Exhibit 2.1
ASSET PURCHASE AGREEMENT
BETWEEN
USFI, INC.
AND
PRIMUS TELECOMMUNICATIONS, INC.
___________________________________________________
OCTOBER 20, 1997
___________________________________________________
TABLE OF CONTENTS
Page
ARTICLE I SALE AND PURCHASE.................................. -1-
SECTION 1.1 Assets to be Sold and Purchased.................... -1-
SECTION 1.2 Assumed Liabilities................................ -3-
SECTION 1.3 Purchase Price..................................... -4-
SECTION 1.4 Allocation of the Purchase Price................... -5-
SECTION 1.5 Closing............................................ -5-
ARTICLE II RELATED MATTERS.................................... -5-
SECTION 2.1 Related Transaction................................ -5-
SECTION 2.2 Employment Agreements.............................. -5-
SECTION 2.3 Collection of Accounts Receivable.................. -6-
SECTION 2.4 Reimbursement of Security Deposits and
Proration of Expenses............................ -6-
ARTICLE III CONDITIONS TO CLOSING.............................. -6-
SECTION 3.1 Conditions to the Obligations of the Parties....... -6-
SECTION 3.2 Conditions to the Obligations of Seller............ -7-
SECTION 3.3 Conditions to the Obligations of Buyer............. -8-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER........... -9-
SECTION 4.1 Authority Relative to this Agreement............... -9-
SECTION 4.2 No Conflicts; Consents............................. -9-
SECTION 4.3 Corporate Existence and Power...................... -10-
SECTION 4.4 Financial Condition................................ -10-
SECTION 4.5 Absence of Certain Changes......................... -11-
SECTION 4.6 The Assets......................................... -11-
SECTION 4.7 Contracts.......................................... -12-
SECTION 4.8 Claims and Proceedings............................. -14-
SECTION 4.9 Employee Benefits Plans............................ -14-
SECTION 4.10 Employee-Related Matters........................... -15-
SECTION 4.11 Compliance with Laws............................... -16-
SECTION 4.12 Finders Fees....................................... -16-
SECTION 4.13 Intellectual Property Matters...................... -17-
SECTION 4.14 Permits............................................ -17-
SECTION 4.15 Insurance.......................................... -17-
SECTION 4.16 Absence of Certain Commercial Practices............ -18-
SECTION 4.17 Environmental Laws and Regulations................. -18-
SECTION 4.18 Veracity of Statements............................. -18-
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............ -19-
SECTION 5.1 Authority Relative to This Agreement............... -19-
SECTION 5.2 No Conflicts; Consents............................. -19-
SECTION 5.3 Corporate Existence and Power...................... -20-
SECTION 5.4 Finders Fees -20-
SECTION 5.5 Financing -20-
ARTICLE VI COVENANTS AND AGREEMENTS........................... -20-
SECTION 6.1 Conduct of Business of Seller...................... -20-
SECTION 6.2 Corporate Examinations and Investigations.......... -21-
SECTION 6.3 Filings and Authorizations......................... -21-
SECTION 6.4 Efforts to Consummate.............................. -21-
SECTION 6.5 Negotiations With Others........................... -22-
SECTION 6.6 Notices of Certain Events.......................... -22-
SECTION 6.7 Public Announcements............................... -22-
SECTION 6.8 Confidentiality.................................... -22-
SECTION 6.9 Expenses........................................... -23-
SECTION 6.10 Employee Matters................................... -23-
SECTION 6.11 Non-Solicitation................................... -24-
SECTION 6.12 Access and Cooperation............................. -24-
SECTION 6.13 Institutional Escrow Agreement..................... -25-
SECTION 6.14 Charter Amendment.................................. -25-
SECTION 6.15 Accounts Payable................................... -25-
SECTION 6.16 Release from Liability............................. -25-
SECTION 6.17 US Cable Support................................... -25-
ARTICLE VII INDEMNIFICATION.................................... -25-
SECTION 7.1 Survival of Representations and Warranties......... -25-
SECTION 7.2 Obligation of Seller to Indemnify.................. -26-
SECTION 7.3 Obligation of Buyer to Indemnify................... -26-
SECTION 7.4 Notice and Opportunity to Defend Third Party Claims -26-
SECTION 7.5 Limits on Indemnification.......................... -27-
SECTION 7.6 Exclusive Remedy. -27-
ARTICLE VIII TERMINATION -28-
SECTION 8.1 Termination -28-
SECTION 8.2 Effect of Termination; Right to Proceed............ -28-
ARTICLE IX MISCELLANEOUS...................................... -29-
SECTION 9.1 Notices -29-
SECTION 9.2 Entire Agreement................................... -30-
SECTION 9.3 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies -30-
SECTION 9.4 Governing Law...................................... -30-
SECTION 9.5 Binding Effect; No Assignment...................... -30-
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SECTION 9.6 Exhibits and Schedules............................. -31-
SECTION 9.7 Severability....................................... -31-
SECTION 9.8 Counterparts....................................... -31-
SECTION 9.9 Third Parties...................................... -31-
SECTION 9.10 Further Assurances................................. -31-
SECTION 9.11 Guaranty........................................... -31-
ARTICLE X DEFINITIONS........................................ -31-
SECTION 10.1 Definitions........................................ -31-
SECTION 10.2 Interpretation..................................... -36-
Exhibits
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Assumption Agreement
Exhibit C - Form of Bill of Sale
Exhibit D - Employment Agreements
Schedules
Schedule 1.1(b)(viii) Other Excluded Assets
Schedule 1.4 Allocation of Purchase Price
Schedule 2.5 Security Deposits and Expenses
Schedule 4.4(b) Liabilities
Schedule 4.5 Absence of Certain Changes
Schedule 4.7 Contracts
Schedule 4.8 Claims
Schedule 4.9 Employee Benefits Plans
Schedule 4.10 Employee-Related Matters
Schedule 4.11 Compliance with Laws
Schedule 4.12 Finders Fees
Schedule 4.13 Intellectual Property
Schedule 4.14 Permits
Schedule 4.15 Insurance
Schedule 4.17 Environmental Laws and Regulations
Schedule 5.2 Buyer Required Consents
Schedule 6.10 Employees on Disability Leave
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ASSET PURCHASE AGREEMENT, dated as of October 20, 1997, by and between
PRIMUS TELECOMMUNICATIONS, INC., a Delaware corporation ("Buyer"), and USFI,
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INC., a New York corporation ("Seller"):
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W I T N E S S E T H:
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WHEREAS, Seller is engaged in the provision of international
telecommunications services (the "Business");
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WHEREAS, Seller desires to sell and assign, and Buyer desires to purchase
and assume, substantially all of the assets and certain liabilities relating to
the Business upon and subject to the terms and conditions hereinafter set forth;
and
WHEREAS, certain terms used herein are defined in Article X (and in other
Sections of this Agreement, as specified in Article X);
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
SALE AND PURCHASE
SECTION 1.1 Assets to be Sold and Purchased. (a) Subject to the terms
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and conditions hereof, Seller shall sell, assign, transfer, convey and deliver
to Buyer free and clear of all Liens (other than Permitted Liens), and Buyer
shall purchase from Seller, all of the property, assets and rights used or held
for use in the Business (other than the Excluded Assets) (collectively, the
"Assets") including:
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(i) Seller's rights under all Contracts to which it is a party or by
which it is subject, including but not limited to, all prepaid expenses, claims
and other prepayments, including security deposits and other retentions held by
third parties, with respect to the Contracts as of the Closing Date;
(ii) Seller's right to provide services to its customers;
(iii) all of Seller's inventory, wherever located, with respect to the
Business as of the Closing Date (the "Inventory");
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(iv) all plant, machinery, equipment, furniture and fixtures, spare
parts and other tangible personal property used or held for use in the Business
(collectively, the "Equipment");
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(v) all of Seller's right, title and interest in, to and under all
Patents, Patent registrations and applications, brandnames, brandmarks, logos,
licenses,
computer software, computer systems and related proprietary documentation, trade
names, Trademarks, Copyrights, servicemarks, Trademark, servicemark
registrations and applications and the names "USFI", "TelePassport" and
"Mastercall" whether or not used in the Business;
(vi) all of Seller's rights in, to and under trade secrets, formulae
and specifications and technical know-how, inventions and proprietary
technology, whether currently being used or under development, including
engineering and other drawings, data, design and specifications, product
literature and related materials, in each case which are owned or licensed by
Seller as of the Closing Date (together with the Intellectual Property described
in Section 1.1(a)(v), the "Intellectual Property Rights");
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(vii) all of Seller's rights in, to and under the goodwill
of the Business;
(viii) all of Seller's rights under all governmental and
third-party licenses, certificates, franchises, authorizations, easements and
rights of way, zoning variances, rights, consents, permits and approvals
relating to or necessary to the conduct of the Business as of the Closing Date,
to the extent such items are transferable (the "Permits");
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(ix) all transferable warranties and guarantees pertaining to the
Assets and upon receipt by Seller of each Receivable collected by Buyer, the
corresponding letter of credit, security deposit or other credit enhancement
relating thereto, posted by customers of Seller, pertaining to the Assets;
(x) all books and records relating to the Business and the Assets
(whether kept or maintained by Seller or any third party) including, without
limitation, copies of lists of customers and suppliers; cost and pricing data;
business development plans; advertising materials, catalogues, correspondence,
mailing lists, photographs, sales materials and records; purchasing materials
and records; personnel records with respect to employees of the Business; media
materials and plates; sales order files; ledgers and other books of account of
Seller; and all software programs, computer printouts, databases and related
items used in the Business; and
(xi) all of Seller's rights in and to all international circuits used
by Seller in the Business and all DS-3 and T-1 domestic circuits (the "Domestic
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Circuits") used by Seller in the Business.
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(b) The Assets shall exclude the following assets and property (the
"Excluded Assets"):
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(i) all of Seller's rights, title and interest in and to the
Transaction Documents;
(ii) cash on hand, cash equivalents, investments (including, without
limitation, stock, debt instruments, and other instruments and securities) and
bank deposits of Seller as of the Closing Date;
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(iii) all of the accounts receivable, loans receivables and the notes
receivable of Seller, including, without limitation, all books and records
related thereto and the proceeds from all services rendered by Seller through
the close of business on the day immediately preceding the Closing Date,
irrespective of whether invoices for such services have been generated as of the
Closing Date (the "Receivables").
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(iv) Tax refunds and recoveries and similar benefits of Seller which
relate to any period prior to the Closing Date, and all of Seller's income Tax
returns and records as of the Closing Date;
(v) all corporate records of Seller including, without limitation,
the stock ledger of Seller and the minute books regarding meetings of the
shareholders, directors and director committees of Seller;
(vi) Seller's rights under any Employee Benefit Plans;
(vii) all of Seller's rights under any insurance policies; and
(viii) those Contracts and assets and Seller's rights related thereto
listed on Schedule 1.1(b)(viii).
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(c) To the extent that the assignment or transfer of any of the
Assets, including, without limitation, any Contracts or Permits, to the Buyer
pursuant to this Agreement shall require the consent of any party or
Governmental Body, this Agreement shall not constitute a contract to assign the
same or an attempt at assignment or transfer if, absent such consent, such
transfer would constitute a breach of such Contract or Permit, provided that
upon obtaining any such consent, any such Asset shall be deemed assigned and
transferred to Buyer and the obligations thereunder assumed by Buyer without any
further action taken by the parties. The Seller and the Buyer shall cooperate
and agree to use their respective good faith efforts to obtain any consent
necessary to effect such assignment or transfer. In addition, Seller will
transfer and assign to Buyer the benefit of any such nontransferable Assets,
including any such Contracts and Permits, to the fullest extent possible and
Buyer shall be responsible for the payment of all obligations and expenses
thereunder.
SECTION 1.2 Assumed Liabilities. (a) Subject to the provisions of Section
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1.2(b), Buyer shall assume, pay, fulfill, perform or otherwise discharge the
Liabilities of Seller (i) arising and to be performed after the Closing under
those Contracts listed on Schedule 4.7, which are not Excluded Assets and (ii)
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relating to international circuits and Domestic Circuits, except to the extent
set forth in Section 1.2(b)(vii) (collectively, the "Assumed Liabilities"). To
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the extent that certain security deposits received from Seller's customers are
offset against certain security deposits posted by Seller that are being
assigned to Buyer pursuant to this Agreement, such security deposits received
from Seller's customers shall be included in Assumed Liabilities.
(b) Buyer shall not assume or be bound by or otherwise be responsible
for any Liabilities of Seller of any kind or nature, known, unknown, contingent
or otherwise,
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other than Liabilities expressly assumed by it pursuant to Section 1.2(a) and
this Section 1.2(b). Without limiting the generality of the foregoing, except
as otherwise provided in this Agreement, Buyer shall not assume, undertake or
accept any Liabilities of Seller (whether existing now or at the Closing or that
may arise in the future) with respect to:
(i) Liabilities of Seller or its Affiliates relating to the ownership
or operation of the Assets or the Business on or prior to the Closing Date,
including, without limitation, those identified on Schedule 4.4(b) or those
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resulting from any breach of Contract by Seller identified on Schedule 4.7;
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(ii) Liabilities of Seller or its Affiliates relating to the ownership
or operation of the Excluded Assets and the operations of Seller and Seller's
Affiliates other than the Business;
(iii) Liabilities with respect to any federal, state, local or foreign
income, profits, franchise, sales, use, employment or other Tax relating to the
ownership of the Assets or the conduct of the Business on or prior to the
Closing or arising out of the Contemplated Transactions;
(iv) Liabilities in respect of any Debt of the Seller;
(v) Except as set forth in Section 2.2, Liabilities to employees
employed by Seller whose services are terminated on or before the Closing Date
and who are not Transferred Employees, including, without limitation, those set
forth in Section 6.10 hereto;
(vi) Any and all Liabilities under Employee Benefit Plans of Seller,
including, without limitation, those set forth in Section 6.10 hereto; and
(vii) any liability to the lessor thereof arising from cancellation of
one Domestic Circuit (designated by Seller as TCG1-DS3 Hub-01-CFZD-01-5011),
which cancellation Buyer may effect at any time in its discretion, plus any
additional liability to the lessor thereof arising from the removal of service
of MFS1-DS3 Hub-3hdt6bfc0001 and any liability to the lessor thereof arising
from cancellation of Seller's domestic T-1 circuits transferred hereunder to
Buyer provided Buyer gives at least thirty (30) days' notice of cancellation to
the lessor and such cancellation notice is given within sixty (60) days after
the date hereof.
(c) All Liabilities described in Section 1.2(b) are referred to herein
as "Retained Liabilities."
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SECTION 1.3 Purchase Price. (a) The purchase price for the Assets shall be
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an amount equal to $5,500,000 (the "Purchase Price") payable as provided in
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Section 3.2(c).
(b) On or prior to the Closing Date, Buyer, Seller and the Escrow
Agent will execute and deliver an escrow agreement ("Escrow Agreement")
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substantially in the form of Exhibit A hereto pursuant to which Buyer will
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deliver to Escrow Agent an amount
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out of the Purchase Price equal to $500,000 (the "Escrow Funds"), which amount
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will provide a non-exclusive fund for a period of six months following the
Closing for the payment of any Losses for which Buyer may be entitled to
indemnification as and to the extent provided in Article VII.
SECTION 1.4 Allocation of the Purchase Price. The Purchase Price shall be
--------------------------------
allocated among the Assets in the manner set forth on Schedule 1.4 for all
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purposes, and each of the parties shall make all appropriate Tax and other
filings on a basis consistent with such allocation. To the extent further
allocation of the Purchase Price to specific categories of Assets is required by
Law or GAAP, Buyer shall provide such an allocation to Seller consistent with
Schedule 1.4 as soon as practicable following the Closing. Such allocation
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shall be the agreed allocation by the parties hereto unless objected to by
Seller within fifteen (15) days after receipt. The parties shall exchange
drafts of any portion of any Tax returns related to Section 1060 of the Code,
and all similar state statutes and shall obtain approval from the other party as
to the content of such portions of the Tax return before filing the same and in
any event, within fifteen days after delivery thereof. If no objection is
received with respect to any such portion of a Tax return within such fifteen
day period, such Tax return shall be deemed approved and may be filed.
Notwithstanding the assertion of an objection in accordance with this Section
1.4, the filing of the Tax return following the good faith efforts of the
parties to obtain approval with respect to such portion of a Tax return shall
not be deemed a breach of this Agreement.
SECTION 1.5 Closing. Subject to the terms and conditions of this
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Agreement, the sale and purchase of the Assets contemplated hereby (the
"Closing") shall take place at 10:00 a.m., local time, at the offices of Baer
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Marks & Upham LLP, 805 Third Avenue, New York, New York 10022 on the third
business day following the satisfaction or waiver of the conditions specified in
Article III (other than conditions requiring the delivery of the Purchase Price,
the Assets, or certificates, instruments and documents referenced in Sections
3.2(e) and 3.3(e)) (the "Closing Date"). All transactions consummated at the
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Closing shall be deemed to have taken place concurrently and shall be deemed to
be effective as of 11:59 p.m. on the Closing Date.
ARTICLE II
RELATED MATTERS
SECTION 2.1 Related Transaction. Concurrently with the execution and
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delivery hereof, an Affiliate of Buyer has entered into an Equity Purchase
Agreement with the members of TelePassport L.L.C., a Delaware limited liability
company (the "TelePassport Purchase Agreement").
-------------------------------
SECTION 2.2 Employment Agreements. On the Closing Date, Buyer agrees to
---------------------
offer employment to Francis J. Mount, Jan Piazza and Paul K. Heun in accordance
with the letters attached hereto as Exhibit D (the "Employment Agreements").
--------- ---------------------
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SECTION 2.3 Collection of Accounts Receivable. For a period of four (4)
---------------------------------
months from the Closing Date, except for carrier and reseller Receivables, Buyer
shall be responsible for collecting the Receivables of Seller existing on the
Closing Date, provided that Buyer shall not be required by reason of its
responsibilities under this Section 2.3, to undertake any collection effort
other than that which Buyer would otherwise undertake to collect its own
receivables, and provided further that Buyer shall not be required to resort to
litigation or to engage a collection agent to collect the Receivables. Buyer
shall promptly remit without offset (except as provided in this Section 2.3) any
amount collected in respect of any Receivable to Seller no less frequently than
once every week. Buyer shall deliver to Seller a written report with regard to
the collection of such Receivables no less frequently than monthly. In
connection with Buyer's collection of the Receivables, no credits shall be
granted to account debtors of Seller without the prior written consent of
Seller, which consent shall not be unreasonably withheld. Any amount received
from a debtor after the Closing Date shall be first applied to the Receivables
due from such debtor, except with respect to the Receivable from Intelenet
amounts collected shall be applied to the most recent invoiced amount first.
Any Receivable that is not collected within four (4) months following the
Closing Date will be returned to Seller, together with all information and
documentation related thereto and Buyer shall use its good faith efforts to
cooperate with Seller in the collection of such Receivables. For the services
of Buyer under this Section 2.3, the first $10,000 per month of such collections
shall be retained by Buyer. Buyer shall have no right to offset any obligation
Seller may have to Buyer against Receivables or any proceeds thereof collected
on behalf of Seller. Nothing contained in this Section 2.3 shall prevent Seller
from immediately proceeding against Intelenet with respect to the amount owed by
Intelenet to Seller and upon request of Seller, so long as Intelenet is indebted
to Seller, Buyer will cease to provide service to Intelenet. The foregoing
shall not preclude Buyer from ceasing to provide services to Intelenet in the
event that Intelenet fails to pay Buyer for Buyer's services after Closing.
SECTION 2.4 Reimbursement of Security Deposits and Proration of
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Expenses. (a) All security deposits and expenses that have been prepaid by
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Seller prior to the Closing Date, including, without limitation, rent,
insurance, ad valorem, real or personal property or similar Taxes and utility
charges, are set forth on Schedule 2.4. Buyer shall reimburse Seller at the
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Closing in an amount equal to each of the security deposits and prepaid expenses
identified on Schedule 2.4 as to be reimbursed to Seller.
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(b) All payments under this Section 2.4 shall be made in cash, in
immediately available funds, by certified bank or official check or wire
transfer, as directed by Seller.
ARTICLE III
CONDITIONS TO CLOSING
SECTION 3.1 Conditions to the Obligations of the Parties. The obligations
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of Seller and Buyer to consummate the Contemplated Transactions are subject to
the satisfaction of the
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following conditions, which, in the case of Sections 3.1(b) or (c), may be
waived by Buyer and Seller:
(a) No Injunction. No Order shall prohibit the consummation of the
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Contemplated Transactions.
(b) No Proceeding or Litigation. No Claim instituted by any person
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(other than Buyer, Seller or their respective Affiliates) shall have been
commenced or pending against Seller, Buyer or any of their respective
Affiliates, officers or directors, which Claim seeks to restrain, prevent,
change or delay in any material respect the Contemplated Transactions or seeks
to challenge any of the material terms or provisions of this Agreement or seeks
material damages in connection with any of such transactions.
(c) TelePassport Purchase Agreement. On or before the Closing Date,
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the transactions contemplated by the TelePassport Purchase Agreement shall have
been consummated in accordance with their respective terms.
SECTION 3.2 Conditions to the Obligations of Seller. All obligations of
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Seller hereunder are subject to the fulfillment prior to or at the Closing of
each of the following further conditions, unless waived by Seller:
(a) Performance. Buyer shall have performed and complied in all
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material respects with all agreements, obligations and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) Representations and Warranties. The representations and
------------------------------
warranties of Buyer contained in this Agreement and in any certificate or other
writing delivered by Buyer pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such time (except
that the representations and warranties that are subject to a materiality
qualification shall be true in all respects).
(c) Purchase Price. Buyer shall have paid to Seller by wire transfer
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of immediately available funds an amount equal to the Purchase Price less the
sum of the Escrow Funds. Buyer shall have delivered to the Escrow Agent, in
accordance with the terms of the Escrow Agreement, the Escrow Funds by wire
transfer of immediately available funds.
(d) Buyer Required Consents. All Buyer Required Consents shall have
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been obtained, except where the failure to obtain any such consent will not have
a Material Adverse Effect on the Condition of the Business.
(e) Documentation. There shall have been delivered to Seller the
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following:
(i) A certificate, dated the Closing Date, of Buyer signed by the
Secretary or Assistant Secretary of Buyer certifying, among other things, that
attached or appended to such certificate (A) is a true copy of all corporate
actions taken by it, including
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resolutions of its board of directors authorizing the execution, delivery and
performance of this Agreement, and each other Transaction Document to be
delivered by such party pursuant hereto; and (B) are the names and signatures of
its duly elected or appointed officers who are authorized to execute and deliver
this Agreement and any certificate, document or other instrument in connection
herewith.
(ii) Copies of all Buyer Required Consents.
(iii) An executed copy of the Escrow Agreement.
(iv) An executed copy of an assumption agreement substantially in the
form annexed as Exhibit B hereto (the "Assumption Agreement").
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(v) An opinion of Pepper, Hamilton & Scheetz LLP, counsel to Buyer,
in form and substance satisfactory to Seller.
SECTION 3.3 Conditions to the Obligations of Buyer. All obligations of
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Buyer hereunder are subject to the fulfillment prior to or at the Closing of
each of the following further conditions, unless waived by Buyer:
(a) Performance. Seller shall have performed and complied in all
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material respects with all agreements, obligations and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) Representations and Warranties. The representations and
------------------------------
warranties of Seller contained in this Agreement and in any certificate or other
writing delivered by Seller pursuant hereto shall be true in all material
respects at and as of the Closing Date as if made at and as of such time (except
that the representations and warranties that are subject to a materiality
qualification shall be true in all respects).
(c) Seller Required Consents. All Seller Required Consents shall have
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been obtained.
(d) Transfer of Traffic. No later than immediately prior to the
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Closing Date, Seller shall have migrated all of its traffic to Buyer's switch
located in New Jersey.
(e) Documentation. There shall have been delivered to Buyer the
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following:
(i) A certificate, dated the Closing Date, of Seller signed by the
Secretary or Assistant Secretary of Seller certifying, among other things, that
attached or appended to such certificate (A) is a true copy of all corporate
actions taken by it, including resolutions of its board of directors and
shareholders authorizing the execution, delivery and performance of this
Agreement, and each other Transaction Document to be delivered by such party
pursuant hereto; and (B) are the names and signatures of its duly elected or
appointed officers who are authorized to execute and deliver this Agreement and
any certificate, document or other instrument in connection herewith.
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(ii) Copies of all Seller Required Consents.
(iii) An executed copy of the Escrow Agreement.
(iv) An executed copy of a Bill of Sale and Assignment substantially
in a form annexed as Exhibit C hereto ("the Bill of Sale").
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(v) An executed copy of the Assumption Agreement.
(vi) An opinion of Baer Marks & Upham LLP, counsel to Seller, in form
and substance satisfactory to Buyer.
(vii) An opinion of Fleischman and Walsh, L.L.P., regulatory counsel to
Seller, in form and substance satisfactory to Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
SECTION 4.1 Authority Relative to this Agreement. Seller has full power,
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capacity and authority to execute and deliver each Transaction Document to which
it is a party, to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby (the "Contemplated
------------
Transactions"). The execution and delivery of the Transaction Documents, the
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performance of Seller's obligations hereunder and thereunder, and the
consummation of the Contemplated Transactions to which Seller is a party have
been duly and validly authorized by the board of directors and shareholders of
Seller, and no other corporate proceedings on the part of Seller (or any other
person) are necessary to authorize the execution and delivery by Seller of each
of the Transaction Documents, the performance of Seller's obligations hereunder
and thereunder, or the consummation of the Contemplated Transactions to which
Seller is a party. Each of the Transaction Documents to which Seller is a party
have been duly and validly executed and delivered by Seller and (assuming the
valid execution and delivery thereof by the other parties thereto) constitutes
the legal, valid and binding agreements of Seller enforceable against Seller in
accordance with their respective terms, except as such obligations and their
enforceability may be limited by applicable bankruptcy and other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought (whether at law or in
equity).
SECTION 4.2 No Conflicts; Consents. The execution, delivery and
----------------------
performance by Seller of each Transaction Document to which it is or, at the
Closing, will be a party and the consummation of the Contemplated Transactions
to which it is a party do not and will not (i) violate any provision of the
Certificate of Incorporation or By-laws of Seller; (ii) to the knowledge of
Seller, require Seller or any Affiliate of Seller to obtain any consent,
approval
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or action of or waiver from, or make any filing with, or give any notice to, any
Governmental Body authorized to regulate the provision of telecommunication
services (a "Regulatory Body"), except as set forth on Schedule 4.14; (iii)
--------------- -------------
require Seller or any Affiliate of Seller to obtain any consent, approval or
action of or waiver from, or make any filing with, or give any notice to, any
other person (which term, for purposes of this clause, shall with respect to
Governmental Bodies, be limited to the United States, Germany, Switzerland,
Austria, the United Kingdom, South Africa and any political subdivision
thereof), except as set forth on Schedule 4.7 and except where the failure to
------------
obtain any such consent, approval or waiver, or to make any such filing, or give
any such notice would not reasonably be expected to have a Material Adverse
Effect on the Condition of the Business; (iv) to the knowledge of Seller,
require Seller or any Affiliate of Seller to obtain any consent, approval or
action of or waiver from, or to make any filing with, or give any notice to, any
person not referred to in clauses (ii) or (iii), except as set forth on Schedule
--------
4.7 and except where the failure to obtain any such consent, approval or waiver,
- ---
or to make any filing, or give any such notice would not reasonably be expected
to have a Material Adverse Effect on the Condition of the Business; (v) if the
Seller Consents are obtained prior to Closing, violate, conflict with or result
in a breach or Default under (after the giving of notice or the passage of time
or both), or permit the termination of, any Contract to which Seller is a party
or by which it or any of its assets may be bound or subject, or result in the
creation of any Lien upon the Assets pursuant to the terms of any such Contract,
except where the failure to obtain any such Seller Consent would not reasonably
be expected to have a Material Adverse Effect on the Condition of the Business;
(vi) to the knowledge of Seller, if the Seller Consents are obtained prior to
Closing, violate any Law or Order of any Regulatory Body against, or binding
upon, Seller, or upon the Assets or the Business; or (vii) if the Seller
Consents are obtained prior to Closing, violate (A) any other United States Law
or Order or (B) to the knowledge of Seller, any other Law or Order not described
in clauses (vi) or (vii), in each case which is against, or binding upon,
Seller, or upon the Assets or the Business, except where any violation of any
such Law or Order would not reasonably be expected to have a Material Adverse
Effect on the Condition of the Business. As used in this Agreement, consents,
approvals and waivers described in subsections (ii), (iii) and (iv) above shall
be collectively referred to herein as "Seller Consents".
---------------
SECTION 4.3 Corporate Existence and Power. Seller is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
New York, and has all requisite corporate powers required to carry on the
Business as now conducted.
SECTION 4.4 Financial Condition. (a) Seller has previously furnished to
-------------------
Buyer true and complete copies of (i) Seller's audited financial statements as
at and for the years ended December 31, 1996, 1995 and 1994 (the "Annual
------
Statements"), and (ii) Seller's internally prepared unaudited financial
- ----------
information as at and for the fiscal periods ended March 31, 1997, June 30, 1997
and August 31, 1997 (the "Interim Statements"). The Annual Statements have been
------------------
prepared in accordance with GAAP consistently applied as set forth in the notes
thereto and were audited by Ernst & Young LLP. Each delivered financial
statement presents fairly the financial position of Seller as of its date, and
its earnings, changes in stockholders' equity and cash flow for the periods then
ended.
-10-
(b) Seller has no material Liabilities except for (i) those reflected
or reserved against (which reserves, to the knowledge of Seller, are adequate to
cover such Liabilities) in the Latest Balance Sheet (as defined below), (ii)
those incurred, consistent with past business practices, in the ordinary course
of the Business, since the Latest Balance Sheet Date, and (iii) those which are
specifically disclosed in this Agreement or in Schedule 4.4(b). Seller does not
---------------
know or have any ground to know of any basis for the assertion against Seller of
any material Liability of any nature or in any amount not fully reflected or
reserved against in the Latest Balance Sheet or as disclosed by this Agreement
or referred to in the preceding sentence.
SECTION 4.5 Absence of Certain Changes. Since August 31, 1997 (the
--------------------------
"Latest Balance Sheet Date"), except as disclosed in Schedule 4.5, Seller has
- -------------------------- ------------
conducted the Business in the ordinary course consistent with past practices and
there has not been:
(a) Any transaction or Contract with respect to the purchase,
acquisition, lease, disposition or transfer of any equity interest in Seller, or
of all or any part of any Assets or with respect to any capital expenditure
relating to the Business (in each case, other than as disclosed in any Interim
Statement delivered to Buyer prior to the date of this Agreement or transactions
or Contracts entered into in the ordinary course of Business in accordance with
past practice);
(b) Any damage, destruction or other casualty loss (whether or not
covered by insurance), condemnation or other taking affecting the Business or
Seller, to the extent material to the Business;
(c) Any change in any method of accounting or accounting practice by
Seller; or
(d) Any change in the Business that has resulted in, or reasonably can
be expected to result in, a material adverse effect ("Material Adverse Effect")
-----------------------
in the condition (financial or otherwise) or results of operations of Seller or
the Business (collectively, the "Condition of the Business"), except that
-------------------------
average monthly negative EBITDA of less than $400,000 for the complete calendar
months prior to Closing commencing with September 1, 1997 shall not be deemed to
constitute a Material Adverse Effect. As used herein, "EBITDA" shall mean
------
earnings before interest, Taxes, depreciation, amortization, severance
obligations, foreign exchange loss and costs relating to the Contemplated
Transactions.
SECTION 4.6 The Assets. (a) Seller is in possession (except for
----------
equipment in the possession of customers or Seller's sales representatives) of
the tangible Assets used in the Business and Seller has good and valid title to
(or valid leasehold interest in) such Assets, free and clear of all Liens except
for the following ("Permitted Liens"):
---------------
(i) Liens disclosed on the balance sheet dated August 31, 1997 (the
"Latest Balance Sheet") or the notes thereto;
- ---------------------
-11-
(ii) Liens for Taxes not yet due or payable or being contested in good
faith (and for which adequate reserves have been established on the Latest
Balance Sheet);
(iii) Liens, easements, zoning or other planning restrictions or
limitations on use or other irregularities in title, none of which materially
detracts from the value of the Assets as now used, or materially interferes with
any present use of such Assets;
(iv) Liens of carriers, warehousemen, mechanics, materialmen, vendors,
lessors and landlords or other statutory Liens incurred in the ordinary course
of business which do not materially detract from the value of the Assets as now
used or materially interfere with any present use of such Assets; and
(v) Liens disclosed on Schedule 4.7 hereto, which Liens will be
------------
terminated immediately after Closing with respect to the Assets, but not with
respect to the proceeds thereof.
(b) The Equipment constituting a part of the Assets (whether owned or
leased) has been maintained in accordance with industry standards.
(c) The execution and delivery of this Agreement and the Transaction
Documents will effectively and completely assign all of the Assets to Buyer,
except as provided in Section 1.1(c). All of the material tangible Assets
currently used by the Seller in the provision of Seller's services are in good
condition and repair, normal wear and tear expected, and suitable for the uses
for which they are currently used. Such tangible Assets include, without
limitation, all of the switches, switch related equipment, leasehold
improvements, computer hardware and other machinery and equipment currently used
in the operation of the Business of the Seller.
SECTION 4.7 Contracts. (a) Schedule 4.7 hereto sets forth a list of all
--------- ------------
of the following Contracts concerning the Seller:
(i) Contracts with any labor union or association representing any
employee and any employment contracts, other than oral employment agreements
terminable at will without advance notice and without liability for breach of
contract;
(ii) All Contracts (including all outstanding purchase orders) for the
purchase, lease or license of goods or services calling for payments by the
Seller in excess of $15,000 annually or extending for a period in excess of one
year;
(iii) Contracts for the sale or lease of any of the assets or
properties of the Seller outside the ordinary course of business or for the
grant to any person of any preferential right to purchase or lease any of its
assets or properties;
-12-
(iv) Substantially all license agreements wherein the Seller is
licensee, and substantially all distribution agreements, agency agreements,
sales representative agreements; partnership or other similar joint venture
agreements and franchise agreements. There are no other such agreements that
contain obligations which are materially different from those that are listed on
Schedule 4.7 or which are material individually, or in the aggregate, to the
- ------------
Condition of the Business;
(v) Contracts not otherwise scheduled under which the Seller is
obligated to indemnify any party or to share any Tax Liability of any party;
(vi) Contracts containing covenants of the Seller not to compete in
any line of business or with any person, or covenants of any other person not to
compete with the Seller which are material to the operations or Business of the
Seller;
(vii) Contracts relating to the acquisition by the Seller of any
operating business or the capital stock of any other person;
(viii) Options permitting the Seller to purchase or requiring it to sell
or license any asset, tangible or intangible, involving more than $5,000;
(ix) Substantially all Contracts (not otherwise disclosed) requiring
the payment by the Seller to any person of a commission, royalty, override or
similar commission or fee involving more than $5,000 per annum. There are no
other such Contracts that contain obligations which are materially different
from those that are listed on Schedule 4.7 or which are material individually,
------------
or in the aggregate, to the Condition of the Business;
(x) Contracts relating to the borrowing of money including any
mortgages or other security agreements for borrowing, in each case showing the
name of the lender and the amount outstanding with respect to such borrowing;
(xi) Any guaranty, performance or completion bond or surety agreement;
(xii) Any powers of attorney;
(xiii) Substantially all other Contracts whether or not made in the
ordinary course of business involving the payment or receipt of $15,000 or more
per annum not otherwise disclosed herein. There are no other such Contracts that
contain obligations which are materially different from those that are listed on
Schedule 4.7 or which are material individually, or in the aggregate, to the
- ------------
Condition of the Business; and
(xiv) All currently outstanding and enforceable Contracts providing for
severance or termination pay liabilities or obligations to which the Seller is a
party and which are not otherwise required to be disclosed hereunder or pursuant
to which any such liabilities or obligations may be or become payable.
-13-
There have been delivered to Buyer true, correct and complete copies
of all of the written Contracts set forth on Schedule 4.7 and an accurate
------------
written list of all such oral Contracts.
(b) All Contracts listed on Schedule 4.7 are unless otherwise
------------
indicated on Schedule 4.7, valid, subsisting, in full force and effect and
------------
binding upon Seller, as the case may be, and, to the knowledge of Seller, upon
the other parties thereto in accordance with their terms. Except as indicated
on Schedule 4.7, Seller is not in Default (or alleged Default) under any such
------------
Contract in any material respect, nor, to the knowledge of Seller, except as
indicated on Schedule 4.7, is any other party thereto in Default thereunder in
------------
any material respect, and, to Seller's knowledge, except as indicated on
Schedule 4.7, there is no condition that with notice or the lapse of time or
- ------------
both would constitute a material Default (or give rise to a termination right)
under any such Contract. To the knowledge of Seller, none of the other parties
to any Contract intends to terminate or materially alter the provisions thereof
by reason of the Contemplated Transactions or otherwise. Since the Latest
Balance Sheet Date, Seller has not waived any material right under any Contract,
materially amended or extended beyond December 31, 1997 any such Contract or
terminated or failed to renew (or received notice of termination or failure to
renew with respect to) any such Contract.
(c) To the knowledge of Seller, Schedule 4.7 sets forth a list of aged
------------
payables owed by Seller which are to be paid pursuant to Section 6.15.
SECTION 4.8 Claims and Proceedings. Except as set forth on Schedule 4.8,
---------------------- ------------
there are no actions, suits, claims, or counterclaims or legal, administrative,
governmental, arbitral or other proceedings or investigations (collectively,
"Claims") (whether or not the defense thereof or Liabilities in respect thereof
- -------
are covered by insurance), pending or to the knowledge of Seller threatened,
against or involving Seller, the Assets or the Business.
SECTION 4.9 Employee Benefits Plans. Schedule 4.9 lists all bonus,
----------------------- ------------
deferred compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock and
stock option plans, all employment or severance contracts, health and medical
insurance plans, life insurance and disability insurance plans, other employee
benefit plans, contracts or arrangements including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of ERISA which cover
any current or former employee, officer, director or consultant of Seller (the
"Employee Benefit Plans"). All Employee Benefit Plans have been established and
- -----------------------
maintained in all material respects in accordance with their terms. Except as
set forth on Schedule 4.9, no Employee Benefit Plan is or was collectively
------------
bargained for. The Employee Benefit Plans which are described in Section 3(3)
of ERISA (the "ERISA Plans") are in compliance in all material respects with all
-----------
provisions of ERISA, other applicable Laws and, if intended to be Tax qualified,
Sections 401(a) and 501(a) of the Code, including but not limited to the
satisfaction of all applicable reporting and disclosure requirements under ERISA
and the Code. Seller has filed or caused to be filed with the IRS annual
reports on Forms 5500 or 5500C and 5500R, as applicable for each Employee
Benefit Plan for all years and periods for which such reports were required.
All ERISA Plans which are intended to qualify under Section 401(a) of the Code
have been submitted to and approved under Section 401(a) of the Code by the IRS.
The plan sponsor of such ERISA Plans has received from
-14-
the IRS favorable determination letters with respect to such ERISA Plans and no
such letters have been revoked, nor has revocation of such letters been
threatened, nor has any ERISA Plan been amended since the date of its most
recent determination letter or application therefor in any request which would
adversely affect its qualification or materially increase its cost and no ERISA
Plan has been amended in a manner that would require security to be provided in
accordance with Section 401(a)(29) of the Code; and to the knowledge of Seller,
nothing has occurred which would cause the loss of such Tax qualification.
Neither Seller nor any entity which is considered one employer with Seller under
Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate") has
---------------
incurred or expects to incur any Liability with respect to a multi-employer plan
under Subtitle E of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate) or has made or is obligated to make any
contributions to any multi-employer plan as defined in Section 3(37) of ERISA.
All contributions required to be made under the terms of any Employee Benefit
Plan have been timely made or have been duly provided for. Neither Seller nor
any ERISA Affiliate sponsors, maintains, or contributes or has sponsored,
maintained or contributed to a defined benefit pension plan that is or was
subject to Title IV of ERISA or Section 412 of the Code. There are no pending
or, to the knowledge of Seller, threatened Claims relating to any Employee
Benefit Plan, other than routine Claims for benefits in the ordinary course,
asserted against (i) any Employee Benefit Plan or its assets, (ii) Seller or any
ERISA Affiliate or (iii) any fiduciary, for which Seller is directly or
indirectly liable, through indemnification obligations or otherwise. No
"prohibited transaction," as defined in section 406 of ERISA and section 4975 of
the Code, has occurred in respect of any ERISA Plan which could give rise to any
material Liability or Tax under ERISA or the Code on the part of Seller, and no
civil or criminal action brought pursuant to part 5 of Title I of ERISA is
pending or is threatened in writing against any fiduciary of any such plan.
Seller shall not make or cause to be made prior to the Closing to any current
employee, any payment in the form of wages or other consideration pursuant to
any employment agreement or Employee Benefit Plan that constitutes in the
aggregate an "excess parachute payment" (within the meaning of Section 280G(b)
of the Code) as a consequence in whole or in part of this Agreement. There are
no current or former employees of Seller who are (A) absent on a military leave
of absence and eligible for rehire under the terms of the Uniformed Services
Employment and Reemployment Rights Act, or (B) absent on a leave of absence
under the Family and Medical Leave Act, which in either case would allow any
such employee to obtain restoration of any employee benefit plan contributions
or accruals related to the period of such leave.
SECTION 4.10 Employee-Related Matters. (a) Schedule 4.10 contains a true
------------------------ -------------
and correct list of all officers, directors, full-time and part-time employees
and consultants of Seller, including any Contract relating thereto, and prior to
the date hereof, Seller has delivered to Buyer a description of the rate and
nature of all compensation payable by Seller to each such person. Schedule 4.10
-------------
also contains a description of all existing severance, accrued vacation policies
or retiree benefits of any current or former director, officer, employee or
consultant (to the extent not included on Schedule 4.9). Except as set forth on
------------
such Schedule, the employment or consulting Contract of all such persons and all
part-time employees of Seller is terminable at will.
(b) Except as set forth in Schedule 4.10: (i) Seller is not a party
-------------
to, or in the process of negotiating, any Contract with any labor organization
or other representative
-15-
of its employees; (ii) there is no unfair labor practice charge or complaint
pending or, to the knowledge of Seller, threatened against Seller; (iii) Seller
has not experienced any labor strike, slowdown, work stoppage or similar
material labor controversy within the past three years; (iv) no representation
question has been raised respecting any of Seller's employees working within the
past three years, nor, to the knowledge of Seller, are there any campaigns being
conducted to solicit authorization from Seller's employees to be represented by
any labor organization; (v) no Claim before any Governmental Body brought by or
on behalf of any employee, prospective employee, former employee, retiree, labor
organization, other representative of Seller's employees or any Governmental
Body, is pending or, to the knowledge of Seller, threatened against Seller; (vi)
Seller is not a party to, or otherwise bound by, any Order relating to its
employees or employment practices; and (vii) except with respect to ongoing
disputes of a routine nature involving immaterial amounts, Seller has paid in
full to all of its employees, officers, directors and consultants all wages,
salaries, commissions, bonuses, benefits and other compensation due and payable
to such employees, officers, directors and consultants.
SECTION 4.11 Compliance with Laws. Seller is not in violation of any
--------------------
order, judgment, injunction, award, citation, decree, consent decree or writ
(collectively, "Orders"), or any law, treaty, statute, code, ordinance, rule,
------
regulation, published enforcement policy or statement, or other requirement
(collectively, "Laws") of any government or political subdivision thereof,
----
whether federal, state, local or foreign, or any agency or instrumentality of
any such government or political subdivision, or any court, tribunal, commission
or arbitrator (collectively, "Governmental Bodies") affecting the Assets or the
-------------------
Business, except for any violation of any Law or Order where the effect thereof
would not reasonably be expected to have a Material Adverse Effect on the
Condition of the Business; provided however, that no representation is made in
this Section 4.11 with respect to compliance with telecommunications Laws of
jurisdictions other than the United States, except that Seller represents with
respect to the United States and all other jurisdictions that, except as set
forth on Schedule 4.11, (i) to its knowledge there are no informal or formal
-------------
complaints, proceedings or investigations pending or threatened before any
Governmental Body against Seller based on any alleged violation of any rule or
regulation of any Governmental Body, (ii) it has not received any written notice
from any Governmental Body, and has no knowledge that delivery of a notice is
intended by a Governmental Body, that Seller is in violation of
telecommunications Laws, or that Seller's interpretation of any
telecommunications Laws is incorrect, and (iii) no deficiencies have been
asserted against, and no notice of revocation or limitation of any Permit has
been received by Seller where such deficiency, limitation or revocation would
reasonably be expected to have a Material Adverse Effect on the Condition of the
Business, and to the best of Seller's knowledge, no such deficiency or notice is
threatened. Notwithstanding anything contained in this Agreement, no
representation is made in this Agreement with respect to compliance with the VAT
Laws or Orders of any country.
SECTION 4.12 Finders Fees. Except as set forth in Schedule 4.12, there is
------------ -------------
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of Seller who might be entitled to
any fee or commission from Buyer upon consummation of the Contemplated
Transactions.
-16-
SECTION 4.13 Intellectual Property Matters. In the conduct of the
-----------------------------
Business, the Seller does not own, possess or use any Trademark, trade name or
logo, or have any obligation in respect of, or any license or Contract relating
to, any Trademark, tradename or logo, except for those listed on Schedule 4.13.
-------------
The Seller owns or otherwise has the right to use, the Trademarks, trade names
and logos identified on Schedule 4.13 and to the knowledge of Seller, all other
-------------
Intellectual Property material to the conduct of the Business in the ordinary
course as it has heretofore been and is now being conducted except as disclosed
on Schedule 4.13. To the knowledge of Seller, none of such Intellectual
-------------
Property is subject to any Order or Permit. To the knowledge of Seller, the
Seller does not infringe, has not infringed upon, does not unlawfully or
wrongfully use and has not unlawfully or wrongfully used, any Intellectual
Property of, owned or claimed by another where the effect of such infringement,
unlawful or wrongful use would have a Material Adverse Effect on the Condition
of the Business. The Seller has not received any notice of, and is not aware of
any threat that any person may bring, any claim of infringement or any other
Claim or proceeding relating to such Intellectual Property. Except as disclosed
on Schedule 4.13, to the knowledge of the Seller, no person is infringing or is
-------------
engaging in the unauthorized use or misappropriation of any Intellectual
Property used by the Seller.
SECTION 4.14 Permits. Schedule 4.14 sets forth a list of all material
------- -------------
Permits held by Seller all of which are included in the Assets to the extent
assignable. In furtherance and not in limitation of the foregoing, Seller holds
a valid and unrevoked ISR license under the United Kingdom Telecommunications
Act, which authorizes it to operate switched systems and provide switched
telecommunications services to the public in the United Kingdom. Seller has not
received any notice of any intention to revoke said ISR license or any such
Permit.
SECTION 4.15 Insurance. Schedule 4.15 sets forth a true and correct
--------- -------------
summary list of all insurance coverage currently applicable to the Seller. All
such insurance coverage is current and will remain in full force and effect at
least through the Closing Date without the payment of additional premiums (other
than regularly scheduled additional premiums in the ordinary course) and is
valid, binding and enforceable in accordance with its terms against the
respective insurers except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to or affecting creditors' rights generally, and
subject to general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity). Within the past two (2) years, the
Seller has not been refused any insurance with respect to its assets or
operations and no claim by the Seller under the insurance policies has been
refused coverage by any insurer. To the best of the Seller's knowledge, no
insurer is the subject of insolvency proceedings. Except as set forth on
Schedule 4.15, the Seller does not have any knowledge of (i) any claim that is
- -------------
likely to be made against such policy or (ii) any set of facts giving rise to
any such claim. There is no material Default by the Seller with respect to any
provision contained in any such policy. The Seller has notified its insurance
carrier of all Litigation, claims and facts or incidents known to the Seller
which could reasonably give rise to a claim, all of which are set forth on
Schedule 4.15. The Seller has not received any notices from its insurance
- -------------
carrier disclaiming coverage as to any such notifications.
-17-
SECTION 4.16 Absence of Certain Commercial Practices. Neither the Seller
---------------------------------------
nor any officer or director, or, to the best of the Seller's knowledge, any
employee or agent, of the Seller (nor any person acting on behalf of any of the
foregoing) has given or agreed to give any bribe, gift or similar benefit to any
customer, supplier, governmental employee or official or any other person who is
or may be in a position to help, hinder or assist the Seller in connection with
any actual or proposed transaction relating to the Business of the Seller, which
bribes, gifts or benefits could individually or in the aggregate subject the
Seller or any officer, director, employee or agent of the Seller to any fine or
penalty, or to any criminal sanctions. No such bribe, gift or benefit is
required in connection with the operations of the Seller to avoid any fine,
penalty, or Material Adverse Effect.
SECTION 4.17 Environmental Laws and Regulations. (a) The Seller does not
----------------------------------
hold any Permits or other governmental authorizations pursuant to any
Environmental Law nor are any required to be so held by the Seller. The Seller
is in compliance in all material respects with Environmental Laws, which
compliance includes, but is not limited to, the possession by any person for
which the Seller provides services of all Permits and other governmental
authorizations required under applicable Environmental Laws to the extent that
the Seller has responsibility to obtain such Permits or authorizations. The
Seller has not received, and is not the subject of, any Environmental Claim or
any communication (written or oral), that alleges or asserts that the Seller is
not in such full compliance with all Environmental Laws. There are no known
circumstances that may prevent or interfere with such full compliance in the
future assuming the Seller's Business continues to be conducted in the future in
substantially the same manner as it has been to date.
(b) There are no Environmental Claims pending or threatened against
the Seller or, to the best of the Seller's knowledge, against any person whose
liability for such Environmental Claims the Seller, as the case may be, has or
may have retained, incurred or assumed, whether contractually or by operation of
law.
(c) There are no past or present actions, activities, omissions,
circumstances, conditions, releases, events or incidents, emissions, discharges
or disposals of any Material of Environmental Concern arising out of or
resulting from operations of the Seller which could result in a liability of
Buyer or the Seller for Environmental Claims.
(d) Without in any way limiting the foregoing, (i) all on-site and
off-site locations where the Seller has stored, disposed or arranged for the
disposal of Materials of Environmental Concern are identified in Schedule 4.17,
-------------
(ii) all underground storage tanks, and the capacity and contents of such tanks,
located on property owned by the Seller or known to exist or to previously exist
on property leased by the Seller are identified in Schedule 4.17, (iii) there is
-------------
no asbestos contained in or forming part of any building, building component,
structure or office space owned or, to the best of the Seller's knowledge,
operated, managed or leased by the Seller, and (iv) no polychlorinated biphenyls
are used or stored at any property owned or, to the best of the Seller's
knowledge, operated, managed or leased by the Seller.
SECTION 4.18 Veracity of Statements. No representation or warranty by
----------------------
Seller contained in this Agreement and no statement contained in any
certificate, Schedule or other
-18-
document or instrument furnished to the Buyer by Seller pursuant hereto contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make it not misleading or necessary to
provide the Buyer with proper information as to the Seller, the Business and the
Assets.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Each of Buyer and Guarantor severally represents and warrants to Seller
that:
SECTION 5.1 Authority Relative to This Agreement. Each of Buyer and
------------------------------------
Guarantor have full power and authority to execute and deliver the Transaction
Documents to which it is a party and to consummate the Contemplated
Transactions. The execution and delivery of the Transaction Documents, the
performance of Buyer's and Guarantor's obligations hereunder and thereunder and
the consummation of the Contemplated Transactions have been duly and validly
authorized and approved by the board of directors of each of Buyer or Guarantor
and no other corporate proceedings on the part of each of Buyer or Guarantor is
necessary to authorize the execution and delivery by Buyer of this Agreement or
the Guarantor of the Guaranty or the consummation of the Contemplated
Transactions to which it is a party. The Transaction Documents to which each of
Buyer or Guarantor is a party will have been duly and validly executed and
delivered by each of Buyer or Guarantor and (assuming the valid execution and
delivery thereof by the other parties thereto) constitute the legal, valid and
binding agreements of each of Buyer or Guarantor enforceable against each of
Buyer or Guarantor, in accordance with their respective terms, except as such
obligations and their enforceability may be limited by applicable bankruptcy and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies is subject to the discretion
of the court before which any proceeding therefor may be brought (whether at law
or in equity).
SECTION 5.2 No Conflicts; Consents. The execution, delivery and
----------------------
performance by each of Buyer or Guarantor of each Transaction Document to which
it is a party and the consummation of the Contemplated Transactions to which it
is a party do not and will not (i) violate any provision of the Certificate of
Incorporation or By-laws of each of Buyer or Guarantor; (ii) to the knowledge of
each of Buyer or Guarantor, require each of Buyer or Guarantor to obtain any
consent, approval or action of or waiver from, or make any filing with, or give
any notice to, any Governmental Body or any other person, except as set forth in
Schedule 5.2 (the "Buyer Required Consents"); (iii) if the Buyer Required
- ------------ -----------------------
Consents are obtained prior to the Closing, violate, conflict with or result in
the breach or Default under (after the giving of notice or the passage of time
or both), or permit the termination of, any material Contract to which each of
Buyer or Guarantor is a party or by which each of Buyer or Guarantor or its
assets may be bound or subject, (iv) to the knowledge of each of Buyer or
Guarantor, if the Buyer Required Consents are obtained prior to the Closing,
violate any Law or Order of any Regulatory Body against, or binding upon each of
Buyer or Guarantor; or (v) if the Buyer Required Consents are obtained prior to
Closing, violate any other United States Law or Order against, or binding upon,
each of Buyer or Guarantor, except where any
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violation of any such Law or Order would not reasonably be expected to have a
Material Adverse Effect on each of Buyer's or Guarantor's ability to consummate
the transactions contemplated hereby.
SECTION 5.3 Corporate Existence and Power. (a) Buyer is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of its
state of incorporation and has all requisite corporate powers required to carry
on its business as now conducted.
(b) Guarantor is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate powers required to carry on its business as now conducted.
SECTION 5.4 Finders Fees. There is no investment banker, broker, finder
------------
or other intermediary which has been retained by or is authorized to act on
behalf of Buyer or Guarantor which might be entitled to any fee or commission
from Seller upon consummation of the Contemplated Transactions.
SECTION 5.5 Financing. Each of Buyer or Guarantor has sufficient funds or
---------
has access to such financing as will enable it to consummate the Contemplated
Transactions.
ARTICLE VI
COVENANTS AND AGREEMENTS
SECTION 6.1 Conduct of Business of Seller. (a) From the date hereof
-----------------------------
through the Closing Date, Seller agrees that, unless it obtains Buyer's advance
written consent to do otherwise, which consent shall not be unreasonably
withheld or delayed, Seller shall:
(i) conduct its operations according to the ordinary and usual course
of business consistent with past practice, use reasonable efforts to preserve
and maintain the Assets and the good will of the Business and to use reasonable
efforts to preserve its relationships with employees, customers and suppliers,
and others having business dealings with Seller.
(ii) maintain in the ordinary course of business, consistent with past
practice and in accordance with all Contracts and Permits, the Equipment, the
Inventory and other tangible property in their present repair, order and
condition, subject to ordinary wear and tear and to the requirements of such
Contracts and Permits.
(iii) not incur any Liability (other than Liabilities incurred
in the ordinary course of business, consistent with past practice, which are not
in the aggregate material thereto), nor enter into any Contract of a type
required to be included on any Schedule hereto.
(iv) not undertake (nor permit to be undertaken) any of the actions
specified in Sections 4.5(a) through (c).
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(v) conduct the Business in such a manner so that the representations
and warranties of Seller contained herein shall continue to be true and correct
on and as of the Closing Date as if made on and as of the Closing Date.
(vi) consult with Buyer prior to any renewal, amendment, extension or
termination of, waiver of any material right under, or any failure to renew, any
Contract or Permit and will not take any such action if Buyer objects thereto in
writing.
SECTION 6.2 Corporate Examinations and Investigations. (a) Prior to the
-----------------------------------------
Closing Date, Seller agrees that Buyer shall be entitled, through its directors,
officers, Affiliates, employees, attorneys, accountants, representatives,
lenders, consultants and other agents (collectively, "Representatives") to make
---------------
such investigation of the Assets, the Business and operations of Seller, and
such examination of the books, records and financial condition of Seller, as
Buyer reasonably deems necessary. Any such investigation and examination shall
be conducted at reasonable times, under reasonable circumstances and upon
reasonable notice, and Seller shall cooperate therein. In that connection,
Seller shall make available to the Representatives of Buyer during such period,
without however causing any unreasonable interruption in the operations of
Seller, all such information and copies of such documents and records concerning
the affairs of Seller as such Representatives may reasonably request, shall
permit the Representatives of Buyer access to the Assets and all parts thereof
and to Seller's employees, customers, suppliers, contractors and others, and
shall cause Seller's Representatives to cooperate in connection with such review
and examination.
SECTION 6.3 Filings and Authorizations. Seller and Buyer, before or
--------------------------
within two business days after the execution and delivery of this Agreement,
shall file or supply, or cause to be filed or supplied, if required, all
notifications, reports and other information required to be filed or supplied
pursuant to the HSR Act in connection with the Contemplated Transactions and
which are required by Law to effectuate the consummation of the Contemplated
Transactions. Seller and Buyer shall cooperate with each other in connection
with such filings and furnish each other with copies of such filings and any
correspondence received from any Governmental Body in connection therewith.
Seller and Buyer, as promptly as practicable, shall make, or cause to be made,
all filings and submissions under such Laws as are applicable to them or to
their respective Affiliates, as may be required for them to consummate the
Contemplated Transactions in accordance with the terms of this Agreement and
shall furnish copies thereof to the other party prior to such filing and shall
not make any such filing or submission to which Buyer or Seller, as the case may
be, reasonably objects in writing. All such filings shall comply in form and
content in all material respects with applicable Law.
SECTION 6.4 Efforts to Consummate. Subject to the terms and conditions
---------------------
herein, each of Seller and Buyer, without payment or further consideration,
shall use its good faith efforts to take or cause to be taken all action and to
do or cause to be done all things necessary, proper or advisable under
applicable Laws and Orders to consummate and make effective, as soon as
reasonably practicable, the Contemplated Transactions, including, but not
limited to, Seller obtaining all Seller Required Consents and Buyer obtaining
all Buyer Required Consents and the parties obtaining all other consents of any
third party, whether
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private or governmental, required in connection with such party's performance of
such transactions and each party hereto shall cooperate with the other in all of
the foregoing.
SECTION 6.5 Negotiations With Others. From and after the date hereof
------------------------
unless and until this Agreement shall have terminated in accordance with its
terms, Seller agrees that neither Seller, nor any of its Affiliates or any
officer, director, employee, shareholder or other Representative of Seller or
its Affiliates, will directly or indirectly, solicit, engage in discussions or
engage in negotiations with any person (other than Buyer or any of its
Affiliates) with respect to an Acquisition Proposal.
SECTION 6.6 Notices of Certain Events. Prior to the Closing Date, Seller
-------------------------
and Buyer shall promptly notify the other of:
(a) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
Contemplated Transactions;
(b) any notice or other communication from any Governmental Body in
connection with the Contemplated Transactions; and
(c) any event, condition or circumstance occurring from the date
hereof through the Closing Date that would constitute a violation or breach of
any representation or warranty, whether made as of the date hereof or as of the
Closing Date, or that would constitute a violation or breach of any covenant of
any party contained in this Agreement.
SECTION 6.7 Public Announcements. Prior to the Closing Date, Seller and
--------------------
Buyer will consult with each other before issuing any press release or otherwise
making any statement to the public with respect to the Contemplated
Transactions, and will not issue any such press release or make any such public
statement without the prior approval of Buyer or Seller, as the case may be,
except as may be required by applicable Law, in which event the other party
shall have the right to review and comment upon (but not approve) any such press
release or public statement prior to its issuance.
SECTION 6.8 Confidentiality. (a) Each of Buyer, on the one hand, and
---------------
Seller, on the other hand, shall until the Closing, hold in strict confidence,
and shall use its best efforts to cause all its Representatives (including,
without limitation, the officers, directors, employees and consultants of
Seller) to hold in strict confidence, unless compelled to disclose by judicial
or administrative process, or by other requirements of Law, all confidential or
proprietary information concerning the Seller (in the case of Buyer) and Buyer
(in the case of the Seller) which is created or obtained prior to, on or after
the date hereof in connection with the Contemplated Transactions, and Buyer and
Seller each shall not use or disclose to others, or permit the use of or
disclosure of, any such information created or obtained except to the extent
that such information can be shown (i) to have been previously known by Buyer or
Seller as the case may be and (ii) to have been made known to Buyer or Seller,
as the case may be, from a third-party not in breach of any confidentiality
requirement or (iii) to have been made public through no fault of Buyer or
Seller, as the case may be, or any of their respective Representatives, and will
not release or disclose such information to any
-22-
other person, except its officers, directors, employees, Representatives and
lending institutions who need to know such information in connection with this
Agreement and who shall be advised of the provisions of this Section 6.8 and
shall agree to be bound by the terms hereof.
(b) In the event that a party (the "Disclosing Party") or its
----------------
Representatives are requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to make a disclosure in violation of the provisions of this
Section 6.8, it is agreed that the Disclosing Party will provide the other (the
"Other Party") with prompt notice of such request(s) so that the Other Party may
-----------
seek an appropriate protective order and/or waive compliance with the provisions
of this Agreement. If in the absence of a protective order or the receipt of a
waiver hereunder, the Disclosing Party or its Representatives are nonetheless,
in the opinion of the Disclosing Party's counsel, compelled to make any such
disclosure to any Governmental Body or else stand liable for contempt or suffer
other censure or penalty, the Disclosing Party or its Representative may make
any such disclosure to such Governmental Body without liability hereunder,
provided, however, that such disclosure may be made only after the Disclosing
Party has given the Other Party notice of such requirement and the Other Party
has had 48 hours (or such lesser time as is reasonably available) to obtain a
protective order or restrictions on any such requirement.
(c) If the Contemplated Transactions are not consummated, such
confidence shall be maintained except (i) as required by Law or (b) to the
extent such information is made public through no fault of Buyer or Seller, as
the case may be, or any of their respective Representatives. If the
Contemplated Transactions are not consummated and if requested by Seller or
Buyer, as the case may be, Buyer shall return to Seller all tangible evidence of
such information regarding Seller, and Seller shall return to Buyer all tangible
evidence of such information regarding Buyer.
(d) Prior to and following the Closing Date, Buyer shall hold in
strict confidence, and shall use its best efforts to cause all its
Representatives to hold in strict confidence, subject in each case to the same
exceptions as applicable to other confidentiality undertakings in this Section
6.8, all information and documentation concerning USFI, Inc.'s payment of its
liabilities, including, without limitation, settlements with carriers and other
creditors of Seller, TelePassport L.L.C. and TelePassport Network K.K.
SECTION 6.9 Expenses. Except as otherwise specifically provided in this
--------
Agreement, Buyer and Seller shall bear their respective expenses, in each case,
incurred in connection with the preparation, execution and performance of this
Agreement and the Contemplated Transactions, including, without limitation, all
fees and expenses of their respective Representatives.
SECTION 6.10 Employee Matters. (a) Subject to the provisions of Section
----------------
2.2, on the Closing Date, Buyer shall offer employment to such employees of the
Business as it shall determine in its sole discretion, which offer will include
Buyer's standard package of employee benefits, provided, however, that any offer
of employment shall be contingent upon the Closing actually occurring. Seller
has identified on Schedule 6.10 those employees
-------------
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of the Business who are on short term disability or long term disability leave.
All such employees who accept Buyer's offer of employment will become employees
of Buyer ("Transferred Employees") as of the Closing Date. Except as otherwise
---------------------
provided in this Agreement or in individual employment agreements, such
Transferred Employees shall not be eligible to participate in executive bonus or
stock compensation programs of the Buyer. Further, any Transferred Employees
shall not be credited with any period of service under Buyer's employee benefit
programs for any period preceding such Transferred Employees' date of hire.
With respect to any Transferred Employees, to the extent that such Transferred
Employees receive distributions from a tax-qualified plan maintained by Seller
that qualify as eligible rollover distributions pursuant to Section 401(a)(31)
of the Code, Buyer shall facilitate the acceptance of such eligible rollover
distributions by Buyer's 401(k) plan. Buyer shall have no liability with
respect to the Employee Benefit Plans, and no responsibility or obligation to
continue, terminate, or otherwise take responsibility for the Employee Benefit
Plans.
(b) Neither Buyer nor Seller intend this Section to create any rights
or interests, except as between Buyer and Seller, and no present or future
employees of either party (or any dependents of such employees) will be treated
or deemed as third party beneficiaries in or under this Agreement.
(c) Seller shall be responsible for all severance payments that are or
may become payable pursuant to individual severance contracts or severance plans
to any employees of the Business that are terminated as a result of the sale of
Assets pursuant to this Agreement, other than for Transferred Employees.
SECTION 6.11 Non-Solicitation. Until the earliest of (i) the consummation
----------------
of the Contemplated Transactions hereby, or (ii) six months from the date
hereof, Buyer agrees not to, directly or indirectly: (A) initiate or maintain
contact with any Representative or customer of Seller or any Subsidiary or
Affiliate, regarding (1) its business, operations, prospects or finances (except
in order to allow Buyer to complete its due diligence review and business
planning), or (2) business ventures, or (B) offer to employ or solicit for
employment any such officer, employee, director, agent, Representative or
customer, except, with respect to this subparagraph (B), with the express
written permission of Seller, which shall not be unreasonably withheld.
SECTION 6.12 Access and Cooperation. After the Closing and from time to
----------------------
time, each party hereto shall permit the other parties and their Representatives
to have access during regular business hours and upon reasonable notice, to
inspect and copy agreements, records, books and other documents that are
included in or relate to the Assets or the Business and identified with
reasonable particularity, wherever located, for the purposes of (i) preparing
Tax returns and financial statements and responding to Tax audits, and (ii)
prosecuting or defending any Claim, which arises out of or relates to the
Business or the Assets. Each party shall cooperate fully with the other party
in connection with the foregoing and in connection with the orderly transition
of the Business and Assets to the ownership of Buyer. If, after the Closing,
any party determines to destroy any agreements, records, books or documents
referred to above, it will give to the other party at least two months' prior
written notice thereof, and such other party shall have the right during such
-24-
two-month period upon reasonable notice and during regular business hours to
take possession of any such agreements, records, books or documents.
SECTION 6.13 Institutional Escrow Agreement. Within thirty (30) days
------------------------------
after the Closing Date, the Seller shall, at the request of Buyer, cause the
Escrow Funds to be transferred from the Escrow Agent to an institutional escrow
agent for the remainder of the Escrow Period. The identity of such
institutional escrow agent shall be mutually agreed upon by the parties hereto.
All fees and expenses of the institutional escrow agent shall be borne equally
by the parties.
SECTION 6.14 Charter Amendment. As soon as practicable after the Closing,
-----------------
Seller shall, and shall cause Mastercall, Ltd. to, prepare and file with its
respective jurisdiction of organization, an amendment to its Certificate of
Incorporation which shall change the name of such company to a dissimilar name.
SECTION 6.15 Accounts Payable. At Closing or shortly thereafter, Seller
----------------
shall pay the accounts payable set forth on Schedule 4.7. Seller shall also pay
------------
those Liabilities for services owed by Seller to those customers listed on
Schedule 4.7, which relate to service provided by Seller at any time prior to
- ------------
the Closing.
SECTION 6.16 Release from Liability. Seller will use its good faith
----------------------
efforts to obtain from any creditor with whom it reaches a compromise
settlement, an agreement pursuant to which such creditor agrees to release
Seller from any further obligations, provided that Seller complies with such
compromise settlement.
SECTION 6.17 US Cable Support. By its execution of this Agreement, US
----------------
Cable Corporation ("US Cable") agrees that, in the event that US Cable receives
--------
payment on the debt owed to it by Seller in excess of the amount it would have
received if all creditors of Seller on the date of Closing were paid a
proportionate amount of total payments to all such creditors on or after Closing
such that each received the same percentage of total debt owed to them, US Cable
shall to the extent of such excess, if any, and only to such extent, indemnify
and hold Buyer harmless against any claim made against Buyer by any creditor of
Seller with respect to an obligation of Seller arising prior to the Closing.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 Survival of Representations and Warranties. (a) Subject to
------------------------------------------
the provisions of Sections 7.1(b) and (c), all the representations, warranties,
covenants and agreements shall survive the execution and delivery of this
Agreement and the Closing hereunder.
(b) All representations and warranties of Seller contained in this
Agreement (other than the representations and warranties as to title in Section
4.6 which shall terminate and expire upon expiration of the applicable statute
of limitations) shall terminate and expire twelve months after the Closing Date;
provided, however, that the Liability of Seller shall
- -------- -------
-25-
not terminate as to any specific Claim or Claims of the type referred to in
Section 7.2 hereof, whether or not fixed as to Liability or liquidated as to
amount, with respect to which Seller has been given specific notice by Buyer on
or prior to the date on which such Liabilities would otherwise terminate
pursuant to the terms of this Section 7.1(b).
(c) All representations and warranties of Buyer shall terminate and
expire twelve months after the Closing Date; provided, however, that the
-------- -------
Liability of Buyer shall not terminate as to any specific Claim or Claims of the
type referred to in Section 7.3 hereof, whether or not fixed as to Liability or
liquidated as to amount, with respect to which Buyer has been given specific
notice by Seller on or prior to the date on which such Liability would otherwise
terminate pursuant to the terms of this Section 7.1(c).
SECTION 7.2 Obligation of Seller to Indemnify. Subject to the provisions
---------------------------------
of Section 7.5, Seller agrees to indemnify, defend and hold harmless Buyer (and
its respective directors, officers, employees, Affiliates, successors and
assigns) from and against all Claims, losses, Liabilities, damages,
deficiencies, judgments, settlements, costs of investigation or other expenses
(including interest, penalties and reasonable attorneys' fees and disbursements
and expenses incurred in enforcing this indemnification) (collectively, the
"Losses") suffered or incurred by Buyer or any of the foregoing persons as a
- -------
result of or arising out of (i) any breach of the representations and warranties
of Seller contained in this Agreement, the Schedules hereto or any other
Transaction Document, (ii) any breach of the covenants and agreements of Seller
contained in this Agreement, the Schedules hereto or any other Transaction
Document or (iii) any Retained Liabilities.
SECTION 7.3 Obligation of Buyer to Indemnify. Buyer agrees to indemnify,
--------------------------------
defend and hold harmless Seller (and any director, officer, employee, Affiliate
or successors and assigns of Seller) from and against any Losses suffered or
incurred by Seller or any of the foregoing persons arising out of (i) any breach
of the representations and warranties of Buyer or of the covenants and
agreements of Buyer contained in this Agreement, the Schedules hereto or any
other Transaction Documents or (ii) any Assumed Liabilities.
SECTION 7.4 Notice and Opportunity to Defend Third Party Claims. (a)
---------------------------------------------------
Promptly after receipt by any party hereto (the "Indemnitee") of notice of any
----------
demand, Claim or circumstance which would or might give rise to a Claim, or
after gaining knowledge thereof, or the commencement (or threatened
commencement) of any action, proceeding or investigation (an "Asserted
--------
Liability") that may result in a Loss, the Indemnitee shall give prompt notice
- ---------
thereof (the "Claims Notice") to the party or parties obligated to provide
-------------
indemnification pursuant to Section 7.2 or 7.3 (collectively, the "Indemnifying
------------
Party"). The Claims Notice shall describe the Asserted Liability in reasonable
- -----
detail and shall indicate the amount (estimated, if necessary, and to the extent
feasible) of the Loss that has been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to defend, at its own expense and
with its own counsel, any Asserted Liability unless (i) the Asserted Liability
seeks an Order, injunction or other equitable or declaratory relief against the
Indemnitee or (ii) the Indemnitee shall have reasonably concluded that (x) there
is a conflict of interest between the Indemnitee and the Indemnifying Party in
the conduct of such defense or (y) the Indemnitee
-26-
shall have one or more defenses not available to the Indemnifying Party. If the
Indemnifying Party has the right and elects to defend such Asserted Liability,
it shall within thirty (30) days (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnitee of its intent to do so, and the
Indemnitee shall cooperate, at the expense of the Indemnifying Party, in the
defense of such Asserted Liability. If the Indemnifying Party elects not to
defend the Asserted Liability, is not permitted to defend the Asserted Liability
by reason of the first sentence of this Section 7.4(b), fails to notify the
Indemnitee of its election as herein provided, or contests its obligation to
indemnify under this Agreement with respect to such Asserted Liability, the
Indemnitee may pay, compromise or defend such Asserted Liability at the sole
cost and expense of the Indemnifying Party (provided that the Indemnifying Party
is obligated hereunder for the cost and expense of the underlying Claim).
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any Claim over the reasonable written objection of the
other, provided that the Indemnitee may settle or compromise any Claim as to
--------
which the Indemnifying Party has failed to notify the Indemnitee of its election
under this Section 7.4(b) or as to which the Indemnifying Party is contesting
its indemnification obligations hereunder. In any event, the Indemnitee and the
Indemnifying Party may participate, at its own expense, in the defense of any
Asserted Liability. If the Indemnifying Party chooses to defend any Asserted
Liability, the Indemnitee shall make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense. Any Losses of any Indemnitee for which
indemnification is available hereunder shall be paid upon written demand
therefor.
SECTION 7.5 Limits on Indemnification. (a) Buyer's remedies with respect
-------------------------
to Losses specified in Sections 7.2 shall be satisfied first by the assertion of
its rights under the Escrow Agreement in respect of the Escrow Funds; provided,
--------
however, that if the aggregate amount of such Losses shall be in excess of the
- -------
amount of the Escrow Funds or if such Losses shall arise after termination or
expiration of the Escrow Agreement, then Seller shall be obligated to indemnify
Buyer in respect of all Losses not satisfied by delivery to Buyer of Escrow
Funds to the extent provided in this Article VII.
(b) Seller shall not be liable to Buyer for any Loss arising under
Section 7.2 (i) or (ii) above, and Buyer shall not be liable to Seller for any
Loss arising under Section 7.3 above, unless the aggregate amount of all such
Losses exceeds $50,000 in the aggregate (the "Stipulated Amount"), in which case
-----------------
Seller or Buyer, as the case may be, shall be liable for the full amount of such
Losses in excess of the Stipulated Amount. Notwithstanding any provision of
this Agreement: (i) Seller shall not be obligated to pay, in the aggregate, an
amount in excess of the Purchase Price pursuant to the provisions of this
Article VII; and (ii) for purposes of computing Loss with respect to a
misrepresentation under Section 4.5(d), the Loss shall be deemed to equal the
amount, if any, by which the actual average monthly negative EBITDA exceeds an
average monthly negative EBITDA of $400,000.
SECTION 7.6 Exclusive Remedy. Except as otherwise explicitly provided in
----------------
this Agreement, the parties agree that the indemnification provisions of this
Article VII shall constitute the parties' sole and exclusive remedies in respect
of this Agreement and the Contemplated Transactions (other than Claims in the
nature of fraud).
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ARTICLE VIII
TERMINATION
SECTION 8.1 Termination. (a) This Agreement may be terminated and the
-----------
Contemplated Transactions may be abandoned at any time prior to the Closing:
(i) By mutual written consent of Seller and Buyer;
(ii) By Seller, if (A) there has been a material misrepresentation or
breach of warranty on the part of Buyer in the representations and warranties
contained herein and such material misrepresentation or breach of warranty, if
curable, is not cured within 30 days after written notice thereof from Seller;
(B) Buyer has committed a material breach of any covenant imposed upon it
hereunder and fails to cure such breach within 30 days after written notice
thereof from Seller; or (C) any condition to Seller's obligations hereunder
becomes incapable of fulfillment through no fault of Seller and is not waived by
Seller.
(iii) By Buyer, if (A) there has been a material misrepresentation or
breach of warranty on the part of Seller in the representations and warranties
contained herein and such material misrepresentation or breach of warranty, if
curable, is not cured within 30 days after written notice thereof from Buyer;
(B) Seller has committed a material breach of any covenant imposed upon it
hereunder and fails to cure such breach within 30 days after written notice
thereof from Buyer; or (C) any condition to Buyer's obligations hereunder
becomes incapable of fulfillment through no fault of Buyer and is not waived by
Buyer.
(iv) By Seller or by Buyer, if there shall be any Law that makes
consummation of the Contemplated Transactions illegal or otherwise prohibited,
or if any Order enjoining Seller or Buyer from consummating the Contemplated
Transactions is entered and such Order shall have become final and
nonappealable; and
(v) By Seller or Buyer, if the Closing shall not have occurred on or
before October 31, 1997; provided that no party may terminate this Agreement
pursuant to this clause if such party's failure to fulfill any of its
obligations under this Agreement shall have been the reason that the Closing
shall not have occurred on or before said date.
(b) Any party seeking to terminate this Agreement pursuant to the
provisions of Section 8.1(a) shall give prompt written notice thereof to the
other party specifying in reasonable detail the basis therefor.
SECTION 8.2 Effect of Termination; Right to Proceed. In the event that
---------------------------------------
this Agreement shall be terminated pursuant to Section 8.1, all obligations of
the parties under the Agreement shall terminate without further Liability of any
party hereunder except (i) to the extent that a party has made a material
misrepresentation hereunder or committed a breach of any material covenant and
agreement imposed upon it hereunder; (ii) to the extent that any condition to a
party's obligations hereunder became incapable of fulfillment because
-28-
of the breach by a party of its obligations hereunder and (iii) that the
agreements contained in Sections 6.8, 6.9 and 6.11 shall survive the termination
hereof. In the event that a condition precedent to its obligation is not met,
nothing contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
Contemplated Transactions.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Notices. (a) Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier, telecopied or mailed (by registered or
certified mail, postage prepaid) as follows:
(i) If to Seller, one copy to:
c/o US Cable Corporation
28 West Grand Avenue
Montvale, New Jersey 07645
Telecopier (201) 930-9232
Attn: James D. Pearson
with a copy to:
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5941
Attn: Stanley E. Bloch, Esq.
(ii) If to Buyer, one copy to:
Primus Telecommunications, Inc.
2070 Chain Bridge Road
Vienna, Virginia 22182
Telecopier: (703) 902-2814
Attn: K. Paul Singh
-29-
with a copy to:
Pepper Hamilton & Scheetz LLP
3000 Two Logan Square
Philadelphia, PA 19103
Telecopier: (215) 981-4750
Attn: Julia D. Corelli, Esq.
(b) Each such notice or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in Section 9.1(a) (with confirmation of transmission) or (ii) if given
by any other means, when delivered at the address specified in Section 9.1(a).
Any party by notice given in accordance with this Section 9.1 to the other party
may designate another address (or telecopier number) or person for receipt of
notices hereunder. Notices by a party may be given by counsel to such party.
SECTION 9.2 Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits hereto) and the other Transaction Documents executed in connection with
the consummation of the Contemplated Transactions contain the entire agreement
among the parties with respect to the subject matter hereof and related
transactions and supersede all prior agreements, written or oral, with respect
thereto.
SECTION 9.3 Waivers and Amendments; Non-Contractual Remedies; Preservation
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of Remedies. This Agreement may be amended, superseded, cancelled, renewed or
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extended only by a written instrument signed by Seller and Buyer. The
provisions hereof may be waived in writing by the party to be charged therewith.
No delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. Except as
otherwise provided herein, the rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity.
SECTION 9.4 Governing Law. This Agreement shall be governed and construed
-------------
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State, without regard to the
conflict of laws rules thereof.
SECTION 9.5 Binding Effect; No Assignment. This Agreement and all of its
-----------------------------
provisions, rights and obligations shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors, heirs and legal
representatives. This Agreement may not be assigned (including by operation of
Law) by a party without the express written consent of Buyer (in the case of
assignment by Seller) or Seller (in the case of assignment by Buyer) and any
purported assignment, unless so consented to, shall be void and without effect.
Nothing herein express or implied is intended or shall be construed to confer
upon or to give anyone other than the parties hereto and their respective heirs,
legal representatives and successors any rights or benefits under or by reason
of this Agreement and no other party shall have any right to enforce any of the
provisions of this Agreement.
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SECTION 9.6 Exhibits and Schedules. All Exhibits and Schedules attached
----------------------
hereto are hereby incorporated by reference into, and made a part of, this
Agreement. The disclosure contained in any one Schedule to this Agreement, if
by its description is applicable to other sections hereof, will also be deemed
to have been made with respect to such other sections even if such disclosure is
not repeated in any other sections.
SECTION 9.7 Severability. If any provision of this Agreement for any
------------
reason shall be held to be illegal, invalid or unenforceable, such illegality
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such illegal, invalid or unenforceable provision had never
been included herein.
SECTION 9.8 Counterparts. The Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts hereof, individually or taken together, shall bear
the signatures of all of the parties reflected hereon as the signatories.
SECTION 9.9 Third Parties. Except as specifically set forth or referred
-------------
to herein, nothing herein express or implied is intended or shall be construed
to confer upon or give to any person other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement or the Contemplated Transactions.
SECTION 9.10 Further Assurances. At any time and from time to time after
------------------
the Closing Date, upon the request of Buyer, Seller will do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged or
delivered, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney or assurances as may be reasonably required for the better
transferring, assigning, conveying, granting, assuring and confirming to Buyer,
or for aiding and assisting in the collection of or reducing to possession by
Buyer, any of the Assets to be transferred, conveyed and assigned hereunder or
to vest in Buyer all of Seller's right, title and interest in and to the Assets
being conveyed hereunder. Seller and Buyer will each, respectively, bear their
own costs and expenses incurred in compliance with its obligations under this
Section 9.10.
SECTION 9.11 Guaranty. By its execution of this Agreement, Primus
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Telecommunications Group, Incorporated (the "Guarantor") guarantees the full,
---------
complete and timely performance of all of Buyer's obligations under each of the
Transaction Documents (the "Guaranty").
--------
ARTICLE X
DEFINITIONS
SECTION 10.1 Definitions. (a) The following terms, as used herein, have
-----------
the following meanings:
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"Acquisition Proposal" shall mean any proposal for the acquisition of, or
--------------------
merger or other business combination involving Seller or the sale of any equity
interest in, or the Business or any assets of, Seller (except in the ordinary
course), other than the transactions contemplated by this Agreement.
"Affiliate" of any person means any other person directly or indirectly
---------
through one or more intermediary persons, controlling, controlled by or under
common control with such person.
"Agreement" or "this Agreement" shall mean, and the words "herein",
--------- -------------- ------
"hereof" and "hereunder" and words of similar import shall refer to, this
------ ---------
agreement as it from time to time may be amended.
The term "audit" or "audited" when used in regard to financial statements
----- -------
shall mean an examination of the financial statements by a firm of independent
certified public accountants in accordance with generally accepted auditing
standards for the purpose of expressing an opinion thereon.
"Certificate of Incorporation" shall mean, in the case of any corporation,
----------------------------
the certificate of incorporation, articles of incorporation or charter of a
corporation, howsoever denominated under the laws of the jurisdiction of its
incorporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Contract" shall mean any contract, agreement (including, without
--------
limitation, any collective bargaining agreement), indenture, note, bond, lease,
conditional sale contract, memorandum of understanding, mortgage, license,
franchise, instrument, commitment or other binding arrangement, whether written
or oral, and all modifications and amendments thereto and substitutions thereof.
The term "control", with respect to any person, shall mean the power to
-------
direct the management and policies of such person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to the
----------- ----------
foregoing.
"Copyrights" shall mean registered copyrights, copyright applications and
----------
unregistered copyrights.
"Debt" shall mean (i) money borrowed by Seller from any person; (ii) any
----
indebtedness of Seller arising under leases required to be capitalized under
GAAP or evidenced by a note, bond, debenture or similar instrument; (iii) any
indebtedness of Seller arising under purchase money obligations or representing
the deferred purchase price of property and services (other than current trade
payables incurred in the ordinary course of the Business) and (iv) any Liability
of Seller under any guaranty, letter of credit, performance credit or other
agreement having the effect of assuring a creditor against loss.
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"Default" shall mean (a) a breach of or default under any Contract or
-------
Permit (b) the occurrence of an event which with the passage of time or the
giving of notice or both would constitute a breach of or default under any
Contract or Permit, or (c) 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
damages, specific performance, termination, renegotiation or acceleration under
any Contract or Permit.
"Deferred Compensation Liabilities" shall mean all payments required to be
---------------------------------
made by Seller under any Employee Benefit Plan.
"Environmental Claim" shall mean any action, cause of action, claim,
-------------------
investigation, demand or notice (written or oral) by any person alleging
liability or potential lability (including, but not limited to liability or
potential liability for, or requirement to incur, investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or resulting from (x)
the presence, release or threat of release into the environment, of any Material
of Environmental Concern (as hereinafter defined) at any location, whether or
not owned by the Seller, (y) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law.
"Environmental Law" shall mean any federal, state, local or foreign law,
-----------------
rule or regulation relating to pollution or protection of human health or the
environment (including but not limited to ambient air, surface water, ground
water, land surface or subsurface strata), including, but not limited to, any
law, rule or regulation relating to or regulating emissions, discharges, clean-
up, releases or threatened releases or the presence of Materials of
Environmental Concern, or otherwise relating to or regulating the manufacture,
processing, clean-up, distribution, labeling, use, treatment, storage, disposal,
ownership, possession, transport or handling of Materials of Environmental
Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Escrow Agent" shall mean Baer Marks & Upham LLP.
------------
"GAAP" shall mean generally accepted accounting principles in effect on the
----
date hereof as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
"Intellectual Property" shall mean Copyrights, Patents, Trademarks, trade
---------------------
names, brandnames, brandmarks, logos, licenses, computer software, computer
systems and related proprietary documentation, trade secrets, inventions and
proprietary technology, formulae, processes and know-how.
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"IRS" shall mean the Internal Revenue Service.
---
The "knowledge" of Seller shall mean the actual knowledge of any
---------
shareholder, officer or director of Seller; and "knows" has a correlative
meaning.
"Liability" shall mean any direct or indirect indebtedness, liability,
---------
assessment, claim, loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, choate or inchoate, punitive, consequential, liquidated or
unliquidated, secured or unsecured, accrued, absolute, actual or potential,
contingent or otherwise (including any liability under any guaranties, letters
of credit, performance credits or with respect to insurance loss accruals).
"Lien" shall mean, with respect to any Asset, any mortgage, lien (including
----
federal, state, local and foreign Tax liens), security interest, pledge,
negative pledge, encumbrance, assessment, title retention agreement, restriction
or restraint on transfer, defect of title, charge in the nature of a lien or
security interest, or option (whether consensual, compensatory, statutory or
otherwise) or any conditional sale contract, title retention contract or other
contract to give any of the forgoing, or any rights or option of any kind with,
to or in any third party to acquire the asset subject to the Lien.
"Litigation" shall mean any action, lawsuit, arbitration, criminal
----------
prosecution, administrative or other proceeding or investigation asserting a
violation of any Law or Order, by, before or for any Governmental Body.
"Materials of Environmental Concern" shall mean chemicals, pollutants,
----------------------------------
contaminants, solid or hazardous wastes, toxic substances, radioactive
materials, hazardous substances (including petroleum or its by-products), or
similar substances as those terms are or may be defined in any Environmental
Law.
"Patents" shall mean all patents, patent registrations and patent
-------
applications.
The term "person" shall mean an individual, corporation, partnership, joint
------
venture, association, trust, unincorporated organization or other entity,
including a government or political subdivision or an agency or instrumentality
thereof.
"Reportable Event" shall mean any of the events described in Section
----------------
4043(b)(1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Seller Required Consents" shall mean those Seller Consents on Schedule 4.7
------------------------ ------------
which are asterisked, if any.
"Subsidiary" shall mean any person of which securities or other ownership
----------
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly through one or more intermediaries, or both, by Seller or Buyer.
"Taxes" shall mean all federal, state, local or foreign Taxes, charges,
-----
fees, levies or other assessments, including but not limited to all net income,
gross income, gross receipts,
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sales, use, ad valorem, transfer, franchise, profits, withholdings, payroll,
employment, social security, unemployment, exercise, estimated, stamp,
occupation, property or other Taxes, customs duties, fees, assessments or
charges of any kind whatsoever, including all interest and penalties thereon,
and additions to Tax or additional amounts imposed by any taxing authority,
domestic or foreign, upon the Seller or any of its properties or assets.
"Trademarks" shall mean registered trademarks, registered service marks,
----------
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" shall mean, collectively, this Agreement, and each
---------------------
of the other agreements and instruments to be executed and delivered by all or
some of the parties hereto in connection with the consummation of the
transactions contemplated hereby.
(b) The following terms are defined in the following sections of this
Agreement:
Term Section
- ---- -------
Annual Statements 4.4
Asserted Liability 7.4(a)
Assets 1.1(a)
Assumed Liabilities 1.2(a)
Assumption Agreement 3.2(e)(v)
Bill of Sale 3.3(e)(v)
Business Recital
Buyer Recital
Buyer Required Consents 5.2
Claims 4.8
Claims Notice 7.4(a)
Closing 1.5
Closing Date 1.5
Condition of the Business 4.5(d)
Contemplated Transactions 4.1
Disclosing Party 6.8(b)
EBITDA 4.5(d)
Employee Benefit Plans 4.9
Employment Agreements 2.2
Equipment 1.1(a)
ERISA Affiliate 4.9
ERISA Plans 4.9
Escrow Agreement 1.3(b)
Escrow Funds 1.3(b)
Excluded Assets 1.1(b)
Governmental Bodies 4.11
Guarantor 9.11
Guaranty 9.11
Indemnifying Party 7.4(a)
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Indemnitee 7.4(a)
Intellectual Property Rights 1.1(a)
Interim Statements 4.4(a)
Inventory 1.1(a)
Latest Balance Sheet 4.6(a)(i)
Latest Balance Sheet Date 4.5
Laws 4.11
Losses 7.2
Material Adverse Effect 4.5(d)
Orders 4.11
Other Party 6.8(b)
Permits 1.1(a)
Permitted Liens 4.6(a)
Purchase Price 1.3(a)
Receivables 1.1(b)
Representatives 6.2
Retained Liabilities 1.2(c)
Seller Recital
Seller Consents 4.2
Stipulated Amount 7.5(b)
TelePassport Purchase Agreement 2.1(a)
Transferred Employees 6.10(a)
US Cable 6.17
SECTION 10.2 Interpretation. Unless the context otherwise requires, the
--------------
terms defined in Section 10.1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. All accounting terms defined in Section 10.1,
and those accounting terms used in this Agreement not defined in Section 10.1,
except as otherwise expressly provided herein, shall have the meanings
customarily given thereto in accordance with GAAP. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
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IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase
Agreement as of the date set forth above.
USFI, INC.
By: /s/ James D. Pearson
----------------------------
Name: James D. Pearson
Title: President
PRIMUS TELECOMMUNICATIONS, INC.
By: /s/ Neil L. Hazard
----------------------------
Name: Neil L. Hazard
Title: Treasurer
With respect to Section 6.17:
US CABLE CORPORATION
By: /s/ James D. Pearson
----------------------------
Name: James D. Pearson
Title: President
Guaranteed by:
PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED
By: /s/ Neil L. Hazard
----------------------------
Name: Neil L. Hazard
Title: Executive Vice President
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