practices to collect the Accounts Receivable;
provided, however, that the Company shall not be obligated to resort to
Litigation.
2.4 ACCESS TO INFORMATION; DISPUTE RESOLUTION. Subject to the
requirements of Section 7.4, in connection with the determination of the
adjustments to the Cash Portion of the Transfer Consideration described in
Section 2.3, the Company and the Transferors shall (a) provide Acquirer's
Independent Public Accountants reasonable access to the books and records of the
Company, in whatever form maintained, (b) cause employees of the Company to
cooperate with Acquirer's Independent Public Accountants, (c) provide all
information reasonably requested, all after receiving reasonable notice from
Acquirer's Independent Public Accountants and reaching agreement as to mutually
convenient times for Acquirer's Independent Public Accountants review, and (d)
provide access to the work papers and other materials and documents used or
produced in connection with the preparation of the Company Financial Statements.
Acquirer's Independent Public Accountants shall provide the Transferors with
access to the work papers and other materials and documents used or produced in
connection with the determination of the adjustments to the Cash Portion of the
Transfer Consideration described in Section 2.3. In the event of any dispute
between the Parties concerning the determination of the adjustments to the Cash
Portion of the Transfer Consideration described in Section 2.3, the adjustments
shall be made on the Closing Date in accordance with the determinations of
Acquirer's Independent Public Accountants and such dispute shall be settled
after the Closing Date in accordance with Section 13. In the event that the
Transferors are required to reimburse the Acquirer for any amounts with respect
to the resolution of a dispute concerning the determination of the adjustments
to the Cash Portion of the Transfer Consideration described in Section 2.3, the
Transferors shall first set-off any such amount from the Escrow Funds, and, to
the extent the amount of the reimbursement exceeds the amount of the remaining
Escrow Funds, the Transferors shall be jointly and severally liable to pay the
difference to the Acquirer within ten (10) days after receipt of written demand
therefor.
2.5 ESCROW AGREEMENT. Pursuant to the Escrow Agreement to be entered
into among the Transferors, the Acquirer and the Escrow Agent, the Acquirer
shall deliver $600,000.00 of the Cash Portion of the Transfer Consideration to
the Escrow Agent by wire transfer in immediately available funds at the Closing.
Such monies (which, together with all interest accrued thereon which may be due
to the Party to whom such funds are ultimately paid in accordance with the terms
of the Escrow Agreement, are hereinafter referred to as the "Escrow Funds")
shall be held pursuant to the terms of the Escrow Agreement for payment from
such Escrow Funds of the amounts, if any, owing by the Transferors to the
Acquirer pursuant to the indemnification provisions of Section 12 below,
together with accrued interest thereon. Pursuant to the terms of the Escrow
Agreement, the Escrow Funds shall be used to satisfy any such owed amounts. At
the conclusion of the period ending on the first anniversary of the Closing Date
(such period being referred to herein as the "Escrow Period"),
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such remaining portion of the Escrow Funds not theretofore paid to the Acquirer
in accordance with the terms of the Escrow Agreement or subject to a pending
claim under the Escrow Agreement and this Agreement shall be disbursed to the
Transferors together with accrued interest thereon. The Transferors and the
Acquirer agree that each will execute and deliver such reasonable instruments
and documents as are furnished by any other Party to enable such furnishing
Party to receive those portions of the Escrow Funds to which the furnishing
Party is entitled under the provisions of the Escrow Agreement and this
Agreement.
3. CLOSING.
3.1 LOCATION, DATE. The closing for the Transactions (the "Closing") is
being held at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., in New
York, New York, or at such other location as the Parties hereto may agree,
commencing at 9:00 a.m. local time simultaneously with the closing of the IPO
and the Related Transactions or such other date as the Acquirer and the
Transferors may mutually determine (the "Closing Date").
3.2 DELIVERIES.
(a) At the Closing, the Acquirer shall pay by wire transfer or
certified or bank checks of immediately available funds the Cash Portion of the
Transfer Consideration in accordance with Section 2;
(b) Within seven (7) business days following the Closing Date,
the Acquirer shall deliver, or shall cause to be delivered by its transfer
agent, certificates for the Acquirer Common Stock representing the Stock Portion
of the Transfer Consideration in accordance with Section 2; and
(c) At least three (3) business days prior to the Closing, (i)
the Transferors will deliver to LLGM the various certificates, instruments, and
documents referred to in Section 9 below, (ii) the Acquirer will deliver to LLGM
the various certificates, instruments, and documents referred to in Section 10
below, and (iii) each of the Transferors will deliver to LLGM the certificates
representing all of its Company Shares, duly endorsed in blank or accompanied by
duly executed assignment documents. LLGM shall hold all such certificates,
documents and instruments in escrow pending consummation of the Closing.
3.3 [RESERVED]
4. REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS.
Upon the acceptance by the Acquirer of the completed Schedules pursuant
to Section 7.10, the Transferors hereby jointly and severally represent and
warrant to the Acquirer as follows:
4.1 CORPORATE STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the Laws of the Commonwealth of
Pennsylvania and is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified. The Charter Documents and
bylaws of the Company that have been delivered to the Acquirer are in full
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force and effect and are effective under applicable Laws and the Company is not
in violation of any of the provisions thereof.
4.2 AUTHORIZATION. The Company has the requisite power and authority to
own its Assets and to carry on its Business as currently conducted. The
Transferors have duly approved the terms of this Agreement and the Transactions.
Each Transferor and the Company have duly executed and delivered each
Transaction Document to which he, she or it is a Party, and each Transaction
Document constitutes a valid and binding obligation of such Party, enforceable
against each Transferor and the Company in accordance with its terms; except to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar Laws relating to or
affecting the rights of creditors generally or contrary to public policy, except
as enforcement hereof is subject to general principles of equity (regardless of
whether such enforcement is considered in a proceeding at law or in equity), and
except to the extent that provisions indemnifying a Party against Liability for
his, her or its own wrongful or negligent acts may be unenforceable.
4.3 CONSENTS AND APPROVALS. Neither the execution and delivery by each
Transferor and the Company of the Transaction Documents to which he, she or it
is a Party, nor the performance of the Transactions to be performed by such
Party, will require any Consent, constitute a Default or cause any payment
obligation (other than a payment obligation arising pursuant to a court-ordered
decree of divorce or an agreement or instrument entered into or given in
connection with a divorce proceeding or similar matter) to arise under (a) any
Law or Court Order to which any Transferor or the Company is subject, (b) the
Charter Documents or bylaws of the Company or (c) any Contract, Government
Permit or other document to which any Transferor or the Company is a party or by
which the properties or other Assets of any Transferor or the Company may be
subject.
4.4 CAPITALIZATION AND STOCK OWNERSHIP.
(a) The total authorized capital stock of the Company consists
of 100 shares of Company Common Stock, 100 shares of which are issued and
outstanding, no shares are (i) subject to issuance pursuant to vested options,
(ii) subject to issuance pursuant to unvested options, (iii) reserved for
issuance pursuant to future option grants, or (iv) subject to unexercised
warrants. The Transferors are not a party to (or have otherwise terminated) any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
(b) Each Transferor, severally but not jointly, represents and
warrants, only with respect to the Company Shares of such Transferor as set
forth beside his, her or its name on SCHEDULE 4.4, that (i) such Transferor is
the sole record and beneficial owner of the number of shares of Company Common
Stock as set forth beside his, her or its name on SCHEDULE 4.4, and (ii) such
Transferor owns all of such Company Common Stock free and clear of any
Encumbrances (other than restrictions on transfer imposed by applicable federal
and state securities Laws) .
(c) There are no existing options, warrants, calls,
commitments or other rights of any character (including conversion or preemptive
rights) relating to the acquisition of any issued or unissued capital stock or
other securities of the Company. There are no outstanding or authorized option,
stock appreciation, phantom stock, or similar rights with respect to the
Company. All of the
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Company Shares are duly and validly authorized and issued, fully paid and
non-assessable. The Company has complied with all applicable Laws in connection
with the issuance of the Company Shares, and none of the Company Shares were
issued in violation of any Contract binding upon the Company. Upon completion of
the Transactions at the Closing, the Acquirer shall receive valid title to all
of the Company Shares, free and clear of all Encumbrances.
4.5 SUBSIDIARIES. The Company does not own, directly or indirectly, any
subsidiary, any interest or investment (whether equity or debt) in any
corporation, partnership, business, trust, joint venture or other legal entity.
4.6 CORPORATE RECORDS. The minute books of the Company contain
complete, correct and current copies of its Charter Documents and bylaws and of
all minutes of meetings, resolutions and other proceedings of its Board of
Directors and stockholders. The stock record book of the Company is complete,
correct and current.
4.7 FINANCIAL STATEMENTS. The Transferors have delivered to the
Acquirer correct and complete copies of the financial statements of the Company
consisting of a balance sheet of the Company as of March 31, 1999, and the
related income statement and statement of cash flows for the three months then
ended. The Transferors have also delivered to the Acquirer correct and complete
copies of the financial statements consisting of a balance sheet of the Company
as of December 31, 1996, 1997 and 1998, and the related income statement and
statement of cash flows for the years then ended. All such financial statements
are referred to herein collectively as the "Company Financial Statements" and
appear on SCHEDULE 4.7. The Company Financial Statements are consistent with the
books and records of the Company, and there have not been any material
transactions that have not been recorded in the accounting records underlying
such Company Financial Statements. The Company Financial Statements have been
prepared on a cash basis but will be converted, at the Acquirer's expense prior
to the Closing, to an accrual basis in accordance with GAAP applied consistently
with past practices other than the cash basis method of accounting, and the
Company Financial Statements present accurately the financial position and
Assets and Liabilities of the Company as of the dates thereof, and the results
of its operations for the periods then ended. The balance sheet of the Company
as of March 31, 1999 that is included in the Company Financial Statements is
referred to herein as the "Company Balance Sheet," and the date thereof is
referred to as the "Balance Sheet Date."
4.8 TITLE TO ASSETS AND RELATED MATTERS. The Company has good and
marketable title to, valid leasehold interests in, or valid licenses to use, all
of its Assets, free from any Encumbrances, except those set forth on SCHEDULE
4.8. The use of the Assets is not subject to any Encumbrances, and such use does
not materially encroach on the property or rights of anyone else, except those
set forth on SCHEDULE 4.8. All Real Property and tangible personal property
(other than inventory) of the Company are suitable for the purposes for which
they are used, in good working condition and reasonable repair, free from any
known defects.
4.9 OWNED REAL PROPERTY. The Company does not own nor does it have any
interest in any real property or improvements thereon (other than the Real
Estate Leases disclosed in SCHEDULE 4.10, and the leasehold improvements
relating to the same) nor does the Company have
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any options, agreements or Contracts under which it has the right or obligation
to acquire any interest in any real property or improvements.
4.10 LEASED REAL PROPERTY. SCHEDULE 4.10 lists by street address all
real estate used by the Company in the operation of its Business as well as any
other real estate that is in the possession of or leased by the Company and the
improvements (including buildings and other structures) located on such real
estate (collectively, the "Real Property"), and lists any leases under which any
such Real Property is possessed (the "Real Estate Leases"). SCHEDULE 4.10 also
describes any other real estate previously owned, leased or otherwise operated
by the Company or any predecessor thereof and the time periods of any such
ownership, lease or operation. The Real Property complies with all applicable
zoning Laws. The Company has obtained all licenses and rights-of-way from
governmental entities or private parties that are necessary to ensure vehicular
and pedestrian ingress and egress to and from any Real Property. Except as
otherwise set forth in SCHEDULE 4.10, none of the Real Estate Leases are for a
term in excess of one year.
4.11 CERTAIN PERSONAL PROPERTY. SCHEDULE 4.11 lists all tangible
personal property of the Company, except for items subject to any Non-Real
Estate Leases, and describes and specifies the location of all such items of
tangible personal property that were included in the Company Balance Sheet.
Except as otherwise set forth in SCHEDULE 4.11, since the Balance Sheet Date,
the Company has not acquired any items of tangible personal property (other than
inventory and office supplies). All of such tangible personal property (a) is in
operating condition, reasonable wear and tear excepted, (b) is usable in the
ordinary course of the Company's Business, and (c) conforms with any applicable
Laws relating to its construction, use and operation. Except for those items
subject to the Non-Real Estate Leases (defined below), no Person other than the
Company owns any vehicles, equipment or other tangible Assets located on the
Real Property that are used by the Company in its Business (other than
immaterial items of personal property owned by the Company's employees) or that
are necessary for the operation of its Business.
4.12 NON-REAL ESTATE LEASES. SCHEDULE 4.12 lists all Assets and
property (other than Real Property) that are currently being used in the
operation of the Business and that are possessed by the Company under an
existing lease, including all trucks, automobiles, machinery, equipment,
furniture and computers. SCHEDULE 4.12 also lists the leases under which such
Assets and property listed on SCHEDULE 4.12 are possessed. All of such leases
are referred to herein as the "Non-Real Estate Leases." Except as otherwise set
forth on SCHEDULE 4.12, none of the Non-Real Estate Leases are for a term in
excess of one year.
4.13 ACCOUNTS RECEIVABLE. All Accounts Receivable of the Company that
are reflected on the Company Balance Sheet represent or will represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. Except for those Accounts Receivable of the
Company in excess of 60 days from the date of creation as set forth on SCHEDULE
4.13, all of the Accounts Receivable included in the Assets of the Company are
collectible within 60 days from the respective dates of sale. None of the
Transferors knows of any facts or circumstances (other than general economic
conditions) that are likely to result in any material increase in the
uncollectibility of such Accounts Receivable. SCHEDULE 4.13 contains a complete
and accurate list of all Accounts Receivable as of the date provided therein,
which list sets forth the aging of such Accounts Receivable.
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4.14 LIABILITIES. The Company has no Liabilities, and none of the
Assets of the Company is subject to any Liabilities, except (a) Liabilities set
forth on the Company Balance Sheet or incurred in the ordinary course (none of
which relates to any breach of contract, breach of warranty, tort, infringement,
or violation of Law or arose out of any charge, complaint, action, suit,
proceeding, hearing, investigation, claim or demand) since the Balance Sheet
Date that, individually or in the aggregate, are not material to the Business or
the Assets of the Company or (b) Liabilities of the Company specifically
disclosed on any Schedule (or not required to be disclosed because of the term
or amount involved) that were not required under GAAP to have been specifically
disclosed or reserved for on the Company Balance Sheet.
4.15 TAXES. With respect to the Company and any affiliated predecessor
entities, (i) all reports, returns, statements (including estimated reports,
returns, or statements), and other similar filings scheduled to be filed on or
before the Closing Date (the "Tax Returns") with respect to any Taxes, have been
or will be timely filed with the appropriate governmental agencies in all
jurisdictions in which such Tax Returns are required to be filed, and all such
Tax Returns correctly reflect the Liability for Taxes for the periods,
properties, or events covered thereby; (ii) all Taxes payable with respect to
the Tax Returns referred to in the preceding clause, and all Taxes accruable or
otherwise attributable to events occurring prior to the Closing Date, whether
disputed or not, whether or not shown on any Tax Return, and whether or not
currently due or payable, will have been paid in full prior to the Closing Date;
(iii) none of the Transferors or the Company has any knowledge of any unassessed
Tax deficiencies or of any audits or investigations pending or threatened with
respect to any Taxes; (iv) [RESERVED]; (v) no issues have been raised in any
examination by any taxing authority which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any other
period not so examined; (vi) there is in effect no extension for the filing of
any Tax Return and no extension or waiver of the application of any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Tax has been given; (vii) no notice has been received from any Tax authority in
any jurisdiction in which any such entity does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction; (viii) there are no liens
for Taxes upon any Asset except for liens for current Taxes not yet due; (ix)
all deposits required by Law to be made with respect to employees' withholding
and other payroll, employment, or other withholding Taxes, including the
portions of such Taxes imposed upon the employer, have been timely made; (x)
neither the Company, nor any Transferor, has taken or agreed to take any action
that would prevent the receipt by the Transferors of the Stock Portion of the
Transfer Consideration from qualifying as tax-free under the provisions of
Section 351 of the Code; (xi) there are no agreements in place relating to the
allocating or sharing of the payment of, or Liability for, Taxes for any period;
(xii) the Company is not a party to any joint venture, partnership or other
arrangement or Contract that could be treated as a partnership for federal
income Tax purposes; (xiii) the Company has not waived any statue of limitations
in respect of Taxes which waiver is currently in effect; (xiv) the Company is
not a party to any "closing agreement," as described in Section 7121 of the Code
or any corresponding provision of state or local Tax Law, and there are no Tax
rulings or requests for Tax rulings with respect to the Company; (xv) the
Company has not filed a consent under Code Sec. 341(f) concerning collapsible
corporations; (xvi) the Company has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that, under any
circumstances, will not be deductible to the Company under Code Sec. 280G;
(xvii) the Company is not and has never been a United States real property
holding corporation within the meaning of Code Sec. 897(c)(2); (xviii) the
Company has disclosed on its
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federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code Sec.
6662; (xix) the Company has never been (nor has any Liability for unpaid Taxes
because it once was) a member of an Affiliated Group filing a consolidated
federal income Tax Return and has never incurred any Liability for the Taxes of
any Person under Treasury Regulations (S)1.1502-6 (or any similar provision of
Law); (xx) the Company has never incurred any Liability for the Taxes of any
Person as a transferee or successor, by contract, or otherwise; (xxi) the
Company has been a validly electing S corporation within the meaning of Sections
1361 and 1362 of the Code at all times during its existence and the Company will
be an S corporation up to and including the Closing Date; (xxii) the Company
would not be liable for any Tax under Section 1374 of the Code if its Assets
were sold for their fair market value as of the Closing Date; and (xxiii) the
Company has not, in the past ten years, (A) acquired assets from another
corporation in a transaction in which the Company's Tax basis for the acquired
assets were determined, in whole or part, by reference to the Tax basis of the
acquired assets (or any other property) in the hands of the transferor or (B)
acquired the stock of any corporation which is a qualified subchapter S
subsidiary.
4.16 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW.
(a) There is no Litigation that is pending or, to the
Transferors knowledge, threatened against the Company. There has been no Default
by the Company under any Laws applicable to the Company, including Laws relating
to pollution or protection of the environment, and the Company has not received
any notices from any governmental entity regarding any alleged Defaults under
any Laws. There has been no Default with respect to any Court Order applicable
to the Company.
(b) The Company has (i) obtained and is in full compliance
with all governmental permits, licenses, registrations, certificates of
occupancy, approvals and other authorizations (the "Governmental Permits"), all
of which are listed in SCHEDULE 4.16 along with their respective expiration
dates, that are required for the complete operation of the Business of the
Company as currently operated, (ii) all of the Governmental Permits are
currently valid and in full force and (iii) filed such timely and complete
renewal applications as may be required with respect to its Governmental
Permits. Further, no revocation, cancellation or withdrawal thereof has been
threatened.
(c) The Company has filed in a timely manner all reports,
documents, and other materials it was required to file (and the information
contained therein was correct and complete in all respects) under all applicable
Laws (including rules and regulations thereunder).
(d) The Company has possession of all records and documents it
was required to retain under all applicable Laws (including rules and
regulations thereunder).
4.17 CONTRACTS.
(a) SCHEDULE 4.17(a) lists each Contract of the following
types to which the Company is a party, or by which it is bound, as of the date
hereof, except for any Contract that may be terminated by the Company on not
more than 30 days' notice without any Liability:
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(i) Contracts with any current or former stockholder,
director, officer, employee, partner or consultant of the Company or any
Affiliate thereof;
(ii) Contracts for the future purchase of, or payment
for, supplies or products, or for the lease of any Asset from or the performance
of services by a third party;
(iii) Contracts to sell or supply products or to
perform services;
(iv) Contracts to lease to or to operate for any
other party any Asset (other than Real Estate Leases and Non-Real Estate Leases
identified on other Schedules);
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit agreements,
reimbursement agreements, loan agreements or other Contracts for the borrowing
or lending of money (including loans to or from the Transferors or any officers,
directors, partners, stockholders or Affiliates of the Company or any members of
their immediate families), agreements or arrangements for a line of credit or
for a guarantee of, or other undertaking in connection with, the indebtedness of
any other Person;
(vi) Any Contracts under which any Encumbrances exist
with respect to any Assets;
(vii) Any Subscriber Contracts for each of the fiscal
years ended December 31, 1996, 1997 and 1998, and for the current fiscal year;
and
(viii) Any formal or informal partnering arrangement
with any merchant or service or web content provider;
(ix) Any Contract with any local exchange carrier,
competitive local exchange carrier, competitive access provider or other
telecommunications carrier;
(x) Any peering, transit or other Contract with any
Internet service provider, online company or similar entity;
(xi) Any written Contract requiring confidentiality
or non-competition other than agreements with customers, employees or
subcontractors in the ordinary course of business; or
(xii) Any other Contracts (other than those described
in any of (i) through (xi) above) not made in the ordinary course of business.
(b) The Transferors have delivered to the Acquirer or made
available for review by the Acquirer a correct and complete copy of each written
Contract listed in Schedule 4.17(a) (as amended to date). Each of the Contracts
set forth on SCHEDULE 4.17(a) is legal, valid, binding and enforceable in
accordance with its terms, and is in full force and effect, and will continue to
be legal, valid, binding and enforceable in accordance with its terms, and will
be in full force and effect on
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identical terms immediately following the Closing. The Company is not in Default
under any Contract (including any Real Estate Leases and Non-Real Estate
Leases), which Default could result in a Liability on the part of the Company.
The Company has not received any communication from, or given any communication
to, any other party indicating that the Company or such other party, as the case
may be, is in Default under any Contract where such Default could have a
Material Adverse Effect. None of the other parties in any such Contract to which
the Company is a party is in Default thereunder. No unfulfilled Subscriber
Contract obligating the Company to perform services will result in a loss to the
Company upon completion of performance. Except for notifications from
Subscribers which would not have a Material Adverse Effect, the Company has not
been notified that any of its Subscribers intend either to dispute charges under
or to terminate early a Subscriber Contract.
(c) SCHEDULE 4.17(c) sets forth a complete and accurate
description of each proposed Contract to which the Company is proposed to be a
party, or by which it is proposed to be bound, as of the date hereof, currently
being negotiated with a possible customer. Notwithstanding the foregoing, the
Transferors make no representations or warranties concerning such proposed
Contracts or the likelihood that the parties thereto will enter into such
proposed Contracts.
(d) SCHEDULE 4.17(d) sets forth a complete and accurate
description of each request for proposal for a Contract with a possible customer
to which the Company is proposed to be a party, or by which it is proposed to be
bound, as of the date hereof, that the Company has pending, or that is currently
being acted upon or considered by the Company. Notwithstanding the foregoing,
the Transferors make no representations or warranties concerning such proposals
or the likelihood that the parties receiving such proposals will accept such
proposals.
4.18 INSURANCE. SCHEDULE 4.18 lists all policies or binders of
insurance held by or on behalf of the Company, specifying with respect to each
policy the insurer, the amount of the coverage offered under the terms of the
policy, the type of insurance, the risks insured, the expiration date, the
policy number and any pending claims thereunder. There is no Default with
respect to any such policy or binder, nor has there been any failure to give any
notice or present any claim under any such policy or binder in a timely fashion
or in the manner or detail required by the policy or binder. There is no notice
of non-renewal or cancellation with respect to, or disallowance of any claim
under, any such policy or binder that has been received by the Company. The
Company has been covered during the past three (3) years by insurance in scope
and amount customary and reasonable for the Business in which it has engaged
during the aforementioned period. The Company currently does not have and has
never had any self-insurance arrangements.
4.19 INTELLECTUAL PROPERTY AND SOFTWARE PRODUCTS.
(a) SCHEDULE 4.19 contains a description of all material
Intellectual Property owned or used by the Company, other than off-the-shelf
software. SCHEDULE 4.19 separately discloses all Intellectual Property under
license, other than licenses related to off-the-shelf software. Except as
otherwise set forth on SCHEDULE 4.19, all Intellectual Property developed by any
Person for use by the Company was developed pursuant to valid work-for-hire
Contracts and such Intellectual Property is not subject to any license or
royalty payments. No Intellectual Property rights not described on SCHEDULE 4.19
are necessary in connection with the conduct of the Business.
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Except as otherwise set forth on SCHEDULE 4.19, the Company owns the entire
right, title and interest in and to, and has the exclusive perpetual
royalty-free right to use, the Intellectual Property, free and clear of all
Encumbrances. Except as otherwise set forth on SCHEDULE 4.19, there are no
pending or, to the knowledge of the Transferors, threatened claims against the
Company by any Person with respect to any of the items, or their use, listed in
SCHEDULE 4.19. Except as otherwise set forth on SCHEDULE 4.19, no Person is
infringing upon nor has any Person misappropriated the Intellectual Property and
the Company is not infringing upon the Intellectual Property rights of any other
Person.
(b) The Company employs procedures to maintain the proprietary
nature of, and owns and has the unrestricted right to use all, trade secrets,
including know-how, inventions, designs, processes, computer software and
documentation for such software and technical data required for or incident to
the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company, free and clear of any Encumbrances,
including, without limitation, all claims of current and former employees,
consultants, officers, directors and shareholders. Each employee and officer of
the Company has executed an agreement with the Company regarding confidentiality
and proprietary information. The Transferors, after reasonable investigation,
are not aware that any of the Company's employees are in violation thereof.
(c) SCHEDULE 4.19 contains a complete and accurate list of all
computer software owned by the Company (the "Owned Software"). Except as
otherwise set forth on SCHEDULE 4.19, the Company has exclusive title to the
Owned Software, free and clear of all claims, including claims or rights of
employees, agents, consultants, customers, licensees or other parties involved
in the development, creation, marketing, maintenance, enhancement or licensing
of such computer software. The Owned Software is not dependent on any Licensed
Software (as defined in paragraph (d) below) in order to fully operate in the
manner in which it is intended.
(d) SCHEDULE 4.19 contains a complete and accurate list of all
software under which the Company is a licensee, lessee or otherwise has obtained
the right to use such software (the "Licensed Software"). SCHEDULE 4.19 also
sets forth a list of all license fees, rents, royalties or other charges that
the Company is required or obligated to pay with respect to the Licensed
Software. Except as otherwise set forth on SCHEDULE 4.19, the Company is in full
compliance with all material provisions of any license, lease or other similar
agreement pursuant to which it has rights to use the Licensed Software and has
proof of purchase of each item of Licensed Software. None of the Licensed
Software has been incorporated into or made a part of any Owned Software or any
other Licensed Software. The Company has not published or disclosed any Licensed
Software to any other party.
(e) The Owned Software and Licensed Software (collectively,
the "Company Software") constitute all software currently used in or necessary
for the conduct of the Business as currently conducted. SCHEDULE 4.19 identifies
all Contracts pursuant to which computer programming services for the Company
were performed. The Transactions will not cause a breach or default under any
license, lease or similar agreement relating to the Company Software or
materially impair the Company's ability to use the Company Software after the
Closing Date in the same manner as such computer software is currently used by
the Company. The Company is not infringing any intellectual property rights of
any other Person with respect to the Company Software, and no other Person is
infringing any intellectual property rights of the Company with respect to the
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Company Software or is claiming any right, title or interest in the Company
Software or any infringement by the Company of any intellectual property right
which such other Person may possess.
(f) SCHEDULE 4.19 lists and separately identifies all
Contracts pursuant to which the Company has been granted rights to market
software owned by third parties, and lists and separately identifies all
Contracts pursuant to which the Company has granted marketing rights in the
Company Software to third parties.
(g) The Company has not taken or failed to take any actions
under the Law of any applicable foreign jurisdictions where the Company has
marketed or licensed the Company Software that would restrict or limit the
ability of the Company to protect, or prevent it from protecting, its ownership
interests in, confidentiality rights of, and rights to market, license, modify
or enhance, the Company Software.
(h) All Company Software is Year 2000 Compliant. All date
processing by the Company Software will include four digit year format and
recognize and correctly process dates for leap years.
(i) No current or former employee of the Company and no other
Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, and including any right to royalties or other
compensation, in any of the Intellectual Property listed on SCHEDULE 4.19, or in
any application therefor.
4.20 EMPLOYEES.
(a) SCHEDULE 4.20 contains a complete and correct list of the
names and salaries, bonus and other cash compensation of all employees and
officers of the Company, including, without limitation, all temporary, for-hire,
or outsourced employees engaged by the Company during the current calendar year.
Except as set forth on SCHEDULE 4.20, the Company does not have any written or
oral Contracts of employment with any employee of the Company. Except as
otherwise set forth on SCHEDULE 4.20, all employees of the Company are
employee(s) "at will" and the Company or any employee(s) are free to terminate
the employment relationship at any time for any reason without any Liability.
(b) Neither the execution and delivery of this Agreement nor
the consummation of the Transactions will (i) result in any payment to be made
by the Company (including, without limitation, severance, unemployment
compensation, golden parachute (as defined in Code Section 280G or otherwise))
becoming due to any employee or former employee, officer or director, or (ii)
increase or vest any benefits payable under any Benefit Plan.
(c) Any amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the Transactions by
any employee, officer or director of the Company who is a "disqualified
individual" (as such term is defined in Treasury Regulation Section 1.280G-1)
under any employment, severance or termination agreement, other compensation
arrangement or Benefit Plan currently in effect would not be characterized as an
"excess parachute payment" (as such term is defined in Section 280(b)(1) of the
Code).
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4.21 EMPLOYEE RELATIONS. The Company is not (a) a party to any
collective bargaining agreement, (b) a party to, involved in, threatened by, any
labor dispute or unfair labor practice charge, or (c) currently negotiating any
collective bargaining agreement, and the Company has not experienced any work
stoppage during the last three years. The Company has not committed any unfair
labor practice.
4.22 ERISA.
(a) SCHEDULE 4.22 contains a complete list of all Benefit
Plans sponsored or maintained by the Company or under which the Company may be
obligated. Except as otherwise set forth on SCHEDULE 4.22, the Transferors have
delivered to the Acquirer (i) accurate and complete copies of all Benefit Plan
documents and all other material documents relating thereto, including (if
applicable) all summary plan descriptions, summary annual reports and insurance
Contracts, (ii) accurate and complete detailed summaries of all unwritten
Benefit Plans, (iii) accurate and complete copies of the most recent financial
statements and actuarial reports with respect to all Benefit Plans for which
financial statements or actuarial reports are required or have been prepared and
(iv) accurate and complete copies of all annual reports for all Benefit Plans
(for which annual reports are required) prepared within the last three years,
except where such inaccuracy or incompleteness does not have a Material Adverse
Effect. Each Benefit Plan providing benefits that are funded through a policy of
insurance is indicated by the word "insured" placed by the listing of the
Benefit Plan on SCHEDULE 4.22.
(b) Except as otherwise set forth on SCHEDULE 4.22, all
Benefit Plans conform (and at all times have conformed) in all material respects
to, and are being administered and operated (and have at all times been
administered and operated) in material compliance with, the requirements of (to
the extent governed thereby) ERISA, the Code and all other applicable Laws.
Except as otherwise set forth on SCHEDULE 4.22, all returns, reports and
disclosure statements required to be made under ERISA and the Code with respect
to all Benefit Plans have been timely filed or delivered. Except as otherwise
set forth on SCHEDULE 4.22, there have not been any "prohibited transactions,"
as such term is defined in Section 4975 of the Code or Section 406 of ERISA
involving any of the Benefit Plans, that could subject the Company to any
material penalty or Tax imposed under the Code or ERISA.
(c) Except as otherwise set forth on SCHEDULE 4.22, the
Company does not sponsor or maintain any Benefit Plan that is intended to be
qualified under Section 401 (a) of the Code.
(d) Except as otherwise set forth on SCHEDULE 4.22, the
Company does not sponsor a defined benefit plan subject to Title IV of ERISA,
nor does the Company have a current or contingent obligation to contribute to
any multiemployer plan (as defined in Section 3(37) of ERISA), and neither the
Company nor any of its predecessors, if any, have ever contributed to a
multiemployer plan. Except as otherwise set forth on SCHEDULE 4.22, the Company
has no Liability with respect to any employee benefit plan (as defined in
Section 3(3) of ERISA) other than with respect to the Benefit Plans.
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(e) Except as otherwise set forth on SCHEDULE 4.22, there are
no pending or threatened claims by or on behalf of any Benefit Plans, or by or
on behalf of any individual participants or beneficiaries of any Benefit Plans,
alleging any breach of fiduciary duty on the part of the Company or any of its
officers, directors or employees under ERISA or any other applicable
regulations, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to the knowledge of any Transferor, any
basis for such claim. Except as otherwise set forth on SCHEDULE 4.22, the
Benefit Plans are not the subject of any pending (or any threatened)
investigation or audit by the Internal Revenue Service, the Department of Labor
or the Pension Benefit Guaranty Corporation ("PBGC").
(f) Except as otherwise set forth on SCHEDULE 4.22, the
Company has timely made any and all required contributions under the Benefit
Plans including the payment of any premiums payable to the PBGC and other
insurance premiums.
(g) Except as otherwise set forth on SCHEDULE 4.22, with
respect to any Benefit Plan that is an employee welfare benefit plan (within the
meaning of Section 3(l) of ERISA) (a "Welfare Plan"), (i) each Welfare Plan for
which contributions are claimed as deductions under any provision of the Code is
in material compliance with all applicable requirements pertaining to such
deduction, (ii) with respect to any welfare benefit fund (within the meaning of
Section 419 of the Code) related to a Welfare Plan, there is no disqualified
benefit (within the meaning of Section 4976(b) of the Code) that would result in
the imposition of a Tax under Section 4976(a) of the Code, (iii) any Benefit
Plan that is a group health plan (within the meaning of Section 4980B(g)(2) of
the Code) complies, and in each and every case has complied, with all of the
material requirements of Section 4980B of the Code, ERISA, Title XXII of the
Public Health Service Act and the applicable provisions of the Social Security
Act, and (iv) all Welfare Plans may be amended or terminated at any time on or
after the Closing Date. Except as otherwise set forth on SCHEDULE 4.22, no
Benefit Plan provides any health, life or other welfare coverage to employees of
any Company beyond termination of their employment with the Company by reason of
retirement or otherwise, other than coverage as may be required under Section
4980B of the Code or Part 6 of ERISA, or under the continuation of coverage
provisions of the Laws of any state or locality.
4.23 GUARANTIES. The Company has not agreed to be a guarantor nor has
it otherwise agreed to be liable for any Liability or obligation (including
indebtedness) of any other person other than such potential Liabilities to which
the Company is subject based on the acts or omissions of its employees,
subcontractors and other agents performing services for the Company in the
ordinary course of business (of which the Transferors have no knowledge of any
claim for actual Liability therefor).
4.24 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as set
forth on SCHEDULE 4.24, neither the Transferors nor their Affiliates have been
involved in any business arrangement or relationship with the Company within the
past twelve (12) months other than service relationships in the ordinary course
of business, and neither the Transferors nor their Affiliates owns any material
property or right, tangible or intangible, which is used in the Business of the
Company.
4.25 SYSTEMS. (a) All of the Systems services and platform servers are
running, or peaking, at no higher than 90% of capacity, (b) all of the Systems'
services are replicated in a redundant
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manner across available platform servers, (c) all remote physical points of
presence ("POPs") are secure, conform to equipment manufacturers' recommended
environmental parameters, and contain an uninterrupted power supply with a
battery back-up of at least 15 minutes, (d) the average Subscriber blockage rate
for dial-in Subscribers is no greater than 1.0% of Subscriber attempts across
the overall network infrastructure, (e) the configuration diagrams provided to
the Acquirer reasonably represent the redundant network facilities between major
backbone locations, and between remote physical POPs and major network
concentration points, (f) the existing power plant at the Company's main
location is equipped with an uninterrupted power supply with a battery back-up
of at least 60 minutes, (g) all deployed dial-in modem, modem shelf and
corresponding technology conform to applicable industry standards necessary to
support Subscriber traffic at a rate of 56Kbps or above, (h) all Systems owned,
leased by, or licensed to or by the Company are Year 2000 Compliant, (i) the
Company utilizes an IP address allocation scheme that conforms to industry
standards, and (j) the Company has access to the quantity of IP addresses
sufficient to support the Company's Subscriber base as currently existing and as
currently contemplated to exist as of September 30, 1999.
4.26 SUBSCRIBERS. SCHEDULE 4.26 sets forth (a) a copy of each standard
form Subscriber Contract, including electronic versions; (b) the number of
Wholesale Subscribers and Retail Subscribers served by the Company by type of
business (i.e., segregated by the following categories, if applicable to the
Company: (i) dial-up, (ii) dedicated access, (iii) web hosting, and (iv) other
businesses) as of April 30, 1999 and the Company's standard rates for such
Subscribers for each type of business; (c) for the period commencing January
1,1997, the Company's monthly Churn Rate (consisting of (i) cancellations of
month-to-month service and/or long-term subscription or service Contracts prior
to expiration (ii) terminations of any such Contracts, and (iii) non-renewal of
any such Contracts upon expiration) by business type during each full calendar
month prior to the date hereof; and (d) as of April 30, 1999, detail as to the
amount of prepaid subscription or service Contracts and the amount of unearned
revenue for all Subscriber Contracts with a remaining term of (i) less than or
equal to 90 days, (ii) greater than 90 days and less than or equal to one year,
(iii) greater than one year and less than or equal to two years, (iv) greater
than two years and less than or equal to three years and (v) greater than three
years. The Company has used its reasonable business efforts to maintain and
currently maintains, good working relationships with all of its Subscribers as a
whole. Except for notices from Subscribers which would not have a Material
Adverse Effect, none of such Subscribers has given the Company notice
terminating, canceling or threatening to terminate or cancel any Contract or
relationship with the Company.
4.27 PREVIOUS SALES; WARRANTIES. Except for such defects and other
breaches that would not have a Material Adverse Effect, all goods sold or
distributed and all services performed by the Company were of merchantable
quality, and the Company has not breached any express or implied warranties
offered by it in connection with the sale or distribution of such goods or
services.
4.28 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, the
Company has conducted its Business in the ordinary course and there has not been
with respect to the Company:
(a) any change in the terms of the Subscriber Contracts,
including, without limitation, fees, terms, services, discounts, and
prepayments;
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(b) any material Contract, lease, sublease, license or
sublicense (or series or related contracts, leases, subleases, licenses and
sublicenses) outside the ordinary course of business;
(c) any employment Contract or collective bargaining
agreement, written or oral, or modified the terms of any existing such Contract
or agreement with any of its full-time staff employees other than in the
ordinary course of business;
(d) a change in its Business that has had or is reasonably
likely to have a Material Adverse Effect;
(e) any distribution or payment declared or made in respect of
its capital stock by way of dividends, purchase or redemption of shares or
otherwise, except for subchapter S corporation distributions;
(f) any increase in the compensation payable or to become
payable to any director, officer, employee or agent, except for increases for
non-officer employees made in the ordinary course of business, nor any other
change in any employment or consulting arrangement;
(g) any sale, assignment or transfer of Assets, or any
additions to or transactions involving any Assets, other than those made in the
ordinary course of business;
(h) any change in its Charter Documents or bylaws;
(i) a commitment or agreement on the part of the Company to
incur any Liability or make any capital expenditure in excess of $25,000
individually and $200,000 in the aggregate, including without limitation any
Contracts to provide services or products;
(j) the creation or assumption of any mortgage, pledge, or
other Encumbrance upon any of the Company's Assets;
(k) a breach of a Contract to which the Company is a party, or
an amendment or termination of a Contract or Governmental Permit to which the
Company is a party;
(l) a waiver or release of any claim or right or cancellation
of any debt held; or
(m) a payment to any Affiliate of the Company other than in
the ordinary course of business.
4.29 FINDER'S FEES. No Person retained by any Transferor or the Company
is or will be entitled to any commission or finder's or similar fee in
connection with the Transactions.
4.30 ADDITIONAL INFORMATION. SCHEDULE 4.30 accurately lists the
following:
(a) the names of all officers and directors of the Company,
all of which officers and directors shall have tendered their resignations as
officers and directors, effective as of the Closing;
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(b) the names and addresses of every bank or other financial
institution in which the Company maintains an account (whether checking, saving
or otherwise), lock box or safe deposit box, and the account numbers and names
of Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or
incur or guarantee indebtedness on behalf of the Company;
(d) the names of any Persons holding powers of attorney from
the Company and a summary statement of the terms thereof; and
(e) all names under which the Company has conducted any
Business or which it has otherwise used at any time during the past five years.
4.31 SECURITIES MATTERS. Each Transferor receiving Acquirer Common
Stock as part of the Transfer Consideration, severally but not jointly,
represents and warrants as follows:
(a) The Transferors are experienced in evaluating and
investing in high-technology companies such as Acquirer. The Transferors have
substantial experience in investing in and evaluating private placement
transactions of securities in companies similar to Acquirer and are capable of
evaluating the risks and merits of their investment in Acquirer and have the
capacity to protect their own interests.
(b) The Transferors are acquiring the Acquirer Common Stock
solely for their own account and not with a view to, or for resale in connection
with, any distribution thereof, except in compliance with the Securities Act and
applicable state securities Laws, and the Transferors have no present intention
of selling or distributing the Acquirer Common Stock except in compliance with
the Securities Act and applicable state securities Laws. The Transferors
acknowledge that as of the date of this Agreement the Acquirer Common Stock has
not been registered under the Securities Act.
(c) The Transferors are aware of the applicable limitations
under the Securities Act relating to a subsequent sale, transfer, pledge,
mortgage, hypothecation, assignment or other encumbrance of the Acquirer Common
Stock. The Transferors further acknowledge that the Acquirer Common Stock must
be held indefinitely unless it is subsequently registered under the Securities
Act and applicable state securities Laws or an exemption from such registration
is available. The Transferors are aware of the provisions of Rule 144
promulgated under the Securities Act which permits limited resale of shares
acquired in a private placement subject to the satisfaction of certain
conditions, including, among other things, the resale occurring not less than
one year after a party has purchased and paid for the security to be sold.
(d) The Transferors acknowledge that the Acquirer has provided
them with adequate access to financial and other information concerning the
Acquirer and the Acquirer Common Stock, and that the Transferors have had the
opportunity to ask questions of and receive answers from the Acquirer concerning
the Acquirer Common Stock and to obtain therefrom any additional information
necessary to make an informed decision regarding the acquisition of the Acquirer
Common Stock.
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(e) Each of the Transferors is an "accredited investor" as
that term is defined in Rule 501(a) under the Securities Act. None of the
Transferors has been organized for the specific purpose of acquiring the
Acquirer Common Stock.
(f) The Transferors will not sell, transfer, pledge, donate,
assign, mortgage, hypothecate or otherwise encumber the Acquirer Common Stock
unless the Acquirer Common Stock is registered under the Securities Act or the
Acquirer is given an opinion of counsel (which may be an opinion of counsel to
the Acquirer), reasonably acceptable to the Acquirer, that such registration is
not required under the Securities Act.
(g) The Transferors realize that the Acquirer is relying on
the validity of the Transferors' representations and agreements contained herein
and in the other Transaction Documents in issuing the Acquirer Common Stock to
the Transferors without registration under the Securities Act.
4.32 ACCURACY OF INFORMATION. No representation or warranty by any
Transferor in any Transaction Document, and no information contained herein or
therein or in any document delivered pursuant hereto or thereto, including the
Company Financial Statements and the Schedules hereto, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRER.
The Acquirer hereby represents and warrants to the Transferors as
follows:
5.1 CORPORATE. The Acquirer is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation.
5.2 AUTHORIZATION. The Acquirer has the requisite power and authority
to execute and deliver the Transaction Documents to which it is a Party and to
perform the Transactions performed or to be performed by it. Such execution,
delivery and performance by the Acquirer has been duly authorized by all
necessary corporate action. The Acquirer has duly executed and delivered this
Agreement and this Agreement constitutes a valid and binding obligation of the
Acquirer, enforceable against the Acquirer in accordance with its terms; except
to the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar Laws relating to or
affecting the rights of creditors generally or contrary to public policy, except
as enforcement hereof is subject to general principles of equity (regardless of
whether such enforcement is considered in a proceeding at law or in equity), and
except to the extent that provisions indemnifying a Party against Liability for
his, her or its own wrongful or negligent acts may be unenforceable.
5.3 CONSENTS AND APPROVALS. Neither the execution and delivery by the
Acquirer of the Transaction Documents to which it is a Party, nor the
performance of the Transactions by the Acquirer, will require any Consent, or
constitute a Default or cause any payment obligation to arise under (a) any Law
or Court Order to which the Acquirer is subject, (b) the Charter Documents or
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35
bylaws of the Acquirer or (c) any Contract, Governmental Permit or other
document to which the Acquirer is a party or by which the properties or other
Assets of the Acquirer may be subject.
5.4 CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of the Acquirer consists of 100,000,000 shares of Common Stock, $0.001 par
value, no shares of which are issued and outstanding as of June 7, 1999. When
issued at the Closing, all issued and outstanding shares of Common Stock of the
Acquirer will be duly authorized, validly issued, fully paid and non-assessable.
5.5 LEGAL PROCEEDINGS. There is no Litigation that is pending or, to
the Acquirer's knowledge, threatened against the Acquirer, except where such
Litigation is not expected to have a Material Adverse Effect. There has been no
Default by the Acquirer under any Laws applicable to the Acquirer, and the
Acquirer has not received any notices from any governmental entity regarding any
alleged Defaults under any Laws. There has been no Default with respect to any
Court Order applicable to the Acquirer.
5.6 FINDER'S FEES. Acquirer shall pay at the Closing all commissions,
finder's or similar fees in connection with the Transactions for any Person
retained by the Acquirer in such capacity.
5.7 SECTION 351. Immediately after the Closing, the Transferors,
together with (a) the Transferors of all Businesses acquired by the Acquirer in
connection with the IPO, (b) all of the purchasers of the Acquirer's Common
Stock in the IPO, and (c) all other Transferors of property to the Acquirer in
exchange for the Acquirer Common Stock in connection with the IPO, shall possess
at least eighty (80%) percent of the total combined voting power of all classes
of Acquirer Common Stock entitled to vote and at least eighty (80%) percent of
the total number of shares of all other classes of stock of the Acquirer;
provided, however, this representation only applies to Transferors receiving
Acquirer Common Stock as part of their Transfer Consideration.
6. TAXES.
The following provisions shall govern the allocation of
responsibility for certain Tax matters following the Closing Date:
6.1 TRANSFERORS TAX PREPARATION. The Transferors shall prepare or cause
to be prepared and file or cause to be filed, within the time and in the manner
provided by Law, all Tax Returns of the Company for all periods ending on or
before the Closing Date that are due after the Closing Date, including all
necessary short period or interim federal and state Tax Returns. Transferors
shall pay on or before the due date of such Tax Returns the amount of all Taxes
shown as due on such Tax Returns. Such Tax Returns shall be prepared and filed
in accordance with applicable Law and in a manner consistent with past
practices. To the extent reasonably requested by the Transferors or required by
Law, the Acquirer and the Company shall participate in the filing of any Tax
Returns filed pursuant to this paragraph.
6.2 TAX PREPARATION. The Acquirer shall cause the Company to prepare
and file any Tax Returns for Tax periods which begin on the Closing Date and end
after the Closing Date.
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6.3 COOPERATION ON TAX MATTERS. The Acquirer and the Company on one
hand and the Transferors on the other hand shall (a) cooperate fully, as
reasonably requested, in connection with the preparation and filing of Tax
Returns pursuant to this Section 6 and any audit, Litigation or other proceeding
with respect to Taxes; (b) make available to the other, as reasonably requested,
all information, records or documents with respect to Tax matters pertinent to
the Company for all periods ending prior to or including the Closing Date; and
(c) preserve information, records or documents relating to Tax matters pertinent
to the Company that is in their possession or under their control until the
expiration of any applicable statute of limitations or extensions thereof.
6.4 MISCELLANEOUS TAX OBLIGATIONS. The Transferors shall timely pay all
transfer, documentary, sales, use, stamp, registration and other Taxes and fees
arising from or relating to the Transactions, and the Transferors shall, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration, and
other Taxes and fees. If required by applicable Law, the Acquirer and the
Company will join in the execution of any such Tax Returns and other
documentation.
7. COVENANTS OF THE COMPANY AND THE TRANSFERORS.
7.1 PAYMENT OF EXPENSES. On or promptly after the Closing Date, the
Transferors shall pay the expenses incurred by them in connection with the
Transactions, including any amounts that may be due from the Transferors to
their lawyers, accountants, consultants, investment bankers, brokers, finders,
and other advisors.
7.2 OPERATION OF BUSINESS PRIOR TO THE CLOSING. Except as contemplated
hereby, or as may be incidental to or in furtherance of the Transactions, or as
may have been set forth herein or in the Schedules, the Company will not (and
the Transferors will not cause or permit the Company to) engage in any practice,
take any action, embark on any course of inaction, or enter into any transaction
outside the ordinary course of business. Without limiting the generality of the
foregoing, from the date hereof to the Closing:
(a) the Company will not adopt or propose any change in its
Charter Documents or bylaws;
(b) the Company will not merge or consolidate with any other
Person or acquire a material amount of Assets of any other Person without the
written permission of the Acquirer;
(c) except as set forth on SCHEDULE 7.2, the Company will not
sell, lease, license or otherwise dispose of any material Assets or property
except (i) pursuant to existing Contracts or commitments, (ii) in the ordinary
course of business, and (iii) as consented to in writing by the Acquirer;
(d) except as otherwise provided for in this Agreement, the
Company will not issue, sell, purchase, repurchase, redeem or otherwise acquire
any Company securities;
(e) except with the prior written consent of the Acquirer, the
Company shall not make any Tax election that would have an adverse effect on the
Company;
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(f) the Company will timely file all Tax Returns due on or
before the Closing Date and pay (or reserve for) all Taxes due and payable with
respect to periods;
(g) except as set forth on SCHEDULE 7.2, the Company will not
do any of the items described in Section 4.28; and
(h) the Company will not agree or commit to do any of the
foregoing.
7.3 PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may
be incidental to or in furtherance of the Transactions, or as may have been set
forth herein or in the Schedules, the Transferors will cause the Company to use
reasonable commercial efforts to keep its Business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, Subscribers,
any other customers, and employees.
7.4 ACCESS AND CONFIDENTIALITY.
(a) Only in the event that neither the Acquirer nor the
Transferors exercise their right to terminate this Agreement as provided in
Section 15 herein, the Transferors will cause the Company to permit the
Acquirer's representatives access at reasonable times, and in a manner so as not
to interfere with the normal Business operations of the Company, to the
headquarters of the Company and to all books, records, Contracts, Tax records,
and documents of or pertaining to the Company; provided, however, that the
Acquirer shall direct all requests for information and material only through the
Transferors, unless otherwise agreed to by the Acquirer and the Transferors in
writing.
(b) The Acquirer shall proceed to arrange with the Transferors
a mutually agreeable time and place at which the Acquirer may conduct interviews
with key employees and/or customers of the Company mutually agreed to by the
Acquirer and the Transferors.
(c) Except as may be required by applicable securities Laws or
stock exchange requirements, the Acquirer and its representatives, including
Acquirer's Independent Public Accountants, will treat and hold as such any
Confidential Information it receives from the Company and the Transferor in the
course of the reviews contemplated by this Agreement, will not use any of the
Confidential Information except in connection with this Agreement, and, if this
Agreement is terminated for any reason whatsoever, will return to the Company
and the Transferor (as the case may be) all embodiments (and all copies) of the
Confidential Information of the Company and the Transferors which are in its
possession.
7.5 NOTICE OF DEVELOPMENTS. Any of the Transferors will give prompt
written notice to the Acquirer after the Company or any of the Transferors
obtains knowledge of any material development affecting the Assets, Liabilities,
Business, financial condition, operations, results of operations, or future
prospects of the Company including but not limited to (a) any development
affecting the ability of the Company to consummate the Transactions, (b) any
Outage affecting more than 1% of all Subscribers lasting for 3 hours or more or
(c) any loss of any material Subscriber or any material equipment or other
supplier to the Company. A disclosure by any Party pursuant to this
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Section 7.5 shall not be deemed to amend or supplement the Schedules or to
prevent or cure any misrepresentation, breach of warranty, and/or breach of
covenant.
7.6 EXCLUSIVITY. Through the Closing Date, the Transferors will not
(and the Transferors will not cause or permit the Company to) (a) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to any (i) liquidation, dissolution, or recapitalization, (ii) share
exchange or consolidation, (iii) acquisition or purchase of securities or Assets
or (iv) similar transaction or business combination involving the Company, or
(b) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. The Transferors will notify the Acquirer immediately if any entity or
person makes any such proposal, offer, inquiry, or contact with respect to any
of the foregoing and shall provide the identity of such entity or Person as well
as any other relevant details regarding the contact.
7.7 [RESERVED]
7.8 AUDITS. Prior to the Closing and at Acquirer's expense, the
Transferors shall use their best efforts to deliver, or cause to be delivered,
to Acquirer any unqualified and unmodified audit report of Acquirer's
Independent Public Accountants on the Company Financial Statements of the
Company as of December 31, 1998, December 31, 1997 and December 31, 1996, which
report shall be without limitation as to the scope of the audit. The Transferors
and any of the officers or directors of the Company, in their capacities as
officers and directors of the Company, shall provide all management letters,
reports or representations reasonably requested by such auditors in connection
with such audits, and in connection with audits of the Company for the years
ended December 31, 1998, December 31, 1997 and December 31, 1996. In the event
that the Closing does not occur prior to the termination of this Agreement, the
audit report of Acquirer's Independent Public Accountants on the Company
Financial Statements of the Company as of December 31, 1998, December 31, 1997
and December 31, 1996 shall remain the property of the Company.
7.9 DUE DILIGENCE. The Company covenants that within 5 days of the date
hereof, it will provide the Acquirer with substantial due diligence material
concerning the Company, and the Acquirer covenants that within 21 days of the
receipt of such due diligence material to either (i) request further due
diligence material from the Company, which request will begin the time period
response and review provisions of this Section 7.9 anew; or (ii) notify the
Company of its intention whether or not to terminate this Agreement; provided,
however, that termination pursuant to this Section 7.9 will not be deemed a
breach of this Agreement. The Acquirer covenants to complete its due diligence
review and advise the Transferors of its completion or election to terminate
this Agreement within 45 days of the date hereof.
7.10 SCHEDULES. The Transferors covenant that within 10 days of the
date hereof, it will provide the Acquirer with completed Schedules as required
by this Agreement, and the Acquirer covenants that within 21 days of the receipt
of such Schedules to either (i) request reasonable additions, revisions and/or
deletions from such Schedules, which additions, revisions and/or deletions shall
be made by the Transferors within 3 days of receipt of Acquirer's request,
provided that if Transferors elect not to make the requested additions,
revisions and/or deletions (which election shall not be deemed a breach of this
Agreement), the Acquirer make elect to terminate this Agreement, or
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(ii) notify the Company of its intention whether or not to terminate this
Agreement; provided, however, that termination pursuant to this Section 7.10
will not be deemed a breach of this Agreement. Acquirer's failure to timely
exercise its right to terminate hereunder shall be deemed an acceptance of the
said Schedules. The Acquirer covenants to complete its due diligence review and
advise the Transferors of its completion or election to terminate within 45 days
of the date hereof.
8. COVENANTS OF THE ACQUIRER.
8.1 PAYMENT OF EXPENSES. On or promptly after the Closing Date, the
Acquirer shall pay the expenses incurred by it in connection with the
Transactions, including any amounts that may be due from the Acquirer to its
lawyers, accountants, consultants, investment bankers, brokers, finders, and
other advisors. In the event that the Company is required to provide access to
the Acquirer's Independent Public Accountants beyond the normal working hours of
the Company, the Acquirer shall reimburse the Company for its reasonable
expenses in connection therewith. In addition, the Acquirer shall bear the
expenses related to any relocation after the Closing Date of any equipment of
the Company from one location of the Company to another.
8.2 TAX-FREE EXCHANGE. The Parties agree that this transaction will
occur in conjunction with the Related Transactions, and the Parties intend that
the receipt of the Acquirer Common Stock by the Transferors and by the parties
involved in the Related Transactions will be tax-free under Section 351 of the
Code; provided, however, this covenant only applies to Transferors receiving
Acquirer Common Stock as part of their Transfer Consideration.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRER.
All obligations of the Acquirer to consummate the Transactions are
subject to the satisfaction (or waiver by the Acquirer) prior thereto of each of
the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of the Transferors and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Transferors on or before the Closing Date shall have been duly
complied with, performed or satisfied; and the Acquirer shall have received a
Transferors' certificate and an officer's certificate, each dated the Closing
Date, signed by each Transferor and an officer of the Company, respectively, to
the foregoing effects.
9.2 NO LITIGATION. No Litigation shall have been instituted or
threatened to restrain or prohibit the Transactions, or limiting or restricting
the Acquirer's conduct or operation of the Business of the Company (or its own
Business) following the Closing. There shall be no Litigation of any nature
pending or threatened against the Acquirer or the Company, their respective
properties or any of their officers or directors, that could have a Material
Adverse Effect on the Business, Assets, Liabilities, financial condition,
results of operations or prospects of the Company.
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9.3 NO MATERIAL ADVERSE CHANGE. There shall have been no changes in the
Business, operations, affairs, prospects, properties, Assets, existing and
potential Liabilities, obligations, profits or condition (financial or
otherwise) of the Company since the Balance Sheet Date which, taken as a whole,
has a Material Adverse Effect on the Business, Assets, Liabilities, financial
condition, results of operations or prospects of the Company; and the Acquirer
shall have received a certificate, dated the Closing Date, signed by each
Transferor and an officer of the Company to such effect.
9.4 DUE DILIGENCE REVIEW COMPLETE. The Acquirer shall be fully
satisfied, in its sole discretion, with the results of its due diligence review
of the Company and the Transferors, including the Acquirer's review of, and
other due diligence investigations with respect to, the Business, operations,
affairs, prospects, properties, Assets, existing and potential Liabilities,
obligations, profits and condition (financial and otherwise) of the Company. The
Acquirer covenants to complete its due diligence review within 45 days of the
date hereof.
9.5 CONSENTS AND APPROVALS. All Consents relating to the consummation
of the Transactions by the Company and the Transferors shall have been obtained.
9.6 FINANCIAL STATEMENTS. The Acquirer shall have received the Company
Financial Statements and such Company Financial Statements must, in the opinion
of Acquirer's Independent Public Accountants, be suitable or readily adaptable
for incorporation in the Registration Statement, and any prospectus and annual
and periodic reports to be filed by the Acquirer with the SEC relating to the
IPO.
9.7 IPO. The Registration Statement filed by the Acquirer with the SEC
in connection with the IPO shall have become effective and there shall be no
other impediments to the closing of the IPO.
9.8 DOCUMENTS TO BE DELIVERED BY THE TRANSFERORS. The following
documents, duly executed by the appropriate Parties, shall have been delivered
to LLGM at least three business days prior to the Closing by the Company and the
Transferors:
(a) Officers/Transferors Certificate. An Officers/Transferors
Certificate substantially in the form of the certificate attached as EXHIBIT A
hereto.
(b) Secretary's Certificate. A Secretary's Certificate, dated
as of the Closing Date, substantially in the form of the certificate attached as
EXHIBIT B hereto, signed by the Secretary of the Company in which the Secretary
certifies that the following documents are attached to such certificate: (a) the
Articles of Incorporation of the Company, certified by the Secretary of State of
the Commonwealth of Pennsylvania as of a date in close proximity to the Closing
Date; (b) a correct and complete copy of the bylaws of the Company; (c) a
certificate of good standing for the Company issued by the Secretary of State of
the Commonwealth of Pennsylvania on a date in close proximity to the Closing
Date; (d) complete and correct copies of all resolutions of the Board of
Directors of the Company; (e) complete and correct copies of resolutions of the
Transferors approving the Transactions; and (f) original signatures of the
incumbent officers of the Company next to their respective titles.
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(c) Tax Lien Certificate. A Tax Lien Certificate of the
Company, certified by the Secretary of State of the Commonwealth of Pennsylvania
as of a date in close proximity to the Closing Date.
(d) Resignations. The resignations, effective as of the
Closing, of each officer and director of the Company.
(e) Company Shares. Certificates of the Company Shares, duly
endorsed in blank or accompanied by duly executed assignment documents by the
respective Transferors, representing one hundred percent (100%) of the issued
and outstanding capital stock of the Company and all of such Company Shares
shall be free and clear of any Encumbrances of any nature whatsoever.
(f) Escrow Agreement. An Escrow Agreement in the form and
substance set forth as EXHIBIT C attached hereto.
(g) Opinion of Transferors' Counsel. An opinion from McNees,
Wallace & Nurick dated the Closing Date, in the form and substance set forth as
EXHIBIT D attached hereto.
(h) [RESERVED]
(i) Subscription Agreement Joinder. A joinder to the Equity
Subscription Agreement in the form and substance of EXHIBIT I attached hereto
for each of the Transferors receiving Acquirer Common Stock as part of their
Transfer Consideration.
(j) Registration Agreement Joinder. A joinder to the
Registration Agreement in the form and substance of EXHIBIT J attached hereto
for each of the Transferors receiving Acquirer Common Stock as part of their
Transfer Consideration.
(k) Ancillary Documents. Any other Transaction Documents to
which they are a Party.
9.9 [RESERVED]
9.10 [RESERVED]
9.11 FINANCIAL CONDITION. Each of the following shall be true and
complete as of the Closing Date:
(a) The Company shall use its best efforts to ensure the
release within a reasonable time after Closing, of all Encumbrances securing
debts of the Company which have been paid in full prior to or at the Closing and
all Uniform Commercial Code financing statements covering such paid debts shall
have been terminated;
(b) no unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against the Company, or against or in any way
affecting any Company Share; and
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(c) the Transferors and the Company shall have caused all of
the Company's officers, directors and/or key employees of the Company to have
repaid in full all debts and other obligations, if any, owed to the Company.
9.12 SCHEDULES. The Acquirer shall have received and approved the
Schedules required by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE TRANSFERORS.
All obligations of the Company and the Transferors to consummate the
Transactions are subject to the satisfaction (or waiver by the Transferors to
which the condition relates) prior thereto of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of the Acquirer contained in this Agreement
shall be true, correct and complete on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by the Acquirer on or
before the Closing Date shall have been duly complied with, performed or
satisfied; and the Company and Transferors shall have received a certificate,
dated the Closing Date, signed by an officer of the Acquirer to the foregoing
effects.
10.2 NO LITIGATION. No Litigation shall have been instituted or
threatened to restrain or prohibit the Transactions.
10.3 CONSENTS AND APPROVALS. All Consents relating to the consummation
of the Transactions by the Acquirer shall have been obtained.
10.4 [RESERVED]
10.5 RECEIPT OF ACQUIRER'S SHARES AND CASH PORTION OF THE TRANSFER
CONSIDERATION. Transferors shall receive the Cash Portion of the Transfer
Consideration. Unless the Acquirer elects to convert the Transfer Consideration
to all cash pursuant to Section 2.2(g), the Transferors shall receive the
Acquirer Common Stock representing the Stock Portion of the Transfer
Consideration within seven (7) business days after the Closing.
10.6 DOCUMENTS TO BE DELIVERED BY THE ACQUIRER. The following
documents, duly executed by the appropriate Parties, shall have been delivered
to LLGM at least three business days prior to the Closing by the Acquirer:
(a) Officer's Certificate. An Officers Certificate
substantially in the form of the certificate attached as EXHIBIT G hereto.
(b) Secretary's Certificate. A Secretary's Certificate, dated
as of the Closing Date, substantially in the form of the certificate attached as
EXHIBIT H hereto, signed by the Secretary of the Acquirer in which the Secretary
certifies that the following documents are attached to such
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certificate: (a) the Certificate of Incorporation of the Acquirer, certified by
the Secretary of State of the State of Delaware as of a date in close proximity
to the Closing Date; (b) a correct and complete copy of the bylaws of the
Acquirer; (c) a certificate of good standing for the Acquirer issued by the
Secretary of State of the State of Delaware on a date in close proximity to the
Closing Date; (d) complete and correct copies of all resolutions of the Board of
Directors of the Acquirer; and (e) original signatures of the incumbent officers
of the Acquirer next to their respective titles.
(c) Escrow Agreement. An Escrow Agreement in the form and
substance set forth as EXHIBIT C attached hereto.
(d) Subscription Agreement Joinder. A joinder to the Equity
Subscription Agreement in the form and substance of EXHIBIT I attached hereto
for each of the Transferors receiving Acquirer Common Stock as part of their
Transfer Consideration.
(e) Registration Agreement Joinder. A joinder to the
Registration Agreement in the form and substance of EXHIBIT J attached hereto
for each of the Transferors receiving Acquirer Common Stock as part of their
Transfer Consideration.
(f) Ancillary Documents. Any other Transaction Documents to
which they are a Party.
10.7 IPO. The Registration Statement filed by the Acquirer with the SEC
in connection with the IPO shall have become effective and there shall be no
other impediments to the closing of the IPO; provided, however, this condition
only applies to Transferors receiving Acquirer Common Stock as part of their
Transfer Consideration.
11. POST-CLOSING COVENANTS.
11.1 GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 12
below). The Transferors acknowledge and agree that, from and after the Closing,
the Acquirer and/or Company will be entitled to possession of all documents,
books, records, agreements, and financial data of any sort relating to the
Company; provided, however, that the Transferors may retain any copies of the
foregoing as shall be necessary to comply with applicable Tax and other Laws,
regulations and ordinances.
11.2 TRANSITION. The Transferors will not take any action that
primarily is designed or intended to have the effect of discouraging any lessor,
licensor, Subscriber, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the Closing
for a period of twenty-four (24) months thereafter as it maintained with the
Company prior to the Closing.
11.3 RESTRICTIONS ON TRANSFER OF ACQUIRER COMMON STOCK. The Transferors
shall not directly or indirectly, sell, transfer any beneficial interest in,
pledge, hypothecate or otherwise dispose,
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or offer to sell, transfer any beneficial interest in, pledge, hypothecate or
otherwise dispose (collectively "Transfer"), any shares of Acquirer Common Stock
constituting the Stock Portion of the Transfer Consideration during the 12-month
period following the Closing Date. The Transferors shall not, individually or in
the aggregate, Transfer more than twenty-five percent (25%) of the shares of
Acquirer Common Stock issued as part of the Stock Portion of the Transfer
Consideration on the Closing Date during any calendar quarter following the
one-year anniversary of the Closing Date.
12. INDEMNIFICATION.
12.1 BY THE TRANSFERORS. From and after the Closing Date, to the extent
provided in this Section 12, each of the Transferors shall, jointly and
severally, indemnify and hold harmless the Acquirer and the Company, and its
successors and assigns, and its officers and directors (each, an "Indemnified
Party") from and against any Liabilities, claims, demands, judgments, losses,
costs, damages or expenses whatsoever (including attorneys', consultants' and
other professional fees and disbursements of every kind, nature and description
incurred by such Indemnified Party in connection therewith) (collectively,
"Damages") that such Indemnified Party may sustain, suffer or incur and that
result from, arise out of or relate to (a) any breach of any representation,
warranty, covenant or agreement of the Transferors or the Company contained in
this Agreement, whether or not involving a third-party claim, or (b) any
Litigation affecting the Company that arose from any matter or state of facts
existing prior to the Closing, regardless of whether it is disclosed in the
Schedules to this Agreement.
12.2 BY THE ACQUIRER. From and after the Closing Date, to the extent
provided in this Section 12, the Acquirer shall indemnify and hold harmless the
Transferors, their heirs, legal representatives, successors and assigns (each,
an "Indemnified Party") from and against any Damages that such Indemnified Party
may sustain, suffer or incur and that result from, arise out of or relate to any
breach of any representation, warranty, covenant or agreement of the Acquirer
contained in this Agreement, whether or not involving a third-party claim.
12.3 PROCEDURE FOR CLAIMS.
(a) An Indemnified Party that desires to seek indemnification
under any part of this Section 12 shall give notice (a "Claim Notice") to each
Party responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor") prior to any applicable Expiration Date specified below. Such
notice shall briefly explain the nature of the claim and shall specify the
amount thereof. If the matter to which a claim relates shall not have been
resolved as of the date of the Claim Notice, the Indemnified Party shall
estimate the amount of the claim in the Claim Notice, but also specify therein
that the claim has not yet been liquidated (an "Unliquidated Claim"). If an
Indemnified Party gives a Claim Notice for an Unliquidated Claim, the
Indemnified Party shall also give a second Claim Notice (the "Liquidated Claim
Notice") within 60 days after the matter giving rise to the claim becomes
finally resolved, and the Second Claim Notice shall specify the amount of the
claim. Each Indemnitor to which a Claim Notice is given shall respond to any
Indemnified Party that has given a Claim Notice (a "Claim Response") within 20
days (the "Response Period") after the later of (i) the date that the Claim
Notice is given or (ii) if a Claim Notice is first given with respect to an
Unliquidated Claim, the date on which the Liquidated Claim Notice is given. Any
Claim Notice or Claim Response shall be given in accordance with the notice
requirements hereunder, and any Claim
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Response shall specify whether or not the Indemnitor giving the Claim Response
disputes the claim described in the Claim Notice. If any Indemnitor fails to
give a Claim Response within the Response Period, such Indemnitor shall be
deemed not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not to dispute a claim described in a Claim Notice, whether by
failing to give a timely Claim Response or otherwise, then the amount of such
claim shall be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an
Indemnified Party hereunder, such Indemnitor shall pay to such Indemnified Party
within 30 days after the last day of the Response Period the amount to which
such Indemnified Party shall be entitled. If the Acquirer shall be the
Indemnified Party, it shall first seek payment of the Damages under the Escrow
Agreement, but only to the extent that Escrow Funds are then being held by the
Escrow Agent and are not subject to other claims for indemnification. To the
extent that the Escrow Funds are unavailable or insufficient to cover the
Damages, the Acquirer shall seek indemnification directly from the Transferors,
jointly and severally, for the payment of any remaining Damages. If a Transferor
shall be the Indemnified Party, he, she or it shall seek indemnification
directly from the Acquirer. If there shall be a dispute as to the amount or
manner of indemnification under this Section 12, the Indemnified Party shall
seek arbitration under Section 13 to the extent that the Indemnified Party seeks
to recover Damages from any Indemnitor. If any Indemnified Party fails to
receive all or part of any indemnification obligation when due, then such
Indemnified Party shall also be entitled to receive from the applicable
Indemnitor or the Escrow Agent, if applicable, interest on the unpaid amount for
each day during which the obligation remains unpaid at an annual rate equal to
the applicable short term federal rate for federal income Tax purposes in effect
on the date of expiration of said 30-day period ("Prime Rate"), and the Prime
Rate in effect on the first business day of each calendar quarter shall apply to
the amount of the unpaid obligation during such calendar quarter.
(c) Notwithstanding any other provision of this Section 12,
(i) an Indemnified Party shall be entitled to indemnification hereunder only
when the aggregate of all Damages to such Indemnified Party exceeds $25,000.00
(the "Deductible Amount") and then such Indemnified Party shall be entitled to
indemnification for its Damages in excess of the Deductible Amount and (ii) no
Indemnitor as a group shall be liable under this Section 12 for any amount in
excess of the Transfer Consideration, except that any Damages based on a breach
of representations and warranties with respect to Tax matters or Litigation
matters shall not be counted against or subject to such maximum limitation. In
addition, the limitations of this paragraph (c), however, shall not apply to (x)
the Company's or Transferors' representations and warranties in Section 4.2,
4.4, 4.5, 4.8, 4.15, 4.16 or Section 6, (y) damages arising out of common law
fraud in connection with the Transactions or (z) any covenants or agreements to
be performed after Closing.
(d) If the existence of an obligation for the payment of money
to a third party (other than fines or other payments to any governmental entity
that relate to matters that affect the ongoing operation of the Business to
which the fines or other payments relate) causes any representation or warranty
of an Indemnitor in this Agreement to be untrue, then, if such Indemnitor
satisfies such obligation to such third party in full, such Indemnitor shall not
be required to indemnify any Indemnified Party for any Damages resulting from
such breach of the representation or warranty.
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12.4 CLAIMS PERIOD. Any claim for indemnification under this Section 12
shall be made by giving a Claim Notice under Section 12.3 on or before the
applicable "Expiration Date" specified below in this Section 12.4, or the claim
under this Section 12 shall be invalid. The following claims shall have the
following respective "Expiration Dates": (a) the first anniversary of the
Closing Date--any claims that are not specified in any of the succeeding
clauses; and (b) the date on which the applicable statute of limitations
expires--any claim for Damages related to a breach of any representations or
warranties in Sections 4.2, 4.4, 4.5, 4.8, 4.15, 4.16 or Section 6. If more than
one of such Expiration Dates applies to a particular claim, the latest of such
Expiration Dates shall be the controlling Expiration Date for such claim. So
long as an Indemnified Party in good faith gives a Claim Notice for an
Unliquidated Claim on or before the applicable Expiration Date, such Indemnified
Party shall be entitled to pursue its rights to indemnification regardless of
the date on which such Indemnified Party gives the related Liquidated Claim
Notice.
12.5 THIRD PARTY CLAIMS. An Indemnified Party that desires to seek
indemnification under any part of this Section 12 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor may,
or if so requested by such Indemnified Party, any Indemnitor shall, participate
in such Action or assume the defense thereof, with counsel satisfactory to such
Indemnified Party; provided, however, that such Indemnified Party shall have the
right to participate at its own expense in the defense of such Action; and
provided, further, that the Indemnitor shall not consent to the entry of any
judgment or enter into any settlement, except with the written consent of such
Indemnified Party (which consent shall not be unreasonably withheld), that (a)
fails to include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all Liability in respect
of any such Action or (b) grants the claimant or plaintiff any injunctive relief
against the Indemnified Party. Any failure to give prompt notice under this
Section 12.5 shall not bar an Indemnified Party's right to claim indemnification
under this Section 12, except to the extent that an Indemnitor shall have been
harmed by such failure.
12.6 LIMITATION ON INDEMNIFICATION.
(a) Notwithstanding any provision of this Agreement to the
contrary:
(i) Attorney, consultant and other professional fees
and disbursements incurred by an Indemnified Party in connection with
this Section 12 shall be based only on time actually spent which shall
be charged at no more than such professional's standard hourly rate,
and only one law firm, accounting firm and other professional firm
shall be paid on any claim regardless of the number of Indemnified
Parties involved in such claim.
(ii) The amount of any costs, expenses and other
disbursements incurred by any Indemnified Party in connection with this
Section 12 shall be only the actual out-of-pocket amounts actually paid
by such Indemnified Party.
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13. DISPUTE RESOLUTION.
13.1 GOOD-FAITH NEGOTIATIONS. If after the Closing any dispute arises
under Section 2.3 with respect to the determination of the adjustments to the
Cash Portion of the Transfer Consideration or Section 12 with respect to a claim
for Damages that is not settled promptly in the ordinary course of business, the
Parties shall seek to resolve any such dispute between them, first, by
negotiating promptly with each other in good faith in face-to-face negotiations.
If the Parties are unable to resolve such dispute between them within twenty
(20) business days (or such period as the Parties shall otherwise agree) through
these face-to-face negotiations, then any such dispute shall be resolved in the
manner set forth in Section 13.2.
13.2 ARBITRATION. If the Parties do not resolve a dispute under Section
13.1, the dispute shall be settled by arbitration conducted on a confidential
basis, under the U.S. Arbitration Act, if applicable, and the then current
Commercial Arbitration Rules of the American Arbitration Association (the
"Association") strictly in accordance with the terms of this Agreement and the
substantive Law of the State of New York. The arbitration shall be conducted at
the Association's regional office located in the New York, New York area by
three arbitrators, at least one of whom shall be knowledgeable regarding
businesses engaged in providing services via the Internet, one of whom shall be
an attorney and one of whom shall be a member of a "Big-Five" accounting firm
familiar with Businesses engaged in providing services via the Internet.
Judgment upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction. Neither Party shall institute a proceeding hereunder
unless at least 60 days prior thereto such Party shall have given written notice
to the other Party of its intent to do so. In any award, the arbitrators shall
assess the arbitration costs and expenses, including attorneys fees of the
Parties, in a manner deemed equitable by the arbitrators, taking into account
the arbitration decision.
13.3 WAIVER OF JURY TRIAL. WITH RESPECT TO ANY DISPUTE ARISING UNDER OR
IN CONNECTION WITH THIS AGREEMENT, WHICH HAS NOT BEEN RESOLVED BY NEGOTIATION AS
PROVIDED HEREIN AND AS TO WHICH LEGAL ACTION NEVERTHELESS OCCURS, EACH PARTY
HEREBY IRREVOCABLY WAIVES ALL RIGHTS IT MAY HAVE TO DEMAND A JURY TRIAL. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY EACH PARTY HERETO
AND EACH PARTY ACKNOWLEDGES THAT NONE OF THE OTHER PARTIES NOR ANY PERSON ACTING
ON BEHALF OF THE OTHER PARTIES HAS MADE ANY REPRESENTATION OF FACT TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. EACH
PARTY FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND
THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. EACH PARTY
FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD THE MEANING AND
RAMIFICATIONS OF THIS WAIVER PROVISION.
13.4 NO PUNITIVE DAMAGES. The Parties to this Agreement agree to waive
any right to seek punitive damages.
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14. COMPETITION AND CONFIDENTIALITY BY THE TRANSFERORS.
14.1 RESTRICTED PERIOD. Neither the Transferors nor their respective
Affiliates as provided in Section 14.3 (each a "Restricted Party") shall, at any
time within the Restricted Period (defined below), directly or indirectly, (i)
own, manage, control, participate in, consult with, render services for, or in
any manner engage in any activity or Business competing with the Acquirer or the
Company within the Restricted Territory (as defined below), (ii) solicit from
the Company any known Subscriber or other customer of the Company, (iii) request
or advise any known Subscriber or other customer of the Company to withdraw,
curtail or cancel such Subscriber's or others customer's Business with the
Company, or (iv) solicit for employment any person employed by the Company at
any time within the two (2) year period immediately preceding such solicitation;
provided, however, that no owner of less than five percent (5%) of the
outstanding stock of any publicly traded corporation shall be deemed to engage
solely by reason thereof in any of that corporation's Businesses. For purposes
of this Agreement, the Parties have agreed to allocate $50,000 of the Cash
Portion of the Transfer Consideration to the covenant not to compete contained
in this Section 14.1; provided, however, that such allocation will not otherwise
affect any other sections of this Agreement. In addition, no Restricted Party
during the Restricted Period shall contact any of the employees of the Acquirer
for the purpose of hiring or retaining any of such employees for employment,
consulting or similar purposes. The term "Restricted Period" means the period
beginning on the Closing Date and ending on the second anniversary of the
Closing Date. The "Restricted Territory" means the area comprising the entire
United States of America.
14.2 CONFIDENTIALITY. For an indefinite period after the Closing, no
Restricted Party shall divulge, communicate or use in any way, any Confidential
Information or trade secrets of the Business of the Acquirer or the Company.
Each Restricted Party shall, and shall cause its subsidiaries, Affiliates,
officers, directors, employees, accountants, counsel, financial advisors and
other representatives and agents, to treat and hold as such all of the
Confidential Information, refrain from disclosing or using any of the
Confidential Information except in connection with this Agreement and the
Transactions, and except as otherwise permitted hereunder or as may be required
by Law, deliver promptly to the Acquirer or the Company or destroy, at the
request and option of the Acquirer or the Company, all tangible embodiments (and
all copies) of the Confidential Information which are in the possession of such
Restricted Party. In the event that any Restricted Party is requested or
required (by request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar legal process)
to disclose any Confidential Information, such Restricted Party will notify the
Acquirer or the Company promptly of the request or requirement so that the
Acquirer or the Company may seek an appropriate protective order or waive
compliance with the provisions of this Section 14.2. If, in the absence of a
protective order or the receipt of a waiver hereunder, any Restricted Party is
compelled to disclose any Confidential Information or else stand liable for
contempt, such Restricted Party may disclose the Confidential Information;
provided, however, that such Restricted Party shall use its reasonable efforts
to obtain, at the reasonable request of the Acquirer or the Company, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as the Acquirer or the
Company shall reasonably designate.
14.3 AFFILIATES. The terms of this Section 14 shall apply to each
Transferor and any Affiliate of his or hers to the same extent as if they were
parties hereto, and each Transferor shall take
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whatever actions may be necessary to cause his or her Affiliates to adhere to
the terms of this Section 14.
14.4 INJUNCTIVE RELIEF. In the event of any breach or threatened breach
by any Restricted Party of any provision of this Section 14, the Acquirer shall
be entitled to injunctive or other equitable relief, restraining such Party from
using or disclosing any Confidential Information in whole or in part, or from
engaging in conduct that would constitute a breach of the obligations of a
Restricted Party under this Section 14. Such relief shall be in addition to and
not in lieu of any other remedies that may be available, including an action for
the recovery of damages. In the event of Litigation involving this Section 14,
if a court of competent jurisdiction determines that the scope of this Section
14 is too broad in any respect, then the scope shall be deemed to be reduced or
narrowed to such scope as is found lawful and reasonable by such court. Each
Transferor acknowledges, however, that this Section 14 has been negotiated by
the Parties and that the geographical and time limitations, as well as the
limitation on activities, are reasonable in light of the circumstances
pertaining to the Business of the Acquirer and the Company.
15. TERMINATION
15.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
as provided below:
(a) the Acquirer and the Transferors may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(b) the Acquirer may terminate this Agreement by giving
written notice to the Transferors at any time prior to the Closing in the event
the Transferors are in breach of any representation, warranty, or covenant
contained in this Agreement in any material respect and such breach has not been
cured within ten (10) days of written notice thereof, and the Transferors may
terminate this Agreement by giving written notice to the Acquirer at any time
prior to the Closing in the event the Acquirer is in breach of any
representation, warranty, or covenant contained in this Agreement in any
material respect and such breach has not been cured within ten (10) days of
written notice thereof;
(c) unless the Transferors elect to extend the date of
termination pursuant Section 2.2(h), this Agreement will terminate if the
Closing shall not have occurred on or before October 31, 1999; provided,
however, that in the event the Acquirer has filed a Registration Statement with
the SEC and either (i) the Acquirer's lead underwriter informs the Acquirer that
a public offering of stock is not advisable or (ii) the Registration Statement
has not been declared effective but the Acquirer is using reasonable efforts to
have the Registration Statement declared effective, then this Agreement shall
terminate if the Closing has not occurred on or before December 31, 1999.
(d) Nothing contained in this Section 15.1 shall alter,
affect, modify or restrict any Parties' rights to rely on and/or seek
indemnification for a breach of any of the representations and warranties and/or
conditions or covenants of any of the Parties contained in this Agreement.
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15.2 EFFECT OF TERMINATION. Except as provided in Section 14.2, if
either the Acquirer or the Transferors terminate this Agreement pursuant to
Section 15.1 above, all obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party.
16. MISCELLANEOUS.
16.1 PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
applicable securities Laws or stock exchange requirements, no Party shall issue
any press release or public announcement relating to the subject matter of this
Agreement prior to, at or about the Closing without the prior written approval
of the Acquirer and the Transferors, which written approval will not be
unreasonably withheld by each Party; provided, however, that any Party may make
any public disclosure it believes in good faith is required by Law or regulation
(in which case the disclosing Party will advise the other Parties prior to
making the disclosure).
16.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
16.3 CONTENTS OF AGREEMENT. This Agreement, together with the other
Transaction Documents, sets forth the entire understanding of the Parties hereto
with respect to the Transactions and supersedes all prior agreements or
understandings among the Parties regarding those matters.
16.4 AMENDMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This Agreement
may be amended, modified or supplemented only by a written instrument duly
executed by each of the Parties hereto. If any provision of this Agreement shall
for any reason be held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective heirs, legal representatives, successors and permitted assigns
of the Parties hereto. No Party hereto shall assign this Agreement or any right,
benefit or obligation hereunder; provided, however, that the Acquirer may assign
any or all of its rights, benefits or obligations herein to any Affiliate. Any
term or provision of this Agreement may be waived at any time by the Party
entitled to the benefit thereof by a written instrument duly executed by such
Party. The Parties hereto shall execute and deliver any and all documents and
take any and all other actions that may be deemed reasonably necessary by their
respective counsel to complete the Transactions.
16.5 INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) "or" has the inclusive meaning frequently identified with the
phrase "and/or," (d) "including" has the inclusive meaning frequently identified
with the phrase "but not limited to" and (e) references to "hereunder" or
"herein" relate to this Agreement. The section and other headings contained in
this Agreement are for reference purposes only and shall not control or affect
the construction of this Agreement or the interpretation thereof in early
respect. Annex, section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified. Each accounting term used herein that is
not specifically defined herein shall have the meaning given to it under GAAP.
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16.6 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
16.7 REMEDIES AND SET-OFF.
(a) The remedies provided by Section 12 shall constitute the
exclusive remedies for the matters covered thereby. With respect to any matters
not covered by such Section, any Party hereto shall be entitled to such rights
and remedies as such Party may have at law or in equity or otherwise for any
breach of this Agreement, including the right to seek specific performance,
rescission or restitution, none of which rights or remedies shall be affected or
diminished by the remedies provided hereunder.
(b) The Acquirer shall be entitled to a set-off against the
Escrow Funds for any, damages, losses, costs or expenses which are incurred by
the Acquirer or the Company and for which the Transferors have indemnified the
Acquirer pursuant to the terms of this Agreement, and for any Cash Portion of
the Transfer Consideration adjustment made pursuant to Section 2. The Acquirer
shall give the Transferors written notice of any claimed set-off.
Notwithstanding any provision of this Agreement to the contrary, after the
Acquirer has given written notice of a claimed set-off, the Acquirer may give
unilateral written notice to the Escrow Agent to release Escrow Funds in the
amount of the claimed set-off, which written notice Transferors hereby
acknowledge to be sufficient to authorize the Escrow Agent to release Escrow
Funds as directed by the Acquirer, unless the Transferors sends an objection
notice to the Escrow Agent within the prescribed period set forth in Section
2(b) of the Escrow Agreement.
16.8 NOTICES. All notices that are required or permitted hereunder
shall be in writing and shall be sufficient if personally delivered or sent by
mail, facsimile or Federal Express (or other reputable delivery or courier
service). Any notices shall be deemed given upon the earlier of (a) the date
when received, (b) the third day after the date when sent by registered or
certified mail, (c) the day when sent by facsimile, (d) the day after the date
when sent by Federal Express (or other reputable delivery or courier service),
to the address or fax number set forth below, unless such address or fax number
is changed by notice to the other Party hereto:
If to the Acquirer:
espernet.com, inc.
383 West 12th Street
New York, New York 10014
Attention: Paul Hart, President
Fax: (212) 989-4717
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with a required copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street, 13th Floor
Hartford, Connecticut 06103
Attention: John J. Altorelli, Esq.
Fax: (860) 293-3555
If to the Transferors:
Lawrence R. Corsa
815 N. 12th Street
Allentown, PA 18102
Fax: (610) 435-3550
with a required copy to:
McNees, Wallace & Nurick
100 Pine Street
P.O. Box 1166
Harrisburg, PA 17108-1166
Attention: Bruce R. Spicer, Esq.
Fax: (717) 237-5300
16.9 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
16.10 EXPENSES. Each of the Parties and the Company will bear his, her
or its own costs and expenses (including legal fees and expenses and investment
banking fees) incurred in connection with this Agreement and the Transactions.
16.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more Parties
hereto, and an executed copy of this Agreement may be delivered by one or more
Parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such Party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes as of the date first written above. At the request of
any Party hereto, all Parties hereto agree to execute an original of this
Agreement as well as any facsimile, telecopy or other reproduction hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Stock Exchange Agreement has been executed by
the Parties hereto as of the day and year first written above.
ESPERNET.COM, INC.
By: /s/ Paul Hart
--------------------------------------
Name: Paul Hart
Title: President
ENTER.NET, INC.
By: /s/ Lawrence R. Corsa
--------------------------------------
Name: Lawrence R. Corsa
Title: President
TRANSFERORS:
/s/ Lawrence R. Corsa
-----------------------------------------------
Lawrence R. Corsa
/s/ Margo J. Corsa
-----------------------------------------------
Margo J. Corsa
[SIGNATURE PAGE TO STOCK EXCHANGE AGREEMENT]
54
ANNEX I
STOCKHOLDER LIST
- -------------------------------------------------------------------------------------
NAME SHARES OF
OF COMPANY OWNERSHIP
STOCKHOLDER COMMON STOCK PERCENTAGE
- -------------------------------------------------------------------------------------
Lawrence R. Corsa & Margo J. Corsa 100 100%
- -------------------------------------------------------------------------------------
TOTAL 100 100%
- -------------------------------------------------------------------------------------
55
ANNEX II
CASH PORTION OF THE TRANSFER CONSIDERATION(1)
Gross Aggregate Cash Portion of the Transfer Consideration: $ 7,200,000.00
Less Adjustments:
Net Current Assets $_______________
Debt $_______________
Subscriber $_______________
Churn Rate $_______________ $_______________
Less Escrowed Amount:
(5% of the Transfer Consideration)(2) $ 600,000.00
Net Aggregate Cash Portion of the Transfer Consideration: $_______________
Divided by the Number of Outstanding
Shares of Company Common Stock / 100
CASH PORTION OF THE TRANSFER CONSIDERATION
PER SHARE OF COMPANY COMMON STOCK: $_______________
- --------
(1) This Annex shall be completed on or prior to the Closing Date, upon
determination of the adjustments to the Cash Portion of the Transfer
Consideration.
(2) The Accounts Receivable adjustment shall be set-off against the
Escrow Funds.
56
ANNEX III
STOCK PORTION OF THE TRANSFER CONSIDERATION(3)
Aggregate Dollar Value of Stock Portion of the Transfer Consideration: $ 4,800,000.00
Divided by the Number of Outstanding
Shares of Company Common Stock / 100
Divided by the midpoint of the IPO offering price
per share of the Acquirer Common Stock as set forth / ________________
the Registration Statement
STOCK PORTION OF THE TRANSFER CONSIDERATION
PER SHARE OF COMPANY COMMON STOCK: $_______________
- --------
(3) This Annex shall be completed on or prior to the Closing Date, upon
determination of the midpoint of the IPO offering price per share of the
Acquirer Common Stock as set forth in the Registration Statement.
57
ANNEX IV
[RESERVED]
58
ANNEX V
ALLOCATION SUMMARY(4)
- ---------------------------------------------------------- ------------------------------------------------------------
COMPANY SHARE OWNERSHIP TRANSFER CONSIDERATION
- ---------------------------------------------------------- ------------------------------------------------------------
NAME SHARES OF CASH PORTION OF STOCK PORTION OF
OF COMPANY OWNERSHIP THE TRANSFER THE TRANSFER ESCROW
TRANSFERORS COMMON PERCENTAGE CONSIDERATION CONSIDERATION FUNDS
STOCK (NET CASH (NET CASH
AMOUNT) AMOUNT)
- ---------------------------------------------------------- ------------------------------------------------------------
Lawrence R. Corsa & 100 100% $600,000.00
Margo J. Corsa
- ---------------------------------------------------------- ------------------------------------------------------------
TOTAL 100 100% $600,000.00
- ---------------------------------------------------------- ------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
ALLOCATION OF CASH PORTION OF THE TRANSFER CONSIDERATION
- -----------------------------------------------------------------------------------------------------------------------
CASH PORTION OF THE
TRANSFER
NUMBER OF CONSIDERATION PER
EXCHANGED SHARE OF COMPANY TOTAL CASH
TRANSFEROR SHARES X 60% COMMON STOCK RECEIVED
- -----------------------------------------------------------------------------------------------------------------------
Lawrence R. Corsa & 100 60
Margo J. Corsa
- -----------------------------------------------------------------------------------------------------------------------
TOTAL 100 60
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
ALLOCATION OF STOCK PORTION OF THE TRANSFER CONSIDERATION
- -----------------------------------------------------------------------------------------------------------------------
STOCK PORTION OF
TRANSFER
NUMBER OF CONSIDERATION PER
EXCHANGED SHARE OF COMPANY TOTAL STOCK
TRANSFEROR SHARES X 40% COMMON STOCK RECEIVED
- -----------------------------------------------------------------------------------------------------------------------
Lawrence R. Corsa & 100 40
Margo J. Corsa
- -----------------------------------------------------------------------------------------------------------------------
TOTAL 100 40
- -----------------------------------------------------------------------------------------------------------------------
- --------
(4) This Annex shall be completed on or prior to the Closing Date, upon
determination of the adjustments to the Cash Portion of the Transfer
Consideration and the midpoint of the IPO offering price per share of the
Acquirer Common Stock as set forth in the Registration Statement.