SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): December 17, 1998
FRONTLINE COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Delaware 0-24223 13-3950283
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914)623-8553
Not Applicable
Former name or former address, if changed since last report
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Item 2. Acquisition of Assets.
Acquisition of Webspan, Inc.
On December 17, 1998, the Company acquired substantially all of the assets
used in the business of Webspan Communications, Inc. ("Webspan") in
consideration of $500,000 in cash and an aggregate of 113,364 shares of the
Company's Common Stock. At the time of the acquisition, Webspan was an internet
service provider with approximately 9,000 individual and business subscribers in
New York and New Jersey. The purchase price is subject to downward adjustment
under certain circumstances ninety (90) days following the closing of the
acquisition.
The source of the consideration paid in the foregoing transaction was
authorized but unissued shares of Common Stock of the Company and cash on hand.
The amount of consideration paid by the Company in connection with the
transactions was determined by arm's-length negotiations.
The descriptions of the agreements discussed above are qualified in their
entirety by reference to such agreements, which are attached as exhibits and are
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of the Business Acquired.
Audited financial statements relating to the acquisitions will be
filed by amendment within 60 days of the date this Report was required to
be filed.
(b) Pro Forma Financial Information and Exhibits.
Pro Forma financial information relating to the acquisitions will be
filed by amendment within 60 days of the date this report was required to
be filed.
(c) Exhibits
Exhibit 1 - Asset Purchase Agreement dated as of November 24, 1998 by
and among the Company, Webspan, and the sole stockholder of Webspan
(Schedules Omitted).
Exhibit 2 - Amendment to Asset Purchase Agreement dated December 17,
1998 by and among the Company, Webspan, and the sole stockholder of
Webspan (Schedules Omitted).
Exhibit 3 - Form of Registration Rights Agreement among the Company
and the sole stockholder of Webspan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 23, 1998
FRONTLINE COMMUNICATIONS CORP.
By /s/ Stephen J. Cole-Hatchard
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Name: Stephen J. Cole-Hatchard
Title: Chief Executive Officer
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ASSET PURCHASE AGREEMENT
AGREEMENT dated as of November 24, 1998 (the "Agreement"), by and among
Frontline Communications Corp. ("Purchaser") a Delaware Corporation, having an
address at One Blue Hill Plaza, Suite 1548, Pearl River, New York, Webspan
Communications, Inc. ("Seller"), a New Jersey Corporation having an address at
500 West Kennedy Blvd., Lakewood, New Jersey and David Lichtenstein, the sole
stockholder of Seller (the "Stockholder").
W I T N E S S E T H :
WHEREAS, the Stockholder is the sole owner of all of the issued and
outstanding shares of capital stock of Seller; and
WHEREAS, Seller is in the business of providing dial-up internet service to
individuals and businesses in the New York and New Jersey (the "Business"); and
WHEREAS, Seller wishes to sell to Purchaser, and Purchaser wishes to
purchase from Seller, substantially all of the properties and assets of Seller,
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. Purchase and Sale.
1.1. Purchase and Sale Agreement. Subject to the terms and conditions
set forth in this Agreement and in reliance upon the representations,
warranties, covenants and conditions herein contained, on the Closing Date
(as defined in Section 2 hereof) Seller shall sell, convey, assign,
transfer and deliver to Purchaser and Purchaser shall purchase from Seller
the Purchased Assets (as defined in Section 1.2 hereof), free and clear of
any and all liens, claims, security interests, pledges, mortgages, charges
and encumbrances of any nature whatsoever other than the liens reflected on
Schedule 1.1.
1.2. Purchased Assets.
As used in this Agreement, the term "Purchased Assets" shall mean all
of the properties and assets owned by the Seller or otherwise employed,
used or available for use in the Business, real and personal, tangible and
intangible, of every kind and nature, wherever located, including: 1) all
assets, trademarks, tradenames, service marks, patents, contracts and other
similar rights; 2) all dial-up, dedicated,
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leased-line, corporate and similar accounts (including approximately 9,000
internet service subscribers, and an annualized revenue base of
approximately $1.5 million; 3) all other customer and client bases; 4) all
rights and interest to all potential and actual future dial-up and
dedicated subscribers, including those contacting Seller for the purpose of
obtaining dial-up internet access and web development and hosting; 5) all
hardware and equipment (including but not limited to routers, servers and
modems), software and related assets, including e-mail servers, systems and
addresses; 6) all web servers, systems and addresses; 7) all telephone
numbers, services, contracts and leases set forth on Schedule 1.2; 8) all
rights and interest in all current marketing and advertising contracts,
materials and efforts, including but not limited to the current telephone
yellow page ads; 9) all rights to Seller's name and logos; 10) the
"webspan.net" domain name; 11) all accounts and notes receivable, cash and
cash equivalents; and 12) two year non-compete agreements entered into by
the Stockholder, and all partners, owners, officers and directors of
Seller, as relating to the ownership, operations of, or employment in an
internet service provider or other web services company competing with
Purchaser. Notwithstanding the foregoing, Purchaser shall have the option
upon written notice to the Seller, at least five days prior to the Closing
Date, to exclude any of the assets from the Purchased Assets.
1.3. Assumed Liabilities. Subject to the terms and conditions set
forth in this Agreement and in reliance upon the representations,
warranties, covenants and conditions herein contained, on the Closing Date,
Purchaser shall assume, and shall only assume Seller's obligations under
the executory contracts which are included among the Purchased Assets, as
set forth on Schedule 1.2, but only to the extent that they represent
obligations which are by their stated terms to be performed, in the
ordinary course, subsequent to the Closing Date (the "Assumed
Liabilities"); provided, however, that anything in this Agreement contained
to the contrary notwithstanding, liabilities and obligations of Seller, the
existence of which constitutes a breach of any of the representations or
warranties made by Seller in this Agreement or in any document delivered by
it pursuant hereto, including, without limitation, any liability for income
or other taxes, penalties and interest thereon, accrued or assessed against
the Company by any governmental authority prior the Closing Date, shall not
constitute Assumed Liabilities.
1.4. Consideration
(a) Subject to paragraph (b) below, in full consideration of the
Purchased Assets, Purchaser shall pay to Seller on the Closing Date
$500,000 cash (the "Cash Consideration"); and $500,000 in unregistered
common stock of the Purchaser ("Purchaser Common Stock") with a value based
upon the average closing price of Purchaser Common Stock on the NASDAQ
SmallCap Market for the thirty (30) trading days immediately preceding the
Closing (the "Share Consideration"). In no event, however, shall the number
of shares of the Purchaser's Common Stock be greater than 200,000 shares or
less than 100,000 shares. The Cash Consideration and the Share
Consideration is hereafter collectively referred to as the "Purchase
Price."
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(b) To the extent that on the ninetieth day following the Closing
Date, the number of subscribers to the Business is less than 7,200 (the
"Shortfall") (including, for purposes of determining the Shortfall, any
subscriber whose service is provided on a complimentary basis), the
Purchase Price shall be reduced by an amount equal to $50 multiplied by the
number of subscribers representing the Shortfall; provided that such
Shortfall is not directly related to Purchaser's failure to (i) maintain
Seller's Web page during the ninety day period following the Closing Date,
or (ii) provide a substantially similar level of subscriber service as
Seller. At the Closing, Seller shall place in escrow with Purchaser's
attorney a number of shares of Purchaser Common Stock having a value equal
to $100,000 as determined in subparagraph (a) above (the "Escrow Shares")
pursuant to the escrow agreement (the "Escrow Agreement") substantially in
the form of Exhibit A attached hereto.
2. The Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8, the closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Purchaser as promptly as
practicable (and in any event within five business days) after satisfaction or
waiver of the conditions set forth in Section 7 but in no event later than
December 15, 1998 (the "Closing Date"); or such later date as shall have been
fixed by a written instrument signed by the parties.
2.1. Deliveries by Purchaser at the Closing. At the Closing, Purchaser
shall deliver the following:
(a) copies of resolutions adopted by the Board of Directors of
Purchaser authorizing Purchaser to execute and deliver the Purchaser
Documents (defined herein) to which it is a party and to perform its
obligations thereunder, upon the terms and subject to the conditions
set forth therein, duly certified by the Secretary or Assistant
Secretary of Purchaser;
(b) certificate of the Secretary or Assistant Secretary of
Purchaser certifying as to the incumbency and specimen signatures of
the officers of Purchaser executing the Purchaser Documents on behalf
of such corporation;
(c) the Cash Consideration as set forth in Section 1.4(a);
(d) the stock certificate representing the Share Consideration as
set forth in Section 1.4(b); and
(e) a registration rights agreement (the "Registration Rights
Agreement") in the form and substance attached hereto as Exhibit B.
2.2. Deliveries by Seller and/or the Stockholder at the Closing. At
the Closing, Seller and/or the Stockholder, as applicable, shall deliver to
Purchaser, the following:
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(a) copies of resolutions adopted by the Board of Directors and
the sole stockholder of Seller authorizing Seller to execute and
deliver the Seller Documents (defined herein) to which it is a party
and to perform its obligations thereunder, upon the terms and subject
to the conditions set forth therein, duly certified by the Secretary
or Assistant Secretary of Seller;
(b) certificate of the Secretary or Assistant Secretary of Seller
certifying as to the incumbency and specimen signatures of the
officers of Seller executing the Seller Documents on behalf of such
corporation;
(c) legal opinion of Mendel Zilberberg & Associates, P.C.,
counsel for Seller and the Stockholder in the form and substance
attached hereto as Exhibit C;
(d) the Registration Rights Agreement duly executed by the
Stockholder;
(e) Certificate of Amendment of the Certificate of Incorporation
of Seller relating to a change of name to a name dissimilar to
"Webspan" (and related documents); and
(f) Bill of Sale and Assignment pursuant to Section 6.13 in the
form and substance attached hereto as Exhibit D.
(g) the Escrow Agreement and the Escrow Shares, together with
stock powers duly endorsed for transfer.
2.3. Other Deliveries. In addition, the parties shall execute and
deliver such other documents as may be required by this Agreement and as
either of them or their respective counsel may reasonably require in order
to document and carry out the transactions contemplated by this Agreement.
3. Representations and Warranties as to Seller. Each of the Stockholder and
Seller, jointly and severally, represents and warrants to Purchaser as follows:
3.1. Organization, Standing and Power. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New Jersey, with full corporate power and corporate authority to
(i) own, lease and operate its properties, (ii) carry on the Business as
currently conducted by it and (iii) execute and deliver, and perform under
this Agreement and each other agreement and instrument to be executed and
delivered by it pursuant hereto. There are no states or jurisdictions in
which the character and location of any of the properties owned or leased
by Seller, or the conduct of the Business makes it necessary for Seller to
qualify to do business as a foreign corporation. True and complete copies
of the Certificate of Incorporation of Seller and all amendments thereof,
and of the By-Laws
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of Seller, as amended to date, have heretofore been furnished to Purchaser.
3.2. Capitalization. The authorized capital stock of Seller consists
of 1,000 shares of common stock, no par value (the "Seller Common Stock"),
of which 1,000 shares of Common Stock are outstanding. All of the Seller
Common Stock is duly authorized, validly issued, fully paid and
nonassessable. The Stockholder is the owner of all outstanding shares of
Seller Common Stock. There are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of Seller or obligating Seller to issue or
sell any shares of capital stock of or other equity interests in Seller.
3.3. Ownership of Seller Common Stock. The Stockholder has good and
marketable title to all of the issued and outstanding shares of Seller
Common Stock, free and clear of any and all liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever (the "Liens"), and on the Closing Date will own all of such
Seller Common Stock, free and clear of any and all Liens, including, but
not limited to, any claims by any present or former stockholder of Seller.
3.4. Interests in Other Entities.
(a) There are no direct or indirect subsidiaries of Seller.
(b) The Stockholder does not (individually or jointly) own,
directly or indirectly, of record or beneficially, any shares of
voting stock or other equity securities of any other corporation
engaged in the same or similar business to that business engaged in by
Seller at the Closing Date (other than not more than one percent
(4.9%) of the publicly-traded capital stock of corporations engaged in
such business held solely for investment purposes); nor does he have
any ownership interest, direct or indirect, of record or beneficially,
in any unincorporated entity engaged in the same or similar business
to that business engaged in by Seller at the Closing Date.
3.5. Authority. The execution and delivery by Seller of this Agreement
and of all of the agreements to be executed and delivered by Seller
pursuant hereto (collectively, the "Seller Documents"), the performance by
Seller of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action on the part of Seller
(including, but not limited to, the unanimous consents of the Board of
Directors of Seller and of the Stockholder) and Seller has all necessary
corporate power and corporate authority with respect thereto. The
Stockholder is an individual having all necessary capacity, power and
authority to execute and deliver this Agreement and such other agreements
to be executed and delivered by him pursuant hereto (collectively, the
"Stockholder Documents") and to consummate the transactions contemplated
hereby and thereby. This Agreement is, and when
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executed and delivered by Seller and the Stockholder, each of the other
agreements to by delivered by either or both of them pursuant hereto will
be, the valid and binding obligations of the Seller and the Stockholder, to
the extent they are parties thereto, in accordance with their respective
terms.
3.6. Noncontravention. Neither the execution and delivery by Seller or
the Stockholder of this Agreement or of any other Seller Documents or
Stockholder Documents to be executed and delivered by either or both of
them, nor the consummation of any of the transactions contemplated hereby
or thereby, nor the performance by either or both of them of any of their
respective obligations hereunder or thereunder, will (nor with the giving
of notice or the lapse of time or both would) (a) conflict with or result
in a breach of any provision of the Certificate of Incorporation, By-Laws
or other constituent documents of Seller, each as amended to date, or (b)
give rise to a default, or any right of termination, cancellation or
acceleration, or otherwise be in conflict with or result in a loss of
contractual benefits to any of them, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which either or both of them is a party
or by which either or both of them or any of their respective assets may be
bound, or except as set forth in Schedule 3.6 require any consent, approval
or notice under the terms of any such document or instrument, or (c)
violate any order, writ, injunction, decree, law, statute, rule or
regulation of any court or governmental authority which is applicable to
either or both of them, or (d) result in the creation or imposition of any
lien, adverse claim, restriction, charge or encumbrance upon any of the
Purchased Assets or the Seller Common Stock, or (e) interfere with or
otherwise adversely affect the ability of Purchaser to carry on the
Business after the Closing Date on substantially the same basis as is now
conducted by Seller. To the best of Stockholder's knowledge, no consent,
approval or authorization of, or declaration, filing or registration with
any government or regulatory authority is required to be made or obtained
in order to permit the execution, delivery or performance of this Agreement
by the Seller and the Stockholder, or the consummation of the transactions
contemplated by this Agreement.
3.7. Financial Statements. Seller has heretofore delivered to
Purchaser its financial statements consisting of the unaudited balance
sheets at October 31, 1998, and the related statements of income,
stockholder equity and cash flows for the ten months then ended
(collectively, the "Seller Financial Statements"). The Seller Financial
Statements were prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently applied, and present fairly the financial
position of Seller as at the dates thereof and the results of operations
for the periods and the cash flow indicated in all material respects. The
books and records of Seller are complete and correct, have been maintained
in accordance with good business practices, and accurately reflect the
basis for the financial condition, results of operations and cash flow of
Seller as set forth in the Seller Financial Statements.
3.8. Absence of Undisclosed Liabilities. Seller has no material
liabilities
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or obligations of any nature whatsoever, whether accrued, matured,
unmatured, absolute, contingent, direct or indirect or otherwise, which
have not been (a) in the case of liabilities and obligations of a type
customarily reflected on a corporate balance sheet, prepared in accordance
with GAAP, set forth on the Balance Sheet, or (b) incurred in the ordinary
course of business since October 31, 1998, or (c) in the case of other
types of liabilities and obligations, expressly described in Schedule 3.8,
or (d) incurred, consistent with past practice, in the ordinary course of
business of Seller (in the case of liabilities and obligations of the type
referred to in clause (a) above).
3.9. Accounts and Notes Receivable. The accounts and notes receivable
set forth on Schedule 3.9 are good and collectible in the ordinary course
of business at the aggregate recorded amounts thereof, less the respective
amount of the allowances for doubtful accounts receivable, if any,
reflected thereon, and are not subject to offsets other than in the
ordinary course of business. The accounts receivable of Seller which were
added after October 31, 1998, are good and collectible in the ordinary
course of business, less the amount of the allowance(s) for doubtful notes
receivable, if any, reflected thereon (which allowances were established on
a basis consistent with prior practice), and are not subject to offsets
other than in the ordinary course of business. The intangible assets
reflected on the Balance Sheet and thereafter added consist of items which
have been written down to net realizable value or adequately reserved
against on the books and records of Seller. For purposes hereof, subscriber
accounts are not deemed to be intangible assets.
3.10. Absence of Changes. Since October 31, 1998, there have not been
(a) any adverse change (other than as is normal in the ordinary course of
business) in the condition (financial or otherwise), assets, liabilities,
business, prospects, results of operations or cash flows of Seller
(including, without limitation, any such adverse change resulting from
damage, destruction or other casualty loss, whether or not covered by
insurance), (b) any waivers by Seller of any right, or cancellation of any
debt or claim, of substantial value, (c) any declarations, set asides or
payments of any dividend or other distributions or payments in respect of
the Seller Common Stock, or (d) any changes in the accounting principles or
methods which are utilized by Seller.
3.11. Litigation. Except as set forth in Schedule 3.11, there are no
claims, suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending or, to the best
knowledge of Seller and the Stockholder, threatened, against or relating to
Seller or the Stockholder (solely as it may relate to the Business), the
transactions contemplated hereby or any of the Purchased Assets. There are
no judgments, orders, stipulations, injunctions, decrees or awards in
effect which relate to Seller, this Agreement, the transactions
contemplated, the Business or any of the Purchased Assets, the effect of
which is (a) to limit, restrict, regulate, enjoin or prohibit any business
practice of Seller in any area, or the acquisition by Seller of any
properties, assets or businesses, or (b) otherwise
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adverse to the Business, any of the Purchased Assets or Seller Common
Stock.
3.12. No Violation of Law. To the best of Stockholder's knowledge,
Seller has not engaged and is not engaging in any activity or omitting to
take any action as a result of which it is in violation of any law, rule,
regulation, zoning or other ordinance, statute, order, injunction or
decree, or any other requirement of any court or governmental or
administrative body or agency, applicable to Seller, the Business or any of
the Purchased Assets.
3.13. Properties. All plants, structures and equipment which are
utilized in the Business, and are material to the condition (financial or
otherwise) of Seller are owned or leased by Seller and are in good
operating condition and repair (ordinary wear and tear excepted), and are
adequate and suitable for the purposes for which they are used. Schedule
3.13 sets forth all (a) real property which is owned, leased (whether as
lessor or lessee) or subject to contract or commitment of purchase or sale
or lease (whether as lessor or lessee) by Seller, or which is subject to a
title retention or conditional sales agreement or other security device,
and (b) tangible personal property which is owned, leased (whether as
lessor or lessee) or subject to contract or commitment of purchase or sale
or lease (whether as lessor or lessee) by Seller.
3.14. Intangibles/Inventions. Schedule 3.14 identifies (by a summary
description) the Intangibles (as defined below) the ownership thereof and,
if applicable, Seller's authority for use of the same, which Schedule is
complete and correct and encompasses: (A) all United States and foreign
patents, trademark and trade name registrations, trademarks and trade
names, brandmarks and brand name registrations, servicemarks and
servicemark registrations, assumed names and copyrights and copyright
registrations, owned in whole or in part or used by Seller, and all
applications therefor (collectively, the "Marks"), (B) all inventions,
discoveries, improvements, processes, formulae, technology, know-how,
processes and other intellectual property, proprietary rights and trade
secrets relating to the Business (collectively, the "Inventions") and (C)
all licenses and other agreements to which Seller is a party or otherwise
bound which relate to any of the Intangibles or the Inventions or Seller's
use thereof in connection with the Business (collectively, the "Licenses",
and together with the Marks and the Inventions, the "Intangibles"). No
violations of the terms of any of the aforesaid licenses and/or agreements
have occurred. Except as disclosed on Schedule 3.14, (A) Seller owns or is
authorized to use in connection with the Business all of the Intangibles;
(B) no proceedings have been instituted, are pending, or to the best
knowledge of the Stockholder, are threatened which challenge the rights of
Seller with respect to the Intangibles or its use thereof in connection
with the Business and/or the Purchased Assets or the validity thereof and,
there is no valid basis for any such proceedings; (C) neither Seller's
ownership of the Intangibles nor their use thereof in connection with the
Business and/or the Purchased Assets violates, to the best of Stockholder's
knowledge, any laws, statutes, ordinances or regulations, or has at any
time infringed upon or violated any rights of others, or is being infringed
by others; (D) none of the
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Intangibles, or Seller's use thereof in connection with the Business and/or
the Purchased Assets is subject to any outstanding order, decree, judgment,
stipulation or any lien, security interest or other encumbrance; and (E)
Seller has not granted any license to third parties with regard to its
Intangibles.
3.15. Systems and Software. Seller owns or has the right to use
pursuant to lease, license, sublicense, agreement, or permission all
computer hardware, software and information systems necessary for the
operation of the businesses of Seller as presently conducted (collectively,
"Systems"). Except as set forth in Schedule 3.15, each System owned or used
by Seller immediately prior to the Closing Date will be owned or available
for use by Purchaser or its subsidiaries on identical terms and conditions
immediately subsequent to the Closing Date. With respect to each System
owned by a third party and used by Seller or its subsidiaries pursuant to
lease, license, sublicense, agreement or permission: (a) the lease,
license, sublicense, agreement or permission covering the System is legal,
valid, binding, enforceable, and in full force and effect; (b) the lease,
license, sublicense, agreement or permission will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical
terms following the Closing Date; (c) no party to any such lease, license,
sublicense, agreement or permission is in breach or default, and no event
has occurred which with notice or lapse of time would constitute a breach
or default, and permit termination, modification or acceleration
thereunder; (d) no party to any such lease, license, sublicense, agreement
or permission has repudiated any provision thereof; (e) Seller has not
granted any sublicense, sublease or similar right with respect to any such
lease, license, sublicense, agreement or permission; (f) Seller's use and
continued use of such Systems does not and will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
intellectual property rights of third parties as a result of the continued
operation of the Business.
3.16. Tax Matters. Seller has filed with the appropriate governmental
agencies all tax returns and reports required to be filed by it, and has
paid in full or contested in good faith or made adequate provision for the
payment of, Taxes (as defined herein) shown to be due or claimed to be due
on such tax returns and reports. The provisions for Taxes which are set
forth on the Balance Sheet are adequate for all accrued and unpaid taxes of
Seller as of October 31, 1998, whether (i) incurred in respect of or
measured by income of Seller for any periods prior to the close of business
on that date, or (ii) arising out of transactions entered into, or any
state of facts existing, on or prior to such date. Seller has duly withheld
all payroll taxes, FICA and other federal, state and local taxes and other
items requiring to be withheld by it from employer wages, and has duly
deposited the same in trust for or paid over to the proper taxing
authorities. Seller has not executed or filed with any taxing authority any
agreement extending the periods for the assessment or collection of any
Taxes, and is not a party to any pending or, to the best knowledge of the
Stockholder, threatened, action or proceeding by any governmental authority
for the assessment or collection of Taxes. Except as set forth herein,
within the past three years, the United States federal income tax returns
of Seller have not been examined by the
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Internal Revenue Service ("the IRS"), nor has any state taxing authority
examined any merchandise, personal property, sales or use tax returns of
Seller.
3.17. Insurance. Schedule 3.17 is a complete and correct list and
summary description of all contracts and policies of insurance relating to
any of the Purchased Assets, the Business or the Stockholder in which
Seller is an insured party, beneficiary or loss payable payee. Such
policies are in full force and effect, all premiums due and payable with
respect thereto have been paid, and no notice of cancellation or
termination has been received by Seller with respect to any such policy.
3.18. Banks; Powers of Attorney. Schedule 3.18 is a complete and
correct list showing (a) the names of each bank in which Seller has an
account or safe deposit box and the names of all persons authorized to draw
thereon or who have access thereto, and (b) the names of all persons, if
any, holding powers of attorney from Seller.
3.19. Employee Arrangements. Schedule 3.19 is a complete and correct
list and summary description of all current employees of Seller together
with title and salary information. Except as disclosed in Schedule 3.19,
there are no (a) union, collective bargaining, employment, management,
termination and consulting agreements to which Seller is a party or
otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and
arrangements; pension and retirement plans and arrangements; profit-sharing
and thrift plans and arrangements; stock purchase and stock option plans
and arrangements; hospitalization and other life, health or disability
insurance or reimbursement programs; holiday, sick leave, severance,
vacation, tuition reimbursement, personal loan and product purchase
discount policies and arrangements; and other plans or arrangements
providing for benefits for employees of Seller.
3.20. ERISA. Except as listed on Schedule 3.20, Seller neither
maintains nor is obligated to contribute to an "employee pension benefit
plan" ("Seller Pension Plan"), as such term is defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or Seller's "welfare benefit plan" (collectively called "Seller Welfare
Plans") as such term is defined in Section 3(1) of ERISA.
3.21. Certain Business Matters. Except as is set forth in Schedule
3.21, (a) Seller is not a party to or bound by any agreement which relates
to the sale or distribution of any of the products and services of the
Business, (b) Seller has no sole-source supplier of significant goods or
services (other than utilities) with respect to which practical alternative
sources are not available on comparable terms and conditions, (c) there are
no pending or, to the best knowledge of the Stockholder, threatened labor
negotiations, work stoppages or work slowdowns involving or
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affecting the Business, and no union representation questions exist, and
there are no organizing activities, in respect of any of the employees of
Seller, (d) the product and service warranties given by Seller or by which
it is bound (complete and correct copies or descriptions of which have
heretofore been delivered by Seller to Purchaser) entail no greater
obligations than are customary in the Business, (e) neither Seller nor the
Stockholder is a party to or bound by any agreement which limits its or
his, as the case may be, freedom to compete in any line of business or with
any person, or which is otherwise materially burdensome to Seller or the
Stockholder, and (f) Seller is not a party to or bound by any agreement in
which any officer, director or stockholder of Seller (or any affiliate of
any such person) has, or had when made, a direct or indirect material
interest.
3.22. Approvals/Consents. To the best of Stockholder's knowledge,
except as set forth on Schedule 3.22, Seller currently holds all
governmental and administrative consents, permits, appointments, approvals,
licenses, certificates and franchises which are necessary for the operation
of the Business, all of which are in full force and effect and are
transferable pursuant to the transaction contemplated hereby without the
payment of any penalty or the incurrence of any additional debt, liability
or obligation of any nature whatsoever or the change of any term. Schedule
3.22 is a complete and correct list of all such governmental and
administrative consents, permits, appointments, approvals, licenses,
certificates and franchises. No material violations of the terms thereof
have heretofore occurred or are known by the Stockholder to exist as of the
date of this Agreement.
3.23. Subscriber Base. As of the Closing Date, Seller has an active
subscriber base of at approximately 9,000 customers, as indicated in
Schedule 3.23.
3.24. Suppliers. Schedule 3.24 sets forth all suppliers and vendors
whose services are integral to the continued operation of Seller. Neither
Seller nor the Stockholder has any reason to believe that the suppliers set
forth in Schedule 3.24 will not continue to provide service to Purchaser on
the same terms and conditions subsequent to the Closing Date.
3.25. Information as to Seller. None of the representations or
warranties made by Seller or the Stockholder in this Agreement is, or
contained in any of the Seller Documents or Stockholder Documents to be
executed and delivered hereto will be, false or misleading with respect to
any material fact, or omits to state any material fact necessary in order
to make the statements therein contained not misleading.
3.26. Certain Contracts. Schedule 3.26 is a complete and correct list
of all contracts, commitments, indentures, mortgages, guarantees, debts,
obligations, agreements and understandings to which the Seller is a party
or otherwise bound, not otherwise listed on any other schedule hereto.
Complete and correct copies of all such contracts, commitments, indentures,
mortgages, guarantees, debts, obligations, agreements and undertakings have
been furnished by the Seller to Purchaser, and
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except as expressly stated on Schedule 3.26, (1) each of them is in full
force and effect, no person or entity which is a party thereto or otherwise
bound thereby is in material default thereunder, and no event, occurrence,
condition or act exists which does (or which with the giving of notice or
the lapse of time or both would) give rise to a material default or right
of cancellation, acceleration or loss of contractual benefits thereunder;
(2) there has been no threatened cancellations thereof, and there are no
outstanding disputes thereunder; (3) none of them is materially burdensome
to the Seller; and (4) each of them is fully assignable without the
consent, approval, order or any waiver by, or any other action of or with
any individual or individuals, without the payment of any penalty, the
incurrence of any additional debt, liability or obligation of any nature
whatsoever or the change of any term. None of the material provisions of
such contracts, commitments, indentures, mortgages, guarantees, debts,
obligations, agreements and understandings violates any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency
or court having jurisdiction over the Seller, the Business or the Purchased
Assets.
3.27. Guarantees. Schedule 3.27 hereto is a complete and accurate list
and summary description of all written guarantees currently in effect
heretofore issued by the Stockholder to any bank or other lender in
connection with any credit extended by such creditors to the Seller or
issued by the Stockholder in connection with any other contracts or
agreements, including the name of such creditor and the amount of the
indebtedness, together with any interest and fees currently owing.
4. Representations and Warranties as to Purchaser. Purchaser represents and
warrants to Seller and the Stockholder, as follows:
4.1. Organization, Standing and Power. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and corporate authority to (i)
own, lease and operate their properties, (ii) carry on their business as
currently conducted by them and (iii) execute and deliver, and perform
under this Agreement and each other agreement and instrument to be executed
and delivered by them pursuant hereto.
4.2. Authority of Purchaser. The execution and delivery by Purchaser
of this Agreement and of each agreement to be executed and delivered by it
pursuant hereto (collectively, the "Purchaser Documents"), the performance
by Purchaser of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all necessary corporate action on the part
of Purchaser, and Purchaser has all necessary corporate power and corporate
authority with respect thereto. This Agreement is, and when executed and
delivered by Purchaser each of the other agreements to be delivered by
Purchaser pursuant hereto will be, the valid and binding obligation of
Purchaser, to the extent they are a party thereto, in accordance with their
respective terms except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the rights
of creditors generally and subject to the
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rules of law governing (and all limitations on) specific performance,
injunctive relief, and other equitable remedies. The Share Consideration is
duly authorized, validly issued, fully paid and non-assessable.
4.3. Information as to Purchaser. None of the representations or
warranties made by Purchaser in this Agreement, or contained in any of the
Purchaser Documents, to be executed and delivered hereto, is or will be,
false or misleading with respect to any material fact, or omits to state
any material fact necessary in order to make the statements therein
contained not misleading.
5. Indemnification.
5.1. Indemnification by the Stockholder. Subject to the consummation
of the transactions contemplated hereby, the Stockholder hereby indemnifies
and agrees to defend and hold harmless Purchaser from and against any and
all losses, obligations, deficiencies, liabilities, claims, damages, costs
and expenses (including, without limitation, the amount of any settlement
entered into pursuant hereto, and all reasonable legal and other expenses
incurred in connection with the investigation, prosecution or defense of
any matter indemnified pursuant hereto) which Purchaser may sustain, suffer
or incur and which arise out of, are caused by, relate to, or result or
occur from or in connection any misrepresentation of a material fact
contained in any representation of Seller and/or the Stockholder contained
in, or the breach by Seller or the Stockholder of any warranty or covenant
made by any one or all of them in any Seller Documents and/or any
Stockholder Documents. The foregoing indemnification shall also apply to
direct claims by Purchaser against the Stockholder.
5.2. Indemnification by Purchaser . Subject to the consummation of the
transactions contemplated hereby, Purchaser hereby indemnifies and agrees
to defend and hold harmless each of Seller (before the Closing Date) and
the Stockholder from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, the amount of any settlement entered into pursuant
hereto, and all reasonable legal and other expenses incurred in connection
with the investigation, prosecution or defense of any matter indemnified
pursuant hereto), which it or he may sustain, suffer or incur and which
arise out of, are caused by, relate to, or result or occur from or in
connection with any misrepresentation of a material fact contained in any
representation of Purchaser contained in, or the breach by Purchaser of any
warranty or covenant made by it in any Purchaser Documents. The foregoing
indemnification shall also apply to direct claims by Seller or the
Stockholder against Purchaser.
5.3. Third Party Claims. If a claim by a third party is made against
any party or parties hereto and the party or parties against whom said
claim is made intends to seek indemnification with respect thereto under
Subsections 5.1 or 5.2, the party or parties seeking such indemnification
shall promptly notify the indemnifying party or parties, in writing, of
such claim; provided, however, that the failure to give
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such notice shall not affect the rights of the indemnified party or parties
hereunder except to the extent that such failure materially and adversely
affects the indemnifying party or parties due to the inability to timely
defend such action. The indemnifying party or parties shall have ten (10)
business days after said notice is given to elect, by written notice given
to the indemnified party or parties, to undertake, conduct and control,
through counsel of their own choosing (subject to the consent of the
indemnified party or parties, such consent not to be unreasonably withheld)
and at their sole risk and expense, the good faith settlement or defense of
such claim, and the indemnified party or parties shall cooperate with the
indemnifying parties in connection therewith; provided: (a) all settlements
require the prior reasonable consultation with the indemnified party and
the prior written consent of the indemnified party, which consent shall not
be unreasonably withheld, and (b) the indemnified party or parties shall be
entitled to participate in such settlement or defense through counsel
chosen by the indemnified party or parties, provided that the fees and
expenses of such counsel shall be borne by the indemnified party or
parties. So long as the indemnifying party or parties are contesting any
such claim in good faith, the indemnified party or parties shall not pay or
settle any such claim; provided, however, that notwithstanding the
foregoing, the indemnified party or parties shall have the right to pay or
settle any such claim at any time, provided that in such event they shall
waive any right of indemnification therefor by the indemnifying party or
parties. If the indemnifying party or parties do not make a timely election
to undertake the good faith defense or settlement of the claim as
aforesaid, or if the indemnifying parties fail to proceed with the good
faith defense or settlement of the matter after making such election, then,
in either such event, the indemnified party or parties shall have the right
to contest, settle or compromise (provided that all settlements or
compromises require the prior reasonable consultation with the indemnifying
party and the prior written consent of the indemnifying party, which
consent shall not be unreasonably withheld) the claim at their exclusive
discretion, at the risk and expense of the indemnifying parties.
5.4. Limitation. Notwithstanding the provisions of this Section 5.4,
the indemnification obligations shall not be applicable except to the
extent that the aggregate of all indemnifiable amounts sought against the
indemnifying party exceeds $100,000; provided, that once such threshold is
exceeded the indemnifying party shall be liable for all damages without
regard to dollar amount (inclusive of the $100,000); and provided further,
that the maximum liability of any party hereunder shall not exceed the
Purchase Price. This Section 5 shall not apply to third-party claims
pursuant to Section 5.3 or 6.14.
5.5. Assistance. Regardless of which party is controlling the defense
of any claim, each party shall act in good faith and shall provide
reasonable documents and cooperation to the party handling the defense.
6. Covenants
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6.1. Investigation.
(a) Between the date hereof and the Closing Date, Purchaser, on
the one hand, and Seller and the Stockholder, on the other hand, may,
directly and through their representatives, make such investigation of
each other corporate party and their respective businesses and assets
of the other corporate party or parties as each deems necessary or
advisable (the entity and/or its representatives making such
investigation being the "Investigating Party"), but such investigation
shall not affect any of the representations and warranties contained
herein or in any instrument or document delivered pursuant hereto. In
furtherance of the foregoing, the Investigating Party shall have
reasonable access, during normal business hours after the date hereof,
to all properties, books, contracts, commitments and records of each
other, and shall furnish to the other and their representatives such
financial and operating data and other information as may from time to
time be reasonably requested relating to the transactions contemplated
by this Agreement. Purchaser, on the one hand, and Seller and the
Stockholder, on the other, and the respective management, employees,
accountants and attorneys of the corporate parties shall cooperate
fully with the Investigating Party in connection with such
investigation. Purchaser shall not contact any employee of Seller
without prior permission of Seller, which permission shall not be
unreasonably withheld. Purchaser shall have full access to all of
Seller's operations at least one week prior to Closing in order to
facilitate the transition of the Business. Purchaser agrees to inform
Seller of any material inconsistencies in the representations and
warranties of Seller discovered as a result of any investigation.
(b) The parties hereto hereby agree that all confidential
information of a party to which an Investigating Party obtains access
shall be deemed "confidential information." As used in this Section,
the term "Confidential Information" shall mean any and all information
(oral and written) relating to the Business, including, but not
limited to, information relating to: identity and description of goods
and services used; purchasing; costs; pricing; sources; machinery and
equipment; technology; research, test procedures and results;
customers and prospects; marketing; and selling and servicing.
(c) After the Closing Date Seller and the Stockholder agrees not
to, at any time, directly or indirectly, use, communicate, disclose or
disseminate any Confidential Information in any manner whatsoever.
6.2. Noncompete Covenant.
(a) The Stockholder hereby agrees after the Closing Date, not to,
until the second anniversary of the Closing Date directly or
indirectly (A) engage or become interested in any business (whether as
owner, manager, operator, licensor, licensee, lender, partner,
stockholder, joint venturer, employee, consultant or otherwise)
engaged in any business then engaged in by Purchaser or Seller in any
of the areas in which Purchaser or Seller conducts business as of the
Closing Date. For
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the purpose of this provision, "the Business" is defined as the
provision of internet service to residential and commercial customers,
web hosting services and leased line services. Seller and Stockholder
further agree not to take any other action which constitutes an
interference with or a disruption of the continued operation of the
Business or Purchaser's use, ownership and enjoyment of the Purchased
Assets.
(b) For purposes of clarification, but not of limitation, the
Stockholder acknowledges and agrees that the provisions of subsection
6.2 above shall serve as a prohibition against him, during the period
described therein, directly or indirectly, hiring, offering to hire,
enticing away or in any other manner persuading or attempting to
persuade any officer, employee, agent, lessor, lessee, licensor,
licensee, customer, prospective customer or supplier of the Business
to discontinue or alter his or its relationship with the Business.
(c) The parties hereto hereby acknowledge and agree that (i)
Purchaser would be irreparably injured in the event of a breach by the
Stockholder of any of his obligations under this Section 6, (ii)
monetary damages would not be an adequate remedy for any such breach,
and (iii) Purchaser shall be entitled to injunctive relief, in
addition to any other remedy which it may have, in the event of any
such breach. It is hereby also agreed that the existence of any claims
which Stockholder may have against Purchaser, whether under this
Agreement or otherwise, shall not be a defense to the enforcement by
Purchaser of any of the rights under this Section 6.
(d) It is the intent of the parties hereto that the covenants
contained in this Agreement shall be enforced to the fullest extent
permissible under the laws of and public policies of each jurisdiction
in which enforcement is sought, and the Stockholder hereby
acknowledges that said restrictions are reasonably necessary for the
protection of Purchaser. Accordingly, it is hereby agreed that if any
one or more of the provisions of Section 6 shall be adjudicated to be
invalid or unenforceable for any reason whatsoever, said provision
shall be (only with respect to the operation thereof in the particular
jurisdiction in which such adjudication is made) construed by limiting
and reducing it so as to be enforceable to the extent permissible.
6.3. Consummation of Transaction. Each of the parties hereto hereby
agrees to use its best efforts to cause all conditions precedent to his or
its obligations (and to the obligations of the other parties hereto to
consummate the transactions contemplated hereby) to be satisfied,
including, but not limited to, using all reasonable efforts to obtain all
required (if so required by this Agreement) consents, waivers, amendments,
modifications, approvals, authorizations, novations and licenses; provided,
however, that nothing herein contained shall be deemed to modify any of the
absolute obligations imposed upon any of the parties hereto under this
Agreement or any agreement executed and delivered pursuant hereto.
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6.4. Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees for a period of not
less than ninety (90) days following the Closing (i) to fully
cooperate with the other parties hereto in preparing and filing any
notices, applications, reports and other instruments and documents and
(ii) to execute, acknowledge, deliver, file and/or record, or cause
such other parties to the extent permitted by law to execute,
acknowledge, deliver, file and/or record such other documents, which
may be required by this Agreement or which are desirable in the
reasonable opinion of any of the parties hereto, or their respective
legal counsel, in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the
transactions contemplated by this Agreement.
(b) The Stockholder hereby further agrees to use reasonable
efforts to make available, at Purchaser's request, personnel to
provide reasonable assistance, without compensation, in the orderly
transfer of customer accounts from Seller to Purchaser, including
without limitation administrative services with respect to billing.
6.5. Accuracy of Representations. Each party hereto agrees that prior
to the Closing Date he or it will enter into no transaction and take no
action, and will use his or its best efforts to prevent the occurrence of
any event (but excluding events which occur in the ordinary course of
business and events over which such party has no control), which would
result in any of his or its representations, warranties or covenants
contained in this Agreement or in any agreement, document or instrument
executed and delivered by him or it pursuant hereto not to be true and
correct, or not to be performed as contemplated, at and as of the time
immediately after the occurrence of such transaction or event.
6.6. Notification of Certain Matters. Seller and the Stockholder shall
give prompt notice to Purchaser, and Purchaser shall give prompt notice to
Seller and the Stockholder, as the case may be, of (a) the occurrence, or
nonoccurrence, or any event the occurrence, or nonoccurrence, of which
would be likely to cause any representation contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Closing
Date and (b) any material failure of Seller and/or the Stockholder, on the
one hand, and of Purchaser, on the other, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by him or
it hereunder; provided, however, that the delivery of any notice pursuant
to this Subsection 6.6 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
6.7. Broker. Each of Purchaser, Seller, and the Stockholder represents
and warrants to the other parties that no broker or finder was engaged or
dealt with in connection with any of the transactions contemplated by this
Agreement, and each
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of the parties shall indemnify and hold the other harmless from and against
any and all claims or liabilities asserted by or on behalf of any alleged
broker or finder for broker's fees, finder's fees, commissions or like
payments.
6.8. No Solicitation of Transactions. Prior to the earlier of the
Closing Date or the termination of this Agreement, neither Seller nor the
Stockholder will, directly or indirectly, through any director, officer,
employee, investment banker, financial advisor, attorney, accountant or
other agent or representative of Seller otherwise, solicit, initiate or
encourage the submission of proposals or offers from any person relating to
any acquisition or purchase of all or (other than in the ordinary course of
business) any portion of the Seller Common Stock, Purchased Assets or
Business of, or any equity interest in, Seller, or any business combination
with Seller and other than with Purchaser, participate in any negotiations
regarding, or furnish to any other person any information with respect to,
or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or
seek any of the foregoing. Seller and the Stockholder shall immediately
cease and cause to be terminated any existing discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing
(other than in respect of the transaction contemplated hereby). Seller and
the Stockholder shall promptly notify Purchaser if any such proposal or
offer, or any inquiry or contact with any person with respect thereto is
made in writing and shall, in any such notice to Purchaser, indicate in
reasonable detail the identity of the offeror and the terms and conditions
of any proposal or offer.
6.9. Prohibited Conduct. Each of Seller and the Stockholder, jointly
and severally, covenants and agrees that, during the period from the date
hereof to the Closing Date, except pursuant to the terms hereof or unless
Purchaser shall otherwise agree in writing, the Business shall be conducted
only, and Seller shall not take any action except, in the ordinary course
of business and in a manner consistent with past practice and in compliance
with applicable laws; and Seller shall use its best efforts to preserve
intact the Purchased Assets, the Business and the business organization of
Seller, to keep available the services of the present officers, employees
and consultants of Seller, and to preserve the present relationships of
Seller with customers, suppliers and other persons with whom Seller has
business relations. By way of illustration, and not limitation, neither
Seller nor the Stockholder shall, between the date of this Agreement and
the Closing Date, directly or indirectly do, or propose or commit to do,
any of the following without the prior written consent of Purchaser:
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of the Seller Common Stock, or
(ii) split, combine or reclassify any of the Seller Common Stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of the Seller Common Stock,
or otherwise;
(b) make any cash distributions by dividend or compensation other
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than in the ordinary course of business consistent with prior
practices;
(c) authorize for issuance, issue, deliver, sell or agree to
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber, any shares of
Seller Common Stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities convertible securities or any other
securities or equity equivalents;
(d) (i) increase the compensation payable or to become payable to
any officer, director, employees or consultant of Seller, except
pursuant to the terms of contracts, policies or benefit arrangements
in effect on the date hereof, or (ii) grant any severance or
termination pay to, or enter into any employment or severance
agreement with, any director, officer, other employee or consultant of
Seller or any of its subsidiaries, except pursuant to the terms of
contracts, policies and benefit arrangements in effect on the date
hereof, or (iii) establish, adopt, enter into or amend any collective
bargaining (other than in accordance with past practice), bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any directors, officers, employees or consultants
of Seller;
(e) amend the Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents of Seller or alter
through merger, liquidation, reorganization, restructuring, or in any
other fashion, the corporate structure or ownership of Seller;
(f) acquire, or agree to acquire, (i) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets
of, or by any other manner, any business or corporation, partnership,
joint venture, association or other business organization or division
thereof, or (ii) any assets that are material, individually or in the
aggregate, to Seller, except purchases consistent with past practice;
(g) sell, lease, license, mortgage or otherwise encumber or
subject to any lien, security interest, pledge or encumbrance or
otherwise dispose of any of the Purchased Assets, except sales in the
ordinary course of business consistent with past practice;
(h) permit Seller to incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of Seller, guarantee any debt securities of another person,
or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings incurred in
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the ordinary course of business consistent with past practice, or (ii)
permit the Stockholder to issue any guaranties of any indebtedness of
Seller;
(i) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of
Seller to purchase, sell, lease or otherwise dispose of assets or
require payment by Seller in excess of $20,000;
(j) make any capital expenditures in excess of $7,500, or as may
be mutually agreed to by the parties in writing;
(k) adopt a plan of complete or partial liquidation of Seller or
resolutions providing for or authorizing such a liquidation or the
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization of Seller;
(l) change any accounting principles used by Seller, unless
required by the Financial Accounting Standards Board;
(m) make any tax election of, or settle, compromise any income
tax liability of, or file any federal income tax return prior to the
last day (including extensions) prescribed by law, in the case of any
of the foregoing, material to the business, financial condition or
results of the operations of Seller and its subsidiaries, if any,
taken as a whole;
(n) settle or compromise any litigation in which Seller is a
defendant (whether or not commenced prior to the date of this
Agreement) or settle, pay or compromise any claims not required to be
paid, which payments are individually in an amount in excess of $5,000
and in the aggregate in an amount in excess of $25,000; and
(o) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.10. Post-Closing Audit. Seller and the Stockholder agree to make all
information available to, and to cooperate fully with, Purchaser and their
accountants, legal counsel or other authorized representatives, with
respect to the preparation and submission, at Purchaser's cost, of audited
financial statements for Seller, in accordance with GAAP and Regulation
S-X, as may be required by any government or regulatory agency following
the transactions contemplated hereby.
6.11. Maintenance of Business. Seller will use its commercially
reasonable efforts to carry on its businesses, keep available the services
of its officers and employees and preserve its relationships with those of
its suppliers, licensors, licensees and others having business
relationships with it that are material to its businesses in substantially
the same manner as they have prior to the date hereof.
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If Seller becomes aware of a material deterioration or facts which are
likely to result in a material deterioration in the relationship with any
material supplier, licensor, licensee or others having business
relationships with it, Seller will promptly bring such information to the
attention of Purchaser in writing.
6.12. Seller Name. Seller shall deliver to Purchaser at the Closing, a
Certificate of Amendment and all related documents necessary to, at its
cost and expense, change its corporate name to a name bearing no
resemblance to "Webspan", and Seller shall take such other action as is
necessary so that Purchaser will have full right, title and interest in and
to, and use of, all of the names, brands and marks used in connection with
the business. In furtherance of the foregoing, Seller hereby agrees from
and after the Closing Date it shall not use or permit any of its
subsidiaries or affiliates to use, directly or indirectly, any of such
words, names, brands, marks or expressions, or anything so closely
resembling any of the foregoing as to be likely confused therewith, or as
to be likely to detract from the value of any of the Purchased Assets or
the business of Seller.
6.13. Bill of Sale and Assignment. Seller shall deliver to Purchaser,
at the Closing, the Bill of Sale and Assignment with respect to the
Purchased Assets.
6.14. Bulk Sales. Seller shall either (1) comply with applicable Bulk
Sales Law pursuant to Article 6 of the Uniform Commercial Code of the State
of New York (the "Bulk Sales Law") and comply with the provisions of
subparagraphs (a), (b), (c) and (d) of this Section 6.14, or (2) waive
compliance with the Bulk Sales Law and agree to indemnify and hold harmless
Purchaser from and against any and all claims, damages, costs, liabilities,
and similar (including without limitation, the amount of any settlement
entered into pursuant hereto, and all reasonable legal and other expenses
incurred) which arise out of, to, or are in connection with the failure to
comply with the Bulk Sales Law. Such indemnity shall be without regard to
the limitations set forth in any other Section of this Agreement.
(a) Upon execution of this Agreement and at least twenty (20)
days prior to Closing, Seller shall furnish to Purchaser:
(i) a list of the existing creditors of Seller and their
business addresses, including the amount owed to each creditor
(the "List of Creditors"). The List of Creditors shall also
include every person who is known to have asserted a claim
against Seller, even though such claims are disputed. If any
credit is extended to Seller or any claims are asserted against
Seller at any time after the List of Creditors is furnished and
before the Closing, Seller shall supply Purchaser with a
supplemental list designating the new creditors and claimants.
The List of Creditors shall be signed and sworn to or affirmed by
Seller or his agent;
(ii) a schedule of the property to be transferred,
sufficient to identify it (the "Schedule of Property") including
names and locations so that the
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<PAGE>
parties may comply with the preparation of the schedule pursuant
to UCC Section 6- 104(1)(b); and
(iii) a list of all the names and business addresses used by
Seller within three (3) years prior to the date of this
Agreement.
(b) Purchaser shall preserve the List of Creditors and Schedule
of Property for a period of six (6) months after the Closing. During
such period, Purchaser shall permit any creditor to inspect and copy
either or both of the List of Creditors and Schedule of Property on
any business day from 10:00 A.M. to 4:00 P.M. at the Purchaser's place
of business first written above. In lieu thereof, Purchaser may file
such List of Creditors in the Office of the Department of State.
(c) At lease ten (10) days before Closing, Purchaser shall give
notice of the transfer which notice shall be delivered personally or
sent by registered or certified mail to all the persons shown on the
List of Creditors and to all other persons known to Purchaser to hold
or assert a claim against Seller. Seller shall furnish to Purchaser
the information Purchaser needs for the notices pursuant to UCC
Section 6-107 and this agreement.
(d) At least fifteen (15) days prior to Closing, Seller shall
furnish to Purchaser a Notification of Bulk Sale for with Seller's
information which shall be served by the Purchaser on the New York
State Department of Taxation and Finance at least ten (10) days prior
to Closing.
7. Conditions to Close.
7.1. Conditions to Obligations of Purchaser to Close. The obligations
of Purchaser to consummate the transactions contemplated herein shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of each of Seller and the Stockholder
contained in any Stockholder Document or Seller Document delivered by
either or both of them shall have been true when made, and, in
addition, shall be true in all material respects on and as of the
Closing Date with the same force and effect as though made on and as
of the Closing Date.
(b) Performance of Agreements. Each of Seller and the
Stockholder, as the case may be, shall have performed, observed and
complied in all material respects with all of their obligations,
covenants and agreements, and shall have satisfied or fulfilled in all
material respects conditions contained in any Stockholder Document or
Seller Document and required to be performed, observed or complied
with, or to be satisfied or fulfilled, by Seller or the Stockholder at
or prior to the Closing Date.
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<PAGE>
(c) Results of Investigation. Purchaser shall be satisfied with
the results of any investigation of the business and affairs of Seller
undertaken by them pursuant to Subsection 6.1 hereof.
(d) Accounting Records. Purchaser and their accountants shall be
satisfied that the accounting records of Seller are auditable in
accordance with Generally Accepted Accounting Principles.
(e) Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions
contemplated hereby, and no claim, suit, action, inquiry,
investigation or proceeding in which it will be, or it is, sought to
restrain, prohibit or change the terms of or obtain damages or other
relief in connection with this Agreement or any of the transactions
contemplated hereby, shall have been instituted or threatened by any
person or entity, and which, in the reasonable judgment of Purchaser
(based on the likelihood of success and material consequences of such
claim, suit, action, inquiry or proceeding), makes it inadvisable to
proceed with the consummation of such transactions.
(f) Consents and Approvals. All consents, waivers, approvals,
licenses and authorizations by third parties and governmental and
administrative authorities (and all amendments or modifications to
existing agreements with third parties) required as a precondition to
the performance by Seller and the Stockholder of their respective
obligations hereunder and under any agreement delivered pursuant
hereto, or which in Purchaser's reasonable judgment are necessary to
continue unimpaired, subsequent to the Closing Date, any rights in and
to the Purchased Assets and/or the Business which could be impaired by
the consummation of this transaction, shall have been duly obtained
and shall be in full force and effect.
(g) Date of Consummation. The transactions contemplated herein
shall have been consummated on or prior to December 15, 1998, or such
later date as the parties shall agree by a written instrument signed
by all of them.
(h) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all
agreements, instruments, opinions, certificates and other documents
delivered by Seller and the Stockholder pursuant hereto, shall be
satisfactory in all material respects to Purchaser and their counsel.
(i) No Material Adverse Change. Except as otherwise provided by
this Agreement, there shall not have occurred after the date hereof,
in the reasonable judgment of Purchaser , a material adverse change in
the financial or business condition of Seller and its subsidiaries,
taken as a whole.
(j) Closing Certificate. The Stockholder shall have furnished
Purchaser with certificates, all dated the Closing Date, to the effect
that all the
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<PAGE>
representations and warranties of Seller and the Stockholder are true
and complete and all covenants to be performed by Seller or the
Stockholder at or as of the Closing have been performed and conditions
to be satisfied at or as of the Closing have been waived or satisfied.
7.2. Conditions to Obligations of Seller to Close. The obligations of
Seller to consummate the transactions contemplated herein shall be subject
to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Purchaser contained in any Purchaser
Documents delivered by either Purchaser shall have been true when
made, and, in addition, shall be true in all material respects, on and
as of the Closing Date with the same force and effect as though made
on and as of the Closing Date.
(b) Performance of Agreements. Purchaser shall have performed,
observed and complied, in all material respects, with all obligations,
covenants and agreements, and shall have satisfied or fulfilled in all
material respects all conditions contained in any Purchaser Documents
and required to be performed, observed or complied with, or satisfied
or fulfilled, by either or both of them at or prior to the Closing
Date.
(c) Consents and Approvals. All consents, waivers, approvals,
licenses and authorizations by third parties and governmental and
administrative authorities (and all amendments and modifications to
existing agreements with third parties) required as a precondition to
the performance by Purchaser of its obligations hereunder and under
any agreement delivered pursuant hereto, shall have been duly obtained
and shall be in full force and effect.
(d) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all
agreements, instruments, opinions, certificates and other documents
delivered by Purchaser pursuant hereto, shall be satisfactory in all
material respects to the Stockholder and its counsel.
(e) Closing Certificate. Purchaser shall have furnished Seller
with a certificate executed by its president, dated the Closing Date,
to the effect that all the representations and warranties of Purchaser
are true and complete in all material respects and all covenants to be
performed by Purchaser at or as of the Closing have been performed in
all material respects and conditions to be satisfied at or as of the
Closing have been waived or satisfied in all material respects.
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<PAGE>
8. Termination, Amendment and Waiver.
8.1. Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) By mutual consent of the Boards of Directors of Purchaser and
Seller; or
(b) By Purchaser, on the one hand, or Seller and the Stockholder,
on the other hand, if (i) the transactions contemplated by this
Agreement shall not have been consummated by December 15, 1998, or
such later date as the parties shall have fixed by written instrument
signed by the parties hereto; provided, however, that notwithstanding
anything else contained in this Agreement, Purchaser shall have the
option to extend the Closing Date to December 31, 1998, or (ii) a
court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their reasonable efforts to
vacate), in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement.
(c) By Purchaser, on the one hand, or by Seller and the
Stockholder, on the other hand, if, in the reasonable judgment of
Purchaser or Seller and the Stockholder, as the case may be, (and
provided such parties are not then in material breach of their
respective obligations hereunder), it shall have been determined that
the transaction contemplated by this Agreement has become inadvisable
or impracticable by reason of the institution or threat by state,
local or federal governmental authorities or by any other person of
material litigation or proceedings against Purchaser or Seller.
(d) By Purchaser, on the one hand, or Seller and the Stockholder,
on the other hand, if, in the reasonable judgment of Purchaser or
Seller or the Stockholder, as the case may be (and provided such
parties are not then in material breach of their respective
obligations hereunder), it shall be determined that the business or
assets or financial condition of the other unrelated corporate party
hereto has been materially and adversely affected since October 31,
1998, whether by reason of changes, developments or operations in the
normal course of business or otherwise.
(e) By Purchaser, if any service provider integral to the
continued operation of Seller ceases to provide service to Seller;
(f) By Purchaser, if the actual number of Seller dial up
subscribers is less than 8,100 on the Closing Date.
8.2. Effect of Termination. In the event of the termination of this
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<PAGE>
Agreement as provided in this Section 8, this Agreement shall, forthwith
become null and void and there shall be no liability on the part of any
party hereto and nothing herein shall relieve any party from liability for
any wilful breach hereof. Such termination shall not, however, affect the
obligations of the parties with respect to the Confidential Information.
8.3. Fees and Expenses. Purchaser, on the one hand, and the
Stockholder, on the other hand, shall bear their own expenses in connection
with the transactions contemplated hereby.
8.4. Amendment. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
8.5. Waiver. At any time prior to the Closing Date, any party hereto
may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party
or parties to be bound thereby.
9. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that: (i) representations and
warranties made by or on behalf of him or it in this Agreement or in any
document or instrument delivered pursuant hereto with respect to tax matters,
environmental compliance and ERISA matters shall survive the respective statutes
of limitations for such matters; and (ii) all other representations or
warranties made herein shall survive the Closing Date for a period of one (1)
year after the Closing Date.
10. General Provisions.
10.1. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the earlier of the date delivered or mailed if
delivered personally, by overnight courier or mailed by express, registered
or certified mail (postage prepaid, return receipt requested) or by
facsimile transmittal, confirmed by express, certified or registered mail,
to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice, except that notices of changes
of address shall be effective upon receipt):
If to Purchaser: Frontline Communications Corp.
One Blue Hill Plaza
Suite 1548
Pearl River, New York 10965
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<PAGE>
Attn: Mr. Stephen J. Cole-Hatchard
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Kenneth Selterman, Esq.
If to Seller or
the Stockholder: Webspan Communications, Inc.
Mr. David Lichtenstein
500 W. Kennedy Blvd.
Lakewood, NJ 08701
With a copy to: Mendel Zilberberg, Esq.
Mendel Zilberberg & Associates, PC
6619 Thirteenth Ave.
Brooklyn, NY 11219
10.2. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are
fulfilled to the greatest extent possible.
10.3. Entire Agreement. This Agreement and the agreements referred to
herein constitute the entire agreement, and supersede all prior agreements
and undertakings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof.
10.4. No Assignment. This Agreement shall not be assigned by operation
of law or otherwise, and any assignment shall be null and void.
10.5. Headings. Headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
10.6. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York without
regard to its choice of law principles. Each of Purchaser, Seller and the
Stockholder hereby irrevocably and unconditionally consents to submit to
the jurisdiction of the courts of
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<PAGE>
the State of New York and of the United States located in the County of New
York, State of New York for any litigation arising out of or relating to
this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in such courts and
agrees not to plead or claim that such litigation brought in any such
courts has been brought in an inconvenient forum.
10.7. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, but all
of which taken together shall constitute one and the same agreement.
AGREED TO AND ACCEPTED AS OF
THIS 24th DAY OF NOVEMBER, 1998
FRONTLINE COMMUNICATIONS CORP.
/s/ Stephen J. Cole-Hatchard
---------------------------------
By: Stephen J. Cole-Hatchard
Title: President & CEO
WEBSPAN COMMUNICATIONS, INC.
/s/ David Lictenstein
---------------------------------
By: David Lichtenstein
Title:
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AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT is made as of December 17, 1998 among Frontline
Communications Corporation, a Delaware corporation ("Frontline"); Webspan
Communications, Inc., a New York corporation ("Webspan"); and Webspan's sole
stockholder, David Lichtenstein (the "Webspan Stockholder").
WHEREAS, the undersigned are the only parties to that certain Asset
Purchase Agreement dated as of November 24, 1998, among Frontline, Webspan and
the Webspan Stockholder (the "Agreement"); and
WHEREAS, the parties wish to amend the Agreement to extend the outside
closing date and to update the Schedules attached thereto, all as provided
herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements herein contained, and intending to be legally bound hereby, the
parties do hereby agree:
1. Closing Date. Sections 2 and 7.1(g) of the Agreement are amended to
provide for December , 1998 as the Closing Date and the date by which the
transactions contemplated by the Agreement shall be consummated,
respectively.
2. Supplemental Schedules. The Schedules to the Agreement are hereby
amended, as set forth in Exhibit A attached hereto.
3. Full Force and Effect. The Agreement, as so amended by this
Amendment, remains in full force and effect.
4. Counterparts. This Amendment may be signed in any number of
counterparts, with each counterpart constituting an original instrument but
all such separate counterparts constituting one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto, has caused this Agreement
to be executed, by their respective officers thereunto duly authorized, as of
the date first written above.
FRONTLINE COMMUNICATIONS CORPORATION
By: /s/ Stephen J. Cole-Hatchard
----------------------------------
Stephen J. Cole-Hatchard, President
WEBSPAN COMMUNICATIONS, INC.
By: /s/ David Lichtenstein
----------------------------------
David Lichtenstein, President
/s/ David Lichtenstein
---------------------------------------
DAVID LICHTENSTEIN
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REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement ("Agreement") dated as of December 17, 1998,
between Frontline Communications Corp., a Delaware corporation (the "Company"),
and David Lichtenstein (the "Holder").
RECITALS
WHEREAS, the Company issued to the Holder on even date herewith an
aggregate of 113,364 shares of common stock, par value $.01 per share, of the
Company, as more particularly provided for in the Stock Purchase Agreement dated
as of November 24, 1998, as amended as of even date herewith, among the Company,
Webspan Communications, Inc. and the Holder (the "Purchase Agreement") and that
side letter agreement of even date herewith among the same parties; and
WHEREAS, it is a condition to the performance of the Holder's obligations
under the Purchase Agreement that the Company enter into this Agreement with the
Holder with respect to 111,364 shares of Common Stock (the "Shares").
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants herein contained, the parties hereto do hereby agree as follows:
1. Piggyback Registration.
(a) If, at any time during a one-year period following the date
hereof, the Company proposes to prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
covering securities of the Company held by management, other than in
connection with a merger, acquisition or pursuant to a registration
statement on Form S-4 or Form S-8 or any successor form (for purposes of
this Article 1, a "Registration Statement"), the Company will give written
notice of its intention to do so by certified mail ("Notice"), at least
fifteen (15) days prior to the filing of each such Registration Statement,
to the Holder. Upon the written request of the Holder, made within ten (10)
days after receipt of the Notice, that the Company include any of the
Holder's Shares in the proposed Registration Statement, the Company shall,
as to the Holder, use reasonable efforts to effect the registration under
the Securities Act of the Shares which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense and at
no cost or expense to the Holder (other than any commission, discounts or
counsel fees payable by the Holder, as further provided in Section 3(a)
hereof); provided,
<PAGE>
however, that if, the Piggyback Registration is in connection with an
underwritten public offering and in the written opinion of the Company's
underwriter or managing underwriter of the underwriting group, if any, for
such offering, the inclusion of all or a portion of the Shares requested to
be registered, when added to the securities being registered by the Company
or the selling shareholder(s), if any, will exceed the maximum amount of
the Company's securities which can be marketed (i) at a price reasonably
related to their then current market value, or (ii) without otherwise
having an adverse effect on the offering, then the Company may exclude from
such offering all or a portion of the Shares which it has been requested to
register.
(b) Notwithstanding the preceding provisions of this Section, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section (irrespective of whether any written
request for inclusion of such securities shall have already been made) to
elect not to file any proposed Registration Statement, or to withdraw the
same after the filing but prior to the effective date thereof.
(c) Notwithstanding anything contained herein to the contrary, the
Company shall have no obligation under this Section 1 to register the
Shares if the Company receives an opinion of counsel that Rule 144
promulgated under the Securities Act is available to the Holder.
2. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows:
(a) The Company will pay all costs, fees and expenses in connection
with the Registration Statement filed pursuant to Section 1 hereof,
including, without limitation, the Company's legal and accounting fees,
printing expenses and blue sky fees and expenses; provided, however, that
the Holder shall be solely responsible for the fees of any counsel retained
by the Holder in connection with such registration and any transfer taxes
or underwriting discounts, selling commissions or selling fees applicable
to the Shares sold by the Holder pursuant thereto.
(b) The Company will use reasonable efforts to qualify or register the
Shares included in a Registration Statement for offering and sale under the
securities or blue sky laws of such states as are requested by the Holder,
provided that the Company shall not be obligated to execute or file any
general consent to service of process (unless the Company is already then
subject to service in such jurisdiction) or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction, except
as may be required by the Securities Act and its rules and regulations.
-2-
<PAGE>
3. Covenant of the Holder.
The Holder, upon receipt of notice from the Company that an event has
occurred which requires a post-effective amendment to the Registration Statement
or a supplement to the prospectus included therein, shall promptly discontinue
the sale of Shares until the Holder receives a copy of a supplemented or amended
prospectus from the Company, which the Company shall provide as soon as
practicable after such notice.
4. Indemnification.
(a) The Company shall indemnify, defend and hold harmless the Holder
and such person who controls such Holder within the meaning of Section 15
of the Securities Act or Section 20(a) of the Securities Exchange Act of
1934, as amended, from and against any and all losses, claims, damages and
liabilities caused by or arising out of any untrue statement of a material
fact contained in the Registration Statement, or caused by or arising out
of any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission based upon information furnished or
required to be furnished in writing to the Company by the Holder or the
trustees thereof expressly for use therein; provided, however, that the
indemnification in this Section shall not inure to the benefit of the
Holder on account of any such loss, claim, damage or liability arising from
the sale of Shares by the Holder, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holder by the Company prior to the subject sale and the
subsequent prospectus was not delivered or sent by the Holder to the
purchaser prior to such sale. The Holder and his successors and assigns
shall at the same time, severally and jointly, indemnify the Company, its
directors, each officer signing the Registration Statement and each person,
if any, who controls the Company within the meaning of the Securities Act,
from and against any and all losses, claims, damages and liabilities caused
by any untrue statement of a material fact contained in the Registration
Statement, or any prospectus included therein, or caused by any omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but solely with respect to such
losses, claims, damages or liabilities caused by any untrue statement or
omissions based upon information furnished or required to be furnished in
writing to the Company by the Holder expressly for use in the Registration
Statement.
5. Governing Law.
(a) This Agreement shall be governed as to validity, interpretation,
construction, effect and in all other
-3-
<PAGE>
respects by the internal substantive laws of the State of New York, without
giving effect to the choice of law rules thereof.
(b) Each of the Company and the Holder hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York and of the United States located in the
County of New York, State of New York (the "New York Courts") for any
litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying
of venue of any such litigation in the New York Courts and agrees not to
plead or claim that such litigation brought in any New York Courts has been
brought in an inconvenient forum.
6. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by express, registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to the Company, at:
Frontline Communications Corp.
One Blue Hill Plaza, Suite 1548
Pearl River, New York 10965
with a copy of the same to:
Tenzer Greenblatt L.L.P.
405 Lexington Avenue
23rd Floor
New York, NY 10174
Attn: Kenneth Selterman, Esq.
If to the Holder(s), at that address set forth under their
name on the signature page.
with a copy of the same to:
Mendel Zilbergerg & Associates, P.C.
619 Thirteenth Avenue
Brooklyn, New York
Attn: Mendel Zilberberg, Esq.
Or such other address as has been indicated by either party in accordance
with a notice duly given in accordance with the provisions of this Section.
7. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and the Holder.
-4-
<PAGE>
8. Entire Agreement. This Agreement constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
9. Assignment; Binding Effect; Benefits. The Holder may not assign the
Holder's rights hereunder without the prior written consent of the Company,
which consent may be given or withheld for any reason and any attempted
assignment without having obtained such prior written notice shall be void and
of no force and effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and the permitted assigns, heirs and legal
representatives of the Holder and the Company and its successors. Nothing herein
contained, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives and
successors, any rights or remedies under or by reason of this Agreement.
10. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
11. Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
12. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
[signature page to follow]
-5-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
Company: FRONTLINE COMMUNICATIONS CORP.
By: /s/ Stephen J. Cole-Hatchard
---------------------------------
Name: Stephen J. Cole-Hatchard
Title: President
Holder:
/s/ David Lichtenstein
---------------------------------------
DAVID LICHTENSTEIN
Address:
------------------------------
------------------------------
-6-
