<PAGE>
As filed with the Securities and Exchange Commission on February 2, 1999
Registration No. 333-69925
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
ONEMAIN.COM, INC.
(Exact name of registrant as specified in its charter)
---------------
Delaware 7375 11-3460073
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial identification number)
incorporation or classification code
organization) number)
50 Hawthorne Road
Southampton, NY 11968
(516) 287-4084
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Stephen E. Smith
Chairman, President and Chief Executive Officer
OneMain.com, Inc.
50 Hawthorne Road
Southampton, NY 11968
(516) 287-4084
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
STEVEN A. MUSELES R.W. SMITH, JR.
Hogan & Hartson L.L.P. Piper & Marbury L.L.P.
555 Thirteenth Street, N.W. 36 South Charles Street
Washington, D.C. 20004 Baltimore, MD 21201
(202) 637-5600 (410) 539-2530
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with the provisions
of section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said section 8(a), may determine.
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<PAGE>
EXPLANATORY NOTE TO AMENDMENT NO.1
This Amendment No.1 to the OneMain.com, Inc. Registration Statement on Form S-1
has been filed solely for the purpose of filing certain exhibits to the
Registration Statement.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All amounts shown are
estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
Securities and Exchange Commission registration fee................. $39,963
NASD filing fee..................................................... 14,875
Nasdaq National Market listing fee.................................. 95,000
Accounting fees and expenses........................................ *
Legal fees and expenses............................................. *
Printing and engraving expenses..................................... *
Transfer agent and registrar fees................................... *
Miscellaneous expenses.............................................. *
-------
Total............................................................. $ *
=======
</TABLE>
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* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
The Certificate of Incorporation and Bylaws of the Registrant provide for the
indemnification of the Registrant's directors and officers to the fullest
extent authorized by, and subject to the conditions set forth in the General
Corporation Law of the State of Delaware (the "DGCL"), except that the
Registrant will indemnify a director or officer in connection with a proceeding
(or part thereof) initiated by the person only if the proceeding (or part
thereof) was authorized by the Registrant's Board of Directors. The
indemnification provided under the Certificate of Incorporation and Bylaws
includes the right to be paid by the Registrant the expenses (including
attorneys' fees) in advance of any proceeding for which indemnification may be
had in advance of its final disposition, provided that the payment of such
expenses (including attorneys' fees) incurred by a director or officer in
advance of the final disposition of a proceeding may be made only upon delivery
to the Registrant of an undertaking by or on behalf of the director or officer
to repay all amounts so paid in advance if it is ultimately determined that the
director or officer is not entitled to be indemnified. Pursuant to the Bylaws,
if a claim for indemnification is not paid by the Registrant within 60 days
after a written claim has been received by the Registrant, the claimant may at
any time thereafter bring an action against the Registrant to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
will be entitled to be paid also the expense of prosecuting the action.
As permitted by the DGCL, the Registrant's Certificate of Incorporation
provides that directors of the Registrant shall not be liable to the Registrant
or its stockholders for
II-1
<PAGE>
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, relating to unlawful payment of dividends or unlawful
stock purchase or redemption or (iv) for any transaction from which the
director derived an improper personal benefit. As a result of this provision,
the Registrant and its stockholders may be unable to obtain monetary damages
from a director for breach of his or her duty of care.
Under the Bylaws, the Registrant has the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Registrant, or is or was serving at the request of the
Registrant as a director, officer, employee, partner (limited or general) or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, against any liability asserted
against the person or incurred by the person in any such capacity, or arising
out of the person's status as such, and related expenses, whether or not the
Registrant would have the power to indemnify the person against such liability
under the provisions of the DGCL. The Registrant intends to purchase director
and officer liability insurance on behalf of its directors and officers.
Item 15. Recent Sales of Unregistered Securities
(a) On August 19, 1998, in connection with its formation, the Registrant sold
(i) 2,000,000 shares of its common stock, $.001 par value per share ("Common
Stock"), to Jonathan J. Ledecky, (ii) 1,500,000 shares of its Common Stock to
Stephen E. Smith and (iii) 1,052,500 shares of its Common Stock to Dewey K.
Shay, in each case for cash at a price per share of $0.01 for an aggregate
consideration of $45,525. These sales were effected without registration under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon
the exemption from registration contained in Section 4(2) of the Securities
Act.
(b) On October 19, 1998, in connection with entering into a Senior Management
Agreement, Martin R. Lyons purchased 200,000 shares of Common Stock at a price
per share of $0.05 for an aggregate consideration of $10,000, paid $200 in cash
and a note in the amount of $9,800. This sale was effected without registration
under the Securities Act in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act.
(c) On November 10, 1998, in connection with entering into a Senior
Management Agreement, Merrill L. Stout purchased 25,000 shares of Common Stock
at a purchase price per share of $0.05 for an aggregate consideration of
$1,250, paid in cash. This sale was effected without registration under the
Securities Act in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act.
(d) On November 30, 1998, the Registrant sold $5,000 shares of Common Stock to
Diane Strahan for cash at a price of $1.00 per share for an aggregate
consideration of $5,000. This sale was effected without registration under the
Securities Act in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act.
(e) On January 1, 1999, in connection with entering into a Senior Management
Agreement, M. Cristina Dolan purchased 100,000 shares of Common Stock at a price
per share of $0.05 for an aggregate consideration of $5,000, paid in cash. This
sale was effected without registration under the Securities Act in reliance upon
the exemption from registration contained in Rule 701 of Regulation F
promulgated under the Securities Act.
Prior to filing this Registration Statement, the Registrant agreed to issue
approximately 6,087,211 shares of its Common Stock to 117 persons in exchange
for all the stock or limited liability company interests held by these persons
in the 17 companies the Registrant will acquire upon completion of its initial
public offering. If the Registrant does not complete its initial public
offering prior to March 31, 1998, the number of shares of Common Stock issued
II-2
<PAGE>
to these persons will increase by 3% to a total of 6,269,826 shares of Common
Stock. The stock and limited liability company interests to be acquired by the
Registrant in exchange for these shares have been valued at a total of
approximately $60.9 million by the Registrant. The Transactions were effected
without registration under the Securities Act in reliance upon the exemption
from registration contained in Rule 506 of Regulation D promulgated under
Section 4(2) of the Securities Act.
Each of the foregoing transactions was effected without the use of an
underwriter.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
5.1* Opinion of Hogan & Hartson L.L.P.
10.1 Stock Exchange Agreement by and among the Registrant, United States
Internet, Inc. and certain shareholders of United States Internet,
Inc. dated as of December 21, 1998
10.2 Form of Shareholder Consent, Power of Attorney and Investor
Questionnaire executed by certain shareholders of United States
Internet, Inc.
10.3 Stock Exchange Agreement by and among the Registrant, JPS.Net
Corporation and the shareholders of JPS.Net Corporation dated as of
December 18, 1998
10.4 Stock Exchange Agreement by and among the Registrant, D&E
Supernet, Inc. and the shareholders of D&E Supernet, Inc. dated as of
December 21, 1998
10.5* Senior Management Agreement between the Registrant and Stephen E.
Smith
10.6* Senior Management Agreement between the Registrant and Dewey K. Shay
10.7* Senior Management Agreement between the Registrant and Martin R.
Lyons
10.8* Senior Management Agreement between the Registrant and Allon H.
Lefever
10.9* Senior Management Agreement between the Registrant and M. Cristina
Dolan
10.10 Form of Employment Agreement between the Registrant and Michael C.
Crabtree
10.11* Registration Rights Agreement among the Registrant and certain
stockholders of the Registrant
10.12* OneMain.com, Inc. 1999 Stock Option and Incentive Plan
10.13* OneMain.com, Inc. 1999 Employee Stock Purchase Plan
11.1* Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1+ Consent of Ernst & Young LLP, Independent Auditors (Registrant)
23.2+ Consent of Ernst & Young LLP, Independent Auditors (D&E Supernet, Inc.)
23.3+ Consent of Ernst & Young LLP, Independent Auditors (SunLink, Inc.)
23.4+ Consent of Ernst & Young LLP, Independent Auditors (LebaNet, Inc.)
23.5+ Consent of Grant Thornton LLP, Independent Auditors (Southwind
Internet Access, Inc.)
23.6+ Consent of Ernst & Young LLP, Independent Auditors (Horizon Internet
Technologies, Inc.)
23.7+ Consent of Coulter & Justus, P.C., Independent Auditors (United
States Internet, Inc.)
23.8+ Consent of Ernst & Young LLP, Independent Auditors (Internet Partners
of America, LC)
23.9+ Consent of Lopez, Levi & Associates, P.A., Independent Auditors
(Netrox, LLC)
23.10+ Consent of Ernst & Young LLP, Independent Auditors (ZoomNet, Inc.)
23.11+ Consent of Ernst & Young LLP, Independent Auditors (Palm.Net, USA,
Inc.)
23.12+ Consent of Ernst & Young LLP, Independent Auditors (Internet Access
Group, Inc.)
23.13+ Consent of Ernst & Young LLP, Independent Auditors (Midwest Internet
L.L.C.)
23.14+ Consent of Kevin J. Tochtrop, Certified Public Accountant,
Independent Auditor (Internet Solutions, LLC)
23.15+ Consent of Ernst & Young LLP, Independent Auditors (FGInet, Inc.)
23.16+ Consent of Ernst & Young LLP, Independent Auditors (Superhighway,
Inc.)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
23.17+ Consent of Ernst & Young LLP, Independent Auditors (Lightspeed Net,
Inc.)
23.18+ Consent of Ernst & Young LLP, Independent Auditors (JPS.Net
Corporation)
23.19* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.20+ Consent of Allon H. Lefever (Director Nominee)
23.21+ Consent of Michael C. Crabtree (Director Nominee)
23.22+ Consent of Thomas R. Eisenmann (Director Nominee)
27.1+ Financial Data Schedule
99.1 Form of Rule 134 e-mail Notice to Wit Capital Corporation Members
99.2 Form of Rule 134 e-mail Notice to e-Dealer Customers
99.3 Form of Rule 134 e-mail Notice to Subscribers of Companies to be
Acquired by Registrant
99.4 Text of Wit Capital Corporation Website Established for this
Offering
</TABLE>
--------
* To be filed by amendment.
+ Previously filed.
II-4
<PAGE>
(B) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is included elsewhere in the Financial Statements
or the notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriter at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as may be required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Southampton, New York,
on the 1st day of February, 1999.
OneMain.com, Inc.
By /s/ Stephen E. Smith
----------------------------------
Stephen E. Smith
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Stephen E. Smith Chairman, President February 1, 1999
- ------------------------------------- and Chief Executive
Stephen E. Smith Officer and
Director (Principal
Executive Officer)
/s/ Dewey K. Shay Vice President and February 1, 1999
- ------------------------------------- Chief Financial
Dewey K. Shay Officer (Principal
Financial and
Accounting Officer)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibits Number
------- -------- ------
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Amended and Restated Bylaws of the Registrant
5.1* Opinion of Hogan & Hartson L.L.P.
10.1 Stock Exchange Agreement by and among the Registrant, United States
Internet, Inc. and certain shareholders of United States Internet,
Inc. dated as of December 21, 1998
10.2 Form of Shareholder Consent, Power of Attorney and Investor
Questionnaire executed by certain shareholders of United States
Internet, Inc.
10.3 Stock Exchange Agreement by and among the Registrant, JPS.Net
Corporation and the shareholders of JPS.Net Corporation dated as of
December 18, 1998
10.4 Stock Exchange Agreement by and among the Registrant, D&E Supernet,
Inc. and the shareholders of D&E Supernet, Inc. dated as of December 21,
1998
10.5* Senior Management Agreement between the Registrant and Stephen E.
Smith
10.6* Senior Management Agreement between the Registrant and Dewey
K. Shay
10.7* Senior Management Agreement between the Registrant and Martin
R. Lyons
10.8* Senior Management Agreement between the Registrant and Allon
H. Lefever
10.9* Senior Management Agreement between the Registrant and M. Cristina
Dolan
10.10 Form of Employment Agreement between the Registrant and Michael C.
Crabtree
10.11* Registration Rights Agreement among the Registrant and certain
stockholders of the Registrant
10.12* OneMain.com, Inc. 1999 Stock Option and Incentive Plan
10.13* OneMain.com, Inc. 1999 Employee Stock Purchase Plan
11.1* Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1+ Consent of Ernst & Young LLP, Independent Auditors (Registrant)
(OneMain.com)
23.2+ Consent of Ernst & Young LLP, Independent Auditors (D&E Supernet, Inc.)
Supernet)
23.3+ Consent of Ernst & Young LLP, Independent Auditors (SunLink,
Inc.)
23.4+ Consent of Ernst & Young LLP, Independent Auditors (LebaNet,
Inc.)
23.5+ Consent of Grant Thornton LLP, Independent Auditors
(Southwind Internet Access, Inc.)
23.6+ Consent of Ernst & Young LLP, Independent Auditors (Horizon
Internet Technologies, Inc.)
23.7+ Consent of Coulter & Justus, P.C., Independent Auditors
(United States Internet, Inc.)
23.8+ Consent of Ernst & Young LLP, Independent Auditors (Internet
Partners of America, LC)
23.9+ Consent of Lopez, Levi & Associates, P.A., Independent
Auditors (Netrox, LLC)
23.10+ Consent of Ernst & Young LLP, Independent Auditors (ZoomNet,
Inc.)
23.11+ Consent of Ernst & Young LLP, Independent Auditors (Palm.Net,
USA, Inc.)
23.12+ Consent of Ernst & Young LLP, Independent Auditors (Internet
Access Group, Inc.)
23.13+ Consent of Ernst & Young LLP, Independent Auditors (Midwest Internet
L.L.C.)
23.14+ Consent of Kevin J. Tochtrop, Certified Public Accountant,
Independent Auditor (Internet Solutions, LLC)
23.15+ Consent of Ernst & Young LLP, Independent Auditors (FGInet,
Inc.)
23.16+ Consent of Ernst & Young LLP, Independent Auditors
(Superhighway, Inc.)
23.17+ Consent of Ernst & Young LLP, Independent Auditors
(Lightspeed Net, Inc.)
23.18+ Consent of Ernst & Young LLP, Independent Auditors (JPS.Net
Corporation)
23.19* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.20+ Consent of Allon H. Lefever (Director Nominee)
23.21+ Consent of Michael C. Crabtree (Director Nominee)
23.22+ Consent of Thomas R. Eisenmann (Director Nominee)
27.1+ Financial Data Schedule
99.1 Form of Rule 134 e-mail Notice to Wit Capital Corporation Members
99.2 Form of Rule 134 e-mail Notice to e-Dealer Customers
99.3 Form of Rule 134 e-mail Notice to Subscribers of Companies to be
Acquired by Registrant
99.4 Text of Wit Capital Corporation Website Established for this Offering
</TABLE>
- -------------------------
*To be filed by amendment.
+Previously filed.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
U.S. INTERNET PROVIDERS, INC.
The following Amended and Restated Certificate of Incorporation
restates and integrates and also amends the Certificate of Incorporation of U.S.
Internet Providers, Inc., which shall be renamed OneMain.com, Inc. as set forth
herein (the "CORPORATION"), as heretofore in effect. In accordance with Section
245 of the General Corporation Law of the State of Delaware (the "DELAWARE
GENERAL CORPORATION LAW"), this Amended and Restated Certificate of
Incorporation was proposed by the Board of Directors of the Corporation (the
"BOARD") and adopted by stockholders of the Corporation in the manner and by the
vote described by Section 242 of the Delaware General Corporation Law.
ARTICLE 1. NAME
The name of this Corporation is OneMain.com, Inc.
ARTICLE 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at 1209
Orange Street, in the City of Wilmington, County of New Castle, in the State of
Delaware. The registered agent of the Corporation at such address shall be The
Corporation Trust Company.
ARTICLE 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law. The Corporation shall have all power necessary or convenient
to the conduct, promotion or attainment of such acts and activities.
ARTICLE 4. CAPITAL STOCK
4.1. AUTHORIZED SHARES
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 110,000,000, of which
100,000,000 of such shares shall be Common Stock having a par value of $.001 per
share ("COMMON
<PAGE>
STOCK"), and 10,000,000 of such shares shall be Preferred Stock, having a par
value of $.001 per share ("PREFERRED STOCK").
4.2. COMMON STOCK
4.2.1. RELATIVE RIGHTS
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative rights
as and be identical in all respects to all the other shares of Common Stock.
4.2.2 DIVIDENDS
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation.
4.2.3 DISSOLUTION, LIQUIDATION, WINDING UP
In the event of any dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock,
and holders of any class or series of stock entitled to participate therewith,
in whole or in part, as to the distribution of assets in such event, shall
become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of the Corporation and after the
Corporation shall have paid, or set aside for payment, to the holders of any
class of stock having preference over the Common Stock in the event of
dissolution, liquidation or winding up the full preferential amounts (if any) to
which they are entitled.
4.2.4 VOTING RIGHTS
Each holder of shares of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and, share
for share and without regard to class, together with the holders of all other
classes of stock entitled to attend such meetings and to vote (except any class
or series of stock having special voting rights), to cast one vote for each
outstanding share of Common Stock so held upon any matter or thing (including,
without limitation, the
-2-
<PAGE>
election of one or more directors) properly considered and acted upon by the
stockholders.
4.3. PREFERRED STOCK
The Board is authorized, subject to limitations prescribed by the
Delaware General Corporation Law and the provisions of this Amended and Restated
Certificate of Incorporation, to provide, by resolution or resolutions from time
to time and by filing a certificate of designations pursuant to the Delaware
General Corporation Law, for the issuance of the shares of Preferred Stock in
series, to establish from time to time the number of shares to be included in
each such series, to fix the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and to fix the qualifications, limitations or restrictions thereof.
4.4. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called (a) by the Board on its
own behalf or one or more officers of the Corporation as provided in the bylaws
or (b) by stockholders of the Corporation upon the written request of the
holders of at least a majority of the securities of the Corporation outstanding
and entitled to vote generally in the election of directors.
4.5. ACTION WITHOUT A MEETING
Any action required or permitted to be taken at a stockholders'
meeting may be taken without a meeting, without prior notice and without a vote,
if the action is taken by persons who would be entitled to vote at a meeting and
who hold shares having voting power equal to not less than the minimum number of
votes of each class or series that would be necessary to authorize or take the
action at a meeting at which all shares of each class or series entitled to vote
were present and voted. The action must be evidenced by one or more written
consents describing the action taken, signed by the stockholders entitled to
take action without a meeting, and delivered to the Corporation in the manner
prescribed by the Delaware General Corporation Law for inclusion in the minute
book. No consent shall be effective to take the corporate action specified
unless the number of consents required to take such action are delivered to the
Corporation within 60 days of the delivery of the earliest-dated consent.
Written notice of the action taken shall be given in accordance with the
Delaware General Corporation Law to all stockholders who do not participate in
taking the action who would have been entitled to notice if such action had been
taken at a meeting having a record date on the date that written consents signed
by a sufficient number of holders to take the action were delivered to the
Corporation.
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<PAGE>
ARTICLE 5. BOARD OF DIRECTORS
5.1. NUMBER; ELECTION
The number of directors of the Corporation shall not be fewer than
three nor more than 15, and shall be fixed from time to time by the affirmative
vote of a majority of the total number of directors which the Corporation would
have, prior to any increase or decrease, if there were no vacancies. From and
following the date on which the Registration Statement on Form S-1 relating to
the Corporation's initial public offering is declared effective by the
Securities and Exchange Commission, the directorships (i.e., the particular
----
seats on the Board) shall be classified into three classes as nearly equal in
number as possible.
With respect to newly created or eliminated directorships resulting
from an increase or decrease, respectively, in the number of directors, the
Board shall determine and designate to which class of directorships each
director belongs. The term of any director elected at an annual meeting of
stockholders shall expire at the annual meeting of stockholders held in the
third year following the year of the director's election. Unless and except to
the extent that the bylaws of the Corporation shall otherwise require, the
election of directors of the Corporation need not be by written ballot.
5.2. MANAGEMENT OF BUSINESS AND AFFAIRS OF THE CORPORATION
The business and affairs of the Corporation shall be managed by or
under the direction of the Board. Except as otherwise provided in this Amended
and Restated Certificate of Incorporation, each director of the Corporation
shall be entitled to one vote per director on all matters voted or acted upon by
the Board.
5.3. VACANCIES; RESIGNATION; REMOVAL
Vacancies and newly created directorships resulting from any increase
in the number of directors on the Board may be filled only by the affirmative
vote of a majority of the directors then in office, even if less than a quorum
exists, or by a sole remaining director. Whenever the holders of any class or
classes of stock or series thereof are entitled to elect one or more directors
by the provisions of this Amended and Restated Certificate of Incorporation,
vacancies and newly created directorships of such class or classes or series may
be filled by the affirmative vote of a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected. Each director so chosen shall hold office until the next
annual meeting of stockholders, and until such director's successor is elected
and qualified, or until the director's earlier death, resignation or removal.
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A director may resign at any time upon written notice to the
Corporation, and the resignation shall take effect at the time it specifies,
without any need for acceptance by the Board. In the event that one or more
directors resigns from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, with the vote thereon to take effect when
such resignation or resignations becomes effective. Directors may only be
removed for cause upon the affirmative vote of at least a majority of the entire
voting power of all the then-outstanding shares of stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class.
5.4. LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law or (d) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this SECTION 5.4 shall be prospective only and shall not
adversely affect any right or protection of, or any limitation of the liability
of, a director of the Corporation existing at, or arising out of facts or
incidents occurring prior to, the effective date of such repeal or modification.
ARTICLE 6. COMPROMISE OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization
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<PAGE>
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
ARTICLE 7. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized and empowered to adopt, amend and repeal the bylaws of the
Corporation. The bylaws of the Corporation may be adopted, amended or repealed
by the stockholders of the Corporation only upon the affirmative vote of at
least a majority of the entire voting power of all the then-outstanding shares
of stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE 8. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time to
time, to amend, alter, change, or repeal any provision contained in this Amended
and Restated Certificate of Incorporation, and other provisions authorized by
the laws of the State of Delaware at the time in force may be added or inserted,
in the manner now or hereafter prescribed by law; and all rights, preferences,
and privileges of any nature conferred upon stockholders, directors or any other
persons by and pursuant to this Amended and Restated Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the rights reserved in this ARTICLE 8.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, hereby certifies that the facts hereinabove stated are truly set
forth, and accordingly executes this Amended and Restated Certificate of
Incorporation this 23rd day of December 1998.
/s/ Stephen E. Smith
--------------------
Stephen E. Smith
President
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<PAGE>
EXHIBIT 3.2
ONEMAIN.COM, INC.
AMENDED AND RESTATED BYLAWS
ADOPTED
AS OF
DECEMBER 23, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1 OFFICES............................................. 1
1.1 Registered Office.................................... 1
1.2 Other Offices........................................ 1
SECTION 2 MEETINGS OF STOCKHOLDERS............................ 1
2.1 Place of Meetings.................................... 1
2.2 Annual Meetings...................................... 1
2.3 Special Meetings..................................... 3
2.4 Notice of Meetings................................... 3
2.5 Waivers of Notice.................................... 4
2.6 List of Stockholders................................. 4
2.7 Quorum at Meetings................................... 4
2.8 Voting and Proxies................................... 5
2.9 Required Vote........................................ 5
2.10 Inspectors........................................... 6
SECTION 3 DIRECTORS........................................... 7
3.1 Powers............................................... 7
3.2 Number and Election.................................. 7
3.3 Meetings............................................. 7
3.3.1 Regular Meetings............................. 7
3.3.2 Special Meetings............................. 7
3.3.3 Telephone Meetings........................... 8
3.3.4 Action Without Meeting....................... 8
3.3.5 Waiver of Notice of Meeting.................. 8
3.4 Quorum and Vote at Meetings.......................... 8
3.5 Committees of Directors.............................. 8
3.6 Compensation of Directors............................ 9
SECTION 4 OFFICERS............................................ 9
4.1 Positions............................................ 9
4.2 Chairman and Vice Chairman........................... 10
4.3 President............................................ 10
4.4 Vice President....................................... 10
4.5 Secretary............................................ 11
4.6 Assistant Secretary.................................. 11
4.7 Treasurer............................................ 11
4.8 Assistant Treasurer.................................. 11
4.9 Term of Office....................................... 11
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
4.10 Compensation............................................. 12
4.11 Fidelity Bonds........................................... 12
SECTION 5 CAPITAL STOCK........................................... 12
5.1 Certificates of Stock; Uncertificated Shares............. 12
5.2 Lost Certificates........................................ 12
5.3 Record Date.............................................. 13
5.3.1 Actions by Stockholders.......................... 13
5.3.2 Payments......................................... 13
5.4 Stockholders of Record................................... 13
SECTION 6 INDEMNIFICATION; INSURANCE.............................. 14
6.1 Authorization of Indemnification......................... 14
6.2 Right of Claimant to Bring Action Against the Corporation. 15
6.3 Non-exclusivity........................................... 16
6.4 Survival of Indemnification............................... 16
6.5 Insurance................................................. 16
SECTION 7 GENERAL PROVISIONS...................................... 16
7.1 Inspection of Books and Records........................... 16
7.2 Dividends................................................. 17
7.3 Reserves.................................................. 17
7.4 Execution of Instruments.................................. 17
7.5 Fiscal Year............................................... 17
7.6 Seal...................................................... 17
</TABLE>
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<PAGE>
AMENDED AND RESTATED BYLAWS
OF
ONEMAIN.COM, INC.
SECTION 1 OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be in Wilmington,
Delaware, and the initial registered agent in charge thereof shall be The
Corporation Trust Company.
1.2 OTHER OFFICES
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors of the
Corporation (the "BOARD") may from time to time determine or as may be necessary
or useful in connection with the business of the Corporation.
SECTION 2 MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
All meetings of the stockholders shall be held at such place as may be
fixed from time to time by the Board, the Chairman or the President.
2.2 ANNUAL MEETINGS
(a) The Corporation shall hold annual meetings of stockholders,
commencing with the year 2000, on such date and at such time as shall be
designated from time to time by the Board, the Chairman or the President. At
each annual meeting, the stockholders shall elect by a plurality vote (as
provided in SECTION 2.9 hereof) directors to succeed those whose terms expire at
the time of the annual meeting. The nomination of persons for election to the
Board and the proposal of any other business to be transacted at an annual
meeting may be made only (i) by or at the direction of the Board or (ii) by any
stockholder of record who gives notice in accordance with the procedures set
forth in paragraph (b) of this
<PAGE>
SECTION 2.2 and who is a stockholder of record both on the date of giving such
notice and on the record date for the determination of stockholders entitled to
vote at such annual meeting; only persons thereby nominated shall be eligible to
serve as directors and only business thereby proposed shall be transacted at an
annual meeting. The presiding officer of the annual meeting shall determine
whether a nomination or any proposal of business complies or complied with this
SECTION 2.2.
(b) For nominations and other business to be brought properly before
an annual meeting by a stockholder pursuant to clause (ii) of paragraph (a) of
this SECTION 2.2, the stockholder must deliver notice to the Secretary of the
Corporation at the principal executive offices of the Corporation in accordance
with this SECTION 2.2(B). The notice must be received by the Secretary not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
-------- -------
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, the stockholder must so deliver the
notice not earlier than the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made; provided further, however, that in the event
-------- ------- -------
that the number of directors to be elected to the Board is increased and there
is no public announcement naming all of the nominees for director or specifying
the size of the increased Board made by the Corporation at least 70 days prior
to the first anniversary of the preceding annual meeting, with respect to
nominees for any new position created by the increase, the stockholder must so
deliver the notice not later than the close of business on the tenth day
following the day on which such public announcement is first made. The
stockholder's notice must set forth: (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and
regulations thereunder (together with such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected), whether or not the Corporation is then subject to Section 14(a) and
such rules and regulations; (ii) as to any other business that the stockholder
proposes to transact at the meeting, a brief description of the business desired
to be brought before the meeting, the reasons for conducting the business at the
meeting and any material interest in the business of the stockholder and of the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, the name and address of the
stockholder, as they appear on the Corporation's books, and of such beneficial
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owner, the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner and a
representation that the stockholder intends to appear in person or by proxy at
the annual meeting to bring such business before the meeting. For purposes of
this SECTION 2.2 and SECTION 2.3 hereof, a "public announcement" means
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service, in a document publicly filed with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act (or their successor provisions), or in a notice of meeting or proxy
statement mailed generally to the Corporation's stockholders. In giving notice
under this SECTION 2.2, a stockholder must also comply with state law and the
Exchange Act (and the rules and regulations thereunder). Nothing in this SECTION
2.2 shall be deemed to affect the rights of a stockholder to request inclusion
of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 (or its
successor provision) under the Exchange Act.
2.3 SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called only by the Board, the
Chairman or the President or by the stockholders as set forth in the
Corporation's Certificate of Incorporation (as amended and amended and restated
from time to time, the "CERTIFICATE OF INCORPORATION"). Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice relating to such meeting (or to the purposes for which the meeting is
called if such notice is waived or is not required as provided in the General
Corporation Law of the State of Delaware (the "DELAWARE GENERAL CORPORATION
LAW") or these Bylaws). In the case of a special meeting of stockholders called
for the purpose of electing directors, nominations may be made only (i) by or at
the direction of the Board or (ii) by any stockholder of record who delivers to
the Secretary, no later than the tenth day following the day on which public
announcement of the special meeting is made, a notice that complies with and is
delivered in accordance with SECTION 2.2(B) above.
2.4 NOTICE OF MEETINGS
Written notice of any meeting of stockholders, stating the place, date
and hour of the meeting, and (if it is a special meeting) the purpose or
purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than 60 days before
the date of the meeting (except to the extent that such notice is waived or is
not required as provided in the Delaware General Corporation Law or these
Bylaws). Such notice shall be given in
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accordance with, and shall be deemed effective as set forth in, Section 222 (or
any successor section) of the Delaware General Corporation Law.
2.5 WAIVERS OF NOTICE
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the Corporation, signed by the person or persons entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice (1) of such meeting, except when the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (2) (if it is a special meeting) of
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the stockholder
objects to considering the matter at the beginning of the meeting.
2.6 LIST OF STOCKHOLDERS
After the record date for a meeting of stockholders has been fixed, at
least ten days before such meeting, the officer or other agent of the
Corporation who has charge of the stock ledger of the Corporation shall make a
list of all stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place in the city where the meeting is to be held, which
place is to be specified in the notice of the meeting, or at the place where the
meeting is to be held. Such list shall also, for the duration of the meeting,
be produced and kept open to the examination of any stockholder who is present
at the time and place of the meeting.
2.7 QUORUM AT MEETINGS
Stockholders may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Except as otherwise provided by statute or
by the Certificate of Incorporation, a quorum shall exist if there are present
in person or represented by proxy the holders of a majority of the shares
entitled to vote at the meeting. Where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy, shall constitute a quorum entitled to take
action with respect
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<PAGE>
to that vote on that matter. Once a share is represented for any purpose at a
meeting (other than solely to object (1) to holding the meeting or transacting
business at the meeting or (2) (if it is a special meeting) to consideration of
a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice), it is deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be set for the adjourned meeting. The holders of a
majority of the voting shares represented at a meeting, whether or not a quorum
is present, may adjourn such meeting from time to time.
2.8 VOTING AND PROXIES
Unless otherwise provided in the Delaware General Corporation Law or
in the Certificate of Incorporation, and subject to the other provisions of
these Bylaws, each stockholder shall be entitled to one vote on each matter, in
person or by proxy, for each share of the Corporation's capital stock that has
voting power and that is held by such stockholder. No proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed appointment of proxy shall be irrevocable if the
appointment form states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power.
2.9 REQUIRED VOTE
When a quorum is present at any meeting of stockholders, all matters
shall be determined, adopted and approved by the affirmative vote (which need
not be by ballot) of the holders of a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote with respect to the
matter, unless the proposed action is one upon which, by express provision of
statutes or of the Certificate of Incorporation, a different vote is specified
and required, in which case such express provision shall govern and control with
respect to that vote on that matter. Where a separate vote by a class or
classes is required, the affirmative vote of the holders of a majority of the
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class. Notwithstanding the foregoing,
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
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<PAGE>
2.10 INSPECTORS
Prior to any meeting of stockholders, the Board or the President
shall appoint one or more inspectors to act at such meeting and make a written
report thereof and may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at the meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall ascertain the
number of shares outstanding and the voting power of each, determine the shares
represented at the meeting and the validity of proxies and ballots, count all
votes and ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
certify their determination of the number of shares represented at the meeting
and their count of all votes and ballots. The inspectors may appoint or retain
other persons to assist them in the performance of their duties. The date and
time of the opening and closing of the polls for each matter upon which the
stockholders will vote at a meeting shall be announced at the meeting. No
ballot, proxy or vote, nor any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls. In determining the
validity and counting of proxies and ballots, the inspectors shall be limited to
an examination of the proxies, any envelopes submitted therewith, any
information provided by a stockholder who submits a proxy by telegram, cablegram
or other electronic transmission from which it can be determined that the proxy
was authorized by the stockholder, ballots and the regular books and records of
the Corporation, and they may also consider other reliable information for the
limited purposes of reconciling proxies and ballots submitted by or on behalf of
banks, brokers, their nominees or similar persons that represent more votes than
the holder of a proxy is authorized by the record owner to cast or more votes
than the stockholder holds of record. If the inspectors consider other reliable
information for such purpose, they shall, at the time they make their
certification, specify the precise information considered by them, including the
person or persons from whom they obtained the information, when the information
was obtained, the means by which the information was obtained and the basis for
the inspectors' belief that such information is accurate and reliable.
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<PAGE>
SECTION 3 DIRECTORS
3.1 POWERS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things, subject to any limitation
set forth in the Certificate of Incorporation or as otherwise may be provided in
the Delaware General Corporation Law.
3.2 NUMBER AND ELECTION
The number of directors constituting the entire Board shall be the
number, within the range set forth in the Certificate of Incorporation, fixed
from time to time by the Board in the manner set forth in the Certificate of
Incorporation. Directors shall be elected at an annual meeting of the
stockholders in accordance with the Certificate of Incorporation. Vacancies on
the Board shall be filled in accordance with the Certificate of Incorporation.
Once elected or chosen pursuant to the Certificate of Incorporation, a director
shall hold office until the director's successor is elected and qualified or
until the director dies, resigns or is removed; provided, however, that if the
-----------------
Board decreases the number of directors constituting the Board and designates a
particular directorship to be eliminated due to the decrease, a director in the
eliminated directorship shall cease to hold office after the next election of
such directorship, unless the director is nominated and elected to another
directorship on the Board.
3.3 MEETINGS
3.3.1 REGULAR MEETINGS
Regular meetings of the Board may be held without notice at such time
and at such place as shall from time to time be determined by the Board.
3.3.2 SPECIAL MEETINGS
Special meetings of the Board may be called by the Chairman or
President on one day's notice to each director, either personally or by
telephone, express delivery service (so that the scheduled delivery date of the
notice is at least one day in advance of the meeting), telegram or facsimile
transmission, and on five days' notice by mail (effective upon deposit of such
notice in the mail). The notice need not describe the purpose of a special
meeting.
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3.3.3 TELEPHONE MEETINGS
Members of the Board may participate in a meeting of the Board by any
communication by means of which all participating directors can simultaneously
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
3.3.4 ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if the action is taken by all members of
the Board. The action must be evidenced by one or more written consents
describing the action taken, signed by each director, and delivered to the
Corporation for inclusion in the minute book.
3.3.5 WAIVER OF NOTICE OF MEETING
A director may waive any notice required by statute, the Certificate
of Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the minute book. Notwithstanding the foregoing, a director's attendance at
or participation in a meeting waives any required notice to the director of the
meeting unless the director at the beginning of the meeting objects to holding
the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
3.4 QUORUM AND VOTE AT MEETINGS
At all meetings of the Board, a quorum of the Board consists of one-
third (1/3) of the total number of directors comprising the full Board as
established pursuant to SECTION 3.2 of these Bylaws. The vote of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation or by these Bylaws.
3.5 COMMITTEES OF DIRECTORS
The Board may designate one or more committees, each committee to
consist of one or more directors. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If a member of a committee
is absent
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from any meeting, or disqualified from voting thereat, the remaining member or
members present and not disqualified from voting, whether or not such member or
members constitute a quorum, may, by unanimous vote, appoint another member of
the Board to act at the meeting in the place of such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority in reference to approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to stockholders
for approval or adopting, amending or repealing any Bylaw of the Corporation;
and unless the resolution designating the committee, these Bylaws or the
Certificate of Incorporation expressly so provides, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of stock
or to adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware General Corporation Law. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board. Each committee shall keep regular minutes of its meetings and report
the same to the Board, when required. Unless otherwise specified in the Board
resolution appointing the Committee, all provisions of the Delaware General
Corporation Law and these Bylaws relating to meetings, action without meetings,
notice (and waiver thereof) and quorum and voting requirements of the Board
apply, as well, to such committees and their members.
3.6 COMPENSATION OF DIRECTORS
The Board shall have the authority to fix the compensation of
directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 4 OFFICERS
4.1 POSITIONS
The officers of the Corporation shall be a Chairman, a President and a
Secretary, and such other officers as the Board (or an officer authorized by the
Board) from time to time may appoint, including one or more Vice Chairmen, a
Treasurer, one or more Vice Presidents (any of whom may be designated Senior
Vice President or Executive Vice President), Assistant Secretaries and Assistant
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Treasurers. Each such officer shall exercise such powers and perform such
duties as shall be set forth below and such other powers and duties as from time
to time may be specified by the Board or by any officer(s) authorized by the
Board to prescribe the duties of such other officers. Any number of offices may
be held by the same person, except that in no event shall the President and the
Secretary be the same person. Each of the Chairman, President and/or any Vice
President may execute bonds, mortgages, contracts and other instruments and
documents under the seal of the Corporation, if required, except where required
or permitted by law to be otherwise executed and except where the execution
thereof shall be expressly delegated by the Board to some other officer or agent
of the Corporation.
4.2 CHAIRMAN AND VICE CHAIRMAN
The Chairman shall (when present and unless otherwise provided by
resolution of the Board or delegated by the Chairman) preside at all meetings of
the Board and stockholders, and shall ensure that all orders and resolutions of
the Board and stockholders are carried into effect. The Vice Chairman (if there
be one, and if there be more than one, in the order designated, or in the
absence of any designation, then in the order of their election) shall, in the
absence of the Chairman (unless otherwise provided by resolution of the Board),
preside at all meetings of the Board and stockholders.
4.3 PRESIDENT
The President shall be the Chief Executive Officer of the Corporation
and shall have full responsibility and authority for management of the
operations of the Corporation and shall have and perform such other duties as
may be prescribed by the stockholders, the Board or the Executive Committee (if
any).
4.4 VICE PRESIDENT
In the absence of the President or in the event of the President's
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President. Unless the order is
otherwise designated, an Executive Vice President shall come in order before any
Senior Vice President and any Vice President, and a Senior Vice President shall
come in order before any Vice President.
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4.5 SECRETARY
The Secretary shall have responsibility for preparation of minutes of
meetings of the Board and of the stockholders and for authenticating records of
the Corporation. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board. The Secretary
or an Assistant Secretary may also attest all instruments signed by any other
officer of the Corporation.
4.6 ASSISTANT SECRETARY
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board (or if there shall have been no
such determination, then in the order of their election), shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary.
4.7 TREASURER
The Treasurer, if one is appointed, shall have responsibility for the
custody of the corporate funds and securities and shall see to it that full and
accurate accounts of receipts and disbursements are kept in books belonging to
the Corporation. The Treasurer, if one is appointed, shall render to the
Chairman, the President and the Board, upon request, an account of all financial
transactions and of the financial condition of the Corporation.
4.8 ASSISTANT TREASURER
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board (or if there shall
have been no such determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of the Treasurer's inability or
refusal to act, perform the duties and exercise the powers of the Treasurer.
4.9 TERM OF OFFICE
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board may be removed at any time, with or
without cause, by the affirmative vote of a majority of the Board.
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4.10 COMPENSATION
The compensation of officers of the Corporation shall be fixed by the
Board or by any officer(s) authorized by the Board to prescribe the compensation
of such other officers.
4.11 FIDELITY BONDS
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
SECTION 5 CAPITAL STOCK
5.1 CERTIFICATES OF STOCK; UNCERTIFICATED SHARES
The shares of the Corporation shall be represented by certificates,
provided that the Board may provide by resolution that some or all of any or all
classes or series of the Corporation's stock be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board, every holder of stock represented by
certificates, and upon request every holder of uncertificated shares, shall be
entitled to have a certificate (representing the number of shares registered in
certificate form) signed in the name of the Corporation by the Chairman,
President or any Vice President, and by the Treasurer, Secretary or any
Assistant Treasurer or Assistant Secretary of the Corporation. Any or all the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar whose signature or facsimile signature appears on a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
5.2 LOST CERTIFICATES
The Board, Chairman, President or Secretary may direct a new
certificate of stock to be issued in place of any certificate theretofore issued
by the Corporation and alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming that the certificate
of stock has been lost, stolen or destroyed. When authorizing such issuance of
a new certificate, the Board or any such officer may, as a condition precedent
to the issuance thereof,
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require the owner of such lost, stolen or destroyed certificate or certificates,
or such owner's legal representative, to advertise the same in such manner as
the Board or such officer shall require and/or to give the Corporation a bond or
indemnity, in such sum or on such terms and conditions as the Board or such
officer may direct, as indemnity against any claim that may be made against the
Corporation on account of the certificate alleged to have been lost, stolen or
destroyed or on account of the issuance of such new certificate or
uncertificated shares.
5.3 RECORD DATE
5.3.1 ACTIONS BY STOCKHOLDERS
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than 60 days nor less than ten days before the date of such
meeting. If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, unless the Board
fixes a new record date for the adjourned meeting.
5.3.2 PAYMENTS
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
5.4 STOCKHOLDERS OF RECORD
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive
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dividends, to receive notifications, to vote as such owner and to exercise all
the rights and powers of an owner. The Corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise may be provided by the Delaware General
Corporation Law.
SECTION 6 INDEMNIFICATION; INSURANCE
6.1 AUTHORIZATION OF INDEMNIFICATION
Each person who was or is a party or is threatened to be made a party
to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
by or in the right of the Corporation or otherwise (a "PROCEEDING"), by reason
of the fact that he or she is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee, partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to an employee benefit plan, shall be
(and shall be deemed to have a contractual right to be) indemnified and held
harmless by the Corporation (and any successor to the Corporation by merger or
otherwise) to the fullest extent authorized by, and subject to the conditions
and (except as provided herein) procedures set forth in the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but any such
amendment shall not be deemed to limit or prohibit the rights of indemnification
hereunder for past acts or omissions of any such person insofar as such
amendment limits or prohibits the indemnification rights that said law permitted
the Corporation to provide prior to such amendment), against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA taxes
or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by such person in connection therewith if such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal proceeding, had no reasonable cause to believe such person's
conduct was unlawful; provided, however, that the Corporation shall indemnify
--------- -------
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person (except for a suit or action pursuant to
SECTION 6.2 hereof) only if such proceeding (or part thereof) was authorized by
the Board. Persons who are not directors or officers of the Corporation and are
not so serving at the request of the Corporation may be similarly indemnified in
respect of such service to the extent authorized at any time by the Board. The
indemnification conferred in this
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SECTION 6.1 also shall include the right to be paid by the Corporation (and such
successor) the expenses (including attorneys' fees) incurred in the defense of
or other involvement in any such proceeding in advance of its final disposition;
provided, however, that, if and to the extent the Delaware General Corporation
- --------- -------
Law requires, the payment of such expenses (including attorneys' fees) incurred
by a director or officer in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such director or officer to repay all amounts so paid in advance if it
shall ultimately be determined that such director or officer is not entitled to
be indemnified under this SECTION 6.2 or otherwise; and provided further, that
-------- -------
such expenses incurred by other employees and agents may be so paid in advance
upon such terms and conditions, if any, as the Board deems appropriate.
6.2 RIGHT OF CLAIMANT TO BRING ACTION AGAINST THE CORPORATION
If a claim under SECTION 6.1 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring an action against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
action. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed or is otherwise not entitled to indemnification under SECTION 6.1, but
the burden of proving such defense shall be on the Corporation. The failure of
the Corporation to have made a determination (in the manner provided under the
Delaware General Corporation Law) prior to or after the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law shall not be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Unless otherwise specified in an agreement with the claimant, an actual
determination by the Corporation (in the manner provided under the Delaware
General Corporation Law) after the commencement of such action that the claimant
has not met such applicable standard of conduct shall not be a defense to the
action, but shall create a presumption that the claimant has not met the
applicable standard of conduct.
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6.3 NON-EXCLUSIVITY
The rights to indemnification and advance payment of expenses provided
by SECTION 6.1 hereof shall not be deemed exclusive of any other rights to which
those seeking indemnification and advance payment of expenses may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
6.4 SURVIVAL OF INDEMNIFICATION
The indemnification and advance payment of expenses and rights thereto
provided by, or granted pursuant to, SECTION 6.1 hereof shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, partner or agent and shall inure to the
benefit of the personal representatives, heirs, executors and administrators of
such person.
6.5 INSURANCE
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, partner (limited or general) or agent of another
corporation or of a partnership, joint venture, limited liability company, trust
or other enterprise, against any liability asserted against such person or
incurred by such person in any such capacity, or arising out of such person's
status as such, and related expenses, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of the Delaware General Corporation Law.
SECTION 7 GENERAL PROVISIONS
7.1 INSPECTION OF BOOKS AND RECORDS
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to
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such person's interest as a stockholder. In every instance where an attorney or
other agent is the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing that
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office or at its principal place of business.
7.2 DIVIDENDS
The Board may declare dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation and
the laws of the State of Delaware.
7.3 RESERVES
The directors of the Corporation may set apart, out of the funds of
the Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
7.4 EXECUTION OF INSTRUMENTS
All checks, drafts or other orders for the payment of money and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board may from time to time designate.
7.5 FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st of December
in each year.
7.6 SEAL
The corporate seal shall be in such form as the Board shall approve.
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or otherwise reproduced.
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* * * *
The foregoing Amended and Restated Bylaws were adopted by the Board of
Directors on December 23, 1998.
/s/ Dewey K. Shay
-----------------------------------
Dewey K. Shay
Secretary
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EXHIBIT 10.1
------------
STOCK EXCHANGE AGREEMENT
BY AND AMONG
U.S. INTERNET PROVIDERS, INC.,
(ACQUIRER)
UNITED STATES INTERNET, INC.
("USI")
AND
THE SHAREHOLDERS OF UNITED STATES INTERNET, INC.
(COLLECTIVELY, TRANSFERORS)
DATED AS OF DECEMBER 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS
1.1 Definitions........................................................... 1
ARTICLE II
THE EXCHANGE OF SHARES
2.1 Basic Transaction..................................................... 8
2.2 Effective Time of the Stock Exchange.................................. 8
2.3 Net Worth Adjustment.................................................. 9
2.4 Reserved.............................................................. 9
2.5 Earned Payout Amount.................................................. 9
2.6 Reserved.............................................................. 10
2.7 The Closing........................................................... 10
2.8 Deliveries at the Closing............................................. 10
2.9 Transferors' Representative........................................... 10
2.10 Escrow Arrangements................................................... 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE TRANSFERORS
3.1 Authorization of Transaction.......................................... 12
3.2 Noncontravention...................................................... 13
3.3 Broker's Fees......................................................... 13
3.4 Investment............................................................ 13
3.5 USI Shares............................................................ 13
3.6 Disclosure............................................................ 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO USI
4.1 Organization, Qualification, and Corporate Power...................... 14
4.2 Capitalization........................................................ 14
4.3 Noncontravention...................................................... 14
4.4 Subsidiaries.......................................................... 15
4.5 Financial Statements.................................................. 15
4.6 Events Subsequent to the Most Recent Fiscal Year End.................. 15
4.7 Undisclosed Liabilities............................................... 16
4.8 Tax Matters........................................................... 16
4.9 Tangible Assets....................................................... 17
4.10 Owned Real Property................................................... 17
4.11 Intellectual Property................................................. 17
4.12 Contracts............................................................. 18
4.13 Notes and Accounts Receivable......................................... 20
</TABLE>
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<TABLE>
<S> <C>
4.14 Insurance.......................................................... 20
4.15 Litigation......................................................... 20
4.16 Employees.......................................................... 21
4.17 Employee Benefits.................................................. 21
4.18 Guaranties......................................................... 21
4.19 Legal Compliance................................................... 21
4.20 Certain Business Relationships with USI............................ 22
4.21 Brokers' Fees...................................................... 22
4.22 Systems............................................................ 22
4.23 Subscribers........................................................ 22
4.24 Disclosure......................................................... 23
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
5.1 Organization of the Acquirer....................................... 23
5.2 Authorization of Transaction....................................... 23
5.3 Brokers' Fees...................................................... 23
5.4 Acquirer's Capitalization.......................................... 23
5.5 Disclosure......................................................... 24
5.6 Noncontravention................................................... 24
5.7 Consolidation Activities........................................... 24
ARTICLE VI
PRE-CLOSING COVENANTS
6.1 General............................................................ 24
6.2 Notices and Consents............................................... 24
6.3 Operation of Business Prior to the Effective Time.................. 25
6.4 Preservation of Business........................................... 25
6.5 Access............................................................. 25
6.6 Notice of Developments............................................. 26
6.7 Exclusivity........................................................ 26
6.8 Cancellation of Options, Warrants, Stock Appreciation Rights, Bonus
Programs and Phantom Stock Plans.............................. 26
6.9 Reserved........................................................... 27
6.10 Reserved........................................................... 27
6.11 Reserved........................................................... 27
6.12 Tax Matters........................................................ 27
6.13 Audits............................................................. 27
6.14 Due Diligence...................................................... 27
ARTICLE VII
POST-CLOSING COVENANTS
7.1 General............................................................ 28
7.2 Transition......................................................... 28
7.3 Confidentiality.................................................... 28
</TABLE>
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<TABLE>
<S> <C>
7.4 Covenant Not to Compete............................................. 29
7.5 Tax Free Exchange Intent............................................ 29
7.6 Conduct During Earned Payout Period................................. 29
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 Conditions to Obligations of the Acquirer........................... 30
8.2 Conditions to Obligations of the Transferors........................ 32
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 Indemnification of The Acquirer..................................... 34
9.2 Defense of Third Party Claims....................................... 34
9.3 Procedure for Claims................................................ 35
9.4 Tax Audits, Etc..................................................... 36
9.5 Indemnification of Transferor....................................... 36
9.6 Limits on Indemnification........................................... 36
ARTICLE X
TERMINATION
10.1 Termination of Agreement............................................ 37
10.2 Effect of Termination............................................... 38
ARTICLE XI
MISCELLANEOUS
11.1 Press Releases and Announcements................................... 38
11.2 No Third-Party Beneficiaries........................................ 38
11.3 Entire Agreement.................................................... 38
11.4 Succession and Assignment........................................... 38
11.5 Facsimile/Counterparts.............................................. 38
11.6 Notices............................................................. 39
11.7 Reserved............................................................ 40
11.8 Governing Law....................................................... 40
11.9 Amendments and Waivers.............................................. 40
11.10 Severability....................................................... 40
11.11 Expenses........................................................... 41
11.12 Construction....................................................... 41
11.13 Incorporation of Exhibits, Annexes, and Schedules.................. 41
11.14 Specific Performance............................................... 41
</TABLE>
<PAGE>
LIST OF EXHIBITS AND ANNEXES
Exhibits
- --------
Exhibit A Form of Escrow Agreement
Exhibit B USI's Financial Statements
Exhibit C-1 Officer/Transferors' Certificate
Exhibit C-2 Secretary's Certificate
Exhibit D Form of Equity Subscription Agreement
Exhibit E Form of Employment Agreements
Exhibit F Joinder to the Registration Agreement
Exhibit G Form of Opinion of USI's Legal Counsel
Exhibit H Tender Offer
ANNEXES
- -------
Annex I Determination of Earned Payout Amount
Annex II Determination of Stock Portion of Transfer Consideration
Annex III List of USI Shareholders
Annex IV Acquirer's Capitalization Schedule
Annex V Allocation Summary
Annex VI List of Optionholders
DISCLOSURE SCHEDULES
Schedule 4.1 Officers and Directors
Schedule 4.2 Capitalization
Schedule 4.4 Subsidiaries
Schedule 4.6 Material Events
Schedule 4.7 Material Liabilities
Schedule 4.8 Tax Matters
Schedule 4.11 Intellectual Property
Schedule 4.12 Contracts
Schedule 4.14 Insurance
Schedule 4.15 Litigation
Schedule 4.17 Employee Benefits
Schedule 4.20 Affiliate Relationships
Schedule 4.22 Systems
Schedule 4.23 Subscribers
The Exhibits and Schedules to this Stock Exchange Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
<PAGE>
STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE AGREEMENT ("AGREEMENT") is entered into as of the
21st day of December, 1998, by and among U.S. INTERNET PROVIDERS, INC., a
Delaware corporation (the "ACQUIRER"), UNITED STATES INTERNET, INC., a Tennessee
corporation ("USI"), and the Transferors' Representative (as defined in Section
-------
2.9) on behalf of all of the SHAREHOLDERS OF USI listed on Annex III hereof
- --- ---------
(collectively, the "TRANSFERORS"). The Acquirer and the Transferors are
referred to herein individually as a "PARTY" and collectively as the "PARTIES."
RECITALS
--------
A. The Transferors in the aggregate own all of the outstanding
capital stock of USI a corporation engaged in the business of providing internet
access and services, web hosting and other internet related services and support
(the "BUSINESS").
B. This Agreement contemplates a transaction in which the Transferors
will exchange their respective capital stock of USI for the right to receive the
Transfer Consideration (as hereinafter defined).
C. This Agreement further contemplates that the aforementioned
transaction will occur in conjunction with certain related transactions,
consisting of the IPO (as defined hereinafter) and the transfer of certain other
businesses by their owners to the Acquirer (the "RELATED TRANSACTIONS"), and the
Parties intend that the receipt of Acquirer's Shares (as defined hereinafter) by
the Transferors and by the parties involved in the Related Transactions will be
tax-free under Section 351 of the Code (as defined).
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
-----------
"ACQUIRER" has the meaning set forth in the preface above.
"ACQUIRER'S COMMON STOCK" means the Acquirer's common stock, par value
$0.001 per share.
"ACQUIRER'S SHARES" means the shares of the Acquirer's Common Stock
which are issued to the Transferors pursuant to this Agreement.
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"ACQUISITION PAYMENT AMOUNT" shall have the meaning set forth in
Section 2.6 below.
- -----------
"ACQUISITION SHARES" shall have the meaning set forth in Section 2.6
-----------
below.
"Adverse Consequences" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"ALLOCATION SUMMARY" means the summary of Transferors and their
respective allocation of the Transfer Consideration attached hereto as Annex V.
-------
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the reasonable basis for any
specified consequence.
"CASH PORTION OF THE EARNOUT" has the meaning set forth in Section 2.5
-----------
below.
"CASH PORTION OF THE TRANSFER CONSIDERATION" has the meaning set forth
in Section 2.8 below.
-----------
"CASH PORTION OF THE ACQUISITION PAYMENT" shall have the meaning set
forth in Section 2.6 below.
-----------
"CLOSING" has the meaning set forth in Section 2.7 below.
-----------
"CLOSING DATE" has the meaning set forth in Section 2.7 below.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Acquirer, or USI including, without limitation, the
identity, lists or descriptions of any customers, referral sources or
organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals; provided, that the Confidential Information shall not include
information which (a) was or becomes generally available to the public other
than as a result of its disclosure by the receiving party, (b) was or becomes
available to the receiving party on a non-confidential basis from a source other
than the Acquirer or its advisors without
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breach of this Agreement provided that such source is not known to such
receiving party to be bound by a confidentiality agreement or otherwise
prohibited from transmitting the information to receiving party by a
contractual, legal or fiduciary obligation known to such receiving party, (c)
was within receiving party's possession prior to its being furnished to such
receiving party by or on behalf of the Acquirer without breach of this
Agreement, provided that the source of such information was not bound by a
confidentiality agreement with the Acquirer or USI or otherwise prohibited from
transmitting the information to the receiving party by a contractual, legal or
fiduciary obligation, or (d) which is required to be and actually is disclosed
by operation of law.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Treas. Reg. (S)1.1502-13.
"DISCLOSURE SCHEDULES" means the informational schedules relating to
the Transferors and USI as attached hereto.
"E&Y" shall mean Ernst & Young, L.L.P.
"EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2.5 below.
-----------
"EARNED PAYOUT PERIOD" means the twelve-month period ending June 30,
1999.
"EARNOUT SHARES" has the meaning set forth in Section 2.5.
-----------
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section 3.1
-----------
below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means First Union National Bank, N.A.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by and
among the Transferors, the Acquirer and the Escrow Agent in the form of Exhibit
-------
A attached hereto.
- -
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"ESCROW PERIOD" has the meaning specified in Section 2.10.
------------
"ESCROW SUM" has the meaning specified in Section 2.10.
------------
"FAIR MARKET VALUE" of the Acquirer's Common Stock as of a particular
date means: (a) if traded on an exchange or the over-the-counter market, quoted
on the Nasdaq National Market or reported by the National Quotation Bureau, then
the most recently reported closing or bid price or (b) otherwise, the price, not
less than book value, determined in good faith and in such a reasonable manner
as prescribed by a majority of the Acquirer's directors who are not officers of
the Acquirer.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.5 below.
-----------
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time.
"GROSS REVENUES" means the gross revenue of USI as normally calculated
on the Financial Statements as calculated in accordance with GAAP on the accrual
basis of accounting.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 9.1 below.
-----------
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information, (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"IPO" means the first underwritten public offering of the Acquirer's
Common Stock pursuant to an effective registration statement under the
Securities Act that will result in an aggregate post-IPO market capitalization
of the Acquirer of at least $100 million (determined by multiplying the
outstanding shares of the Acquirer's Common Stock by the IPO offering price).
"KNOWLEDGE" means, with respect to each Transferor, Acquirer or USI,
information which is actually known by such Transferor, Acquirer or USI or which
a prudent person in the position of such Transferor, Acquirer or USI would
reasonably be deemed to know; provided, however, that the Knowledge of
Transferor or USI shall mean the knowledge of Michael Crabtree, Tom Badgett,
David Everhart, and Niels Jonker, and the Knowledge of Acquirer shall mean the
knowledge of Stephen Smith and Dewey Shay.
-4-
<PAGE>
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, and whether due or to become due) including any liability for
Taxes.
"MAJORITY CO-TRANSFERORS" shall mean a majority, based on Revenue Run
Rate (with such definition modified to include each of the businesses acquired
by the Acquirer), of the Transferors of all businesses acquired by the Acquirer
in connection with the IPO.
"MATERIAL" means an event or matter that causes any representation or
warranty contained in this Agreement to be inaccurate, incorrect or false will
not be deemed to be "Material," to have a "Material" change in or in respect of,
to have a "Material" adverse effect or to cause a Party to be "Materially"
affected unless the loss that may reasonably be expected to occur to the
respective Party with respect to such event or matter, when taken together with
all other related losses that may reasonably be expected to occur to such Party
as a result of any such events or matters, would exceed $25,000 in the aggregate
or unless such event or matter constitutes a criminal violation of law. For
purposes of this definition, the word "loss" shall mean any and all direct or
indirect payments, obligations, assessments, losses, losses of income,
liabilities, costs and expenses paid or incurred, or reasonably likely to be
paid or incurred, or diminution's in value or reduction in benefits or rights of
any kind or character (whether or not known or asserted before the date of this
Agreement, fixed or unfixed, conditional or unconditional, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise) that are reasonably likely to occur, including without limitation,
penalties, interest on any amount payable to a third party as a result of the
foregoing, and any reasonable legal or other expenses reasonably expected to be
incurred in connection with defending any demands, claims, actions or causes of
action that, if adversely determined, could reasonably be expected to result in
losses, and all amounts paid in settlement of claims or actions; provided,
however, that losses shall be net of any insurance proceeds entitled to be
received from a nonaffiliated insurance company on account of such loss (after
taking into account any cost incurred in obtaining such proceeds or any
increases in insurance premiums as a direct result thereof). A Subscriber
Contract or Agreement is "Material" if during either calendar year 1998 such
Subscriber Contract or Agreement produced or is expected to produce $25,000 of
Gross Revenues.
"NET WORTH OF USI" means the total assets of USI less the total
liabilities of USI including any costs of conversion from a cash basis to an
accrual method of accounting, determined in accordance with GAAP, consistently
applied and on the accrual method of accounting. In calculating the total
assets of USI, no material increase in the intangible assets as a result of any
acquisitions by USI since June 30, 1998 shall be included in calculating the Net
Worth of USI without the written consent of the Acquirer.
"OUTAGE" means any loss of service to any system of the Business,
including but not limited to network access, e-mail, web, news or other
services.
"PARTY" has the meaning set forth in the preface above.
"REGISTRATION AGREEMENT" means that certain Registration Agreement to
be entered into prior to Closing by and among the Acquirer and the stockholders
of the Acquirer.
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<PAGE>
"REGISTRATION STATEMENT" means the Acquirer's registration statement
on Form S-1 once filed with and deemed effective by the SEC in connection with
the IPO.
"RELATED TRANSACTIONS" has the meaning set forth in the Recitals.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings), (c)
liens arising under workers' compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"STOCK PORTION OF THE EARNOUT" has the meaning set forth in Section
-------
2.5 below.
- ---
"STOCK PORTION OF THE TRANSFER CONSIDERATION" has the meaning set
forth in Section 2.2 below.
-----------
"STOCK PORTION OF THE ACQUISITION PAYMENT" shall have the meaning set
forth in Section 2.6 below.
-----------
"STUB PERIOD BALANCE SHEET" means the balance sheet included in the
Stub Period Financial Statements.
"STUB PERIOD END" has the meaning set forth in Section 4.5 below.
-----------
"STUB PERIOD FINANCIAL STATEMENTS" means the Financial Statements for
and as of the Stub Period End.
"SUBSCRIBER" means any customers of USI who (a) are currently
connected to and receiving internet related services from USI's Systems; (b) are
being charged or have pre-paid the USI standard rates (which rates are set forth
on Schedule 4.23) pursuant to USI's standard form contracts previously provided
-------------
to the Acquirer; (c) have paid such stated rates in full for at least one full
month; (d) are not three or more months delinquent in the payment of any invoice
from USI; (e) have not, in the preceding two months, been given a waiver or
forgiveness of service charges; (f) have not received any inducement to become
connected to USI's Systems or to receive or pay for services (other than
pursuant to the USI's customary marketing practices); and (g) have not notified
USI in writing of their intention to cancel service.
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<PAGE>
"SUBSCRIBER CONTRACT OR AGREEMENT" means any agreement whereby USI
provides services to a Subscriber.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"SYSTEMS" means the infrastructure used to provide internet access and
related services, including network components, communications facilities,
servers, services and service platforms (including for e-mail, news, DNS, web,
authentication and other services), firewalls, power plants, data processing
platforms, MIS systems, office automation systems and internal LAN network
management systems.
"TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty or addition thereto.
"TAX RETURN" means any federal, foreign, state and local governmental
tax return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"TRANSFER CONSIDERATION" has the meaning set forth in Section 2.2
-----------
below.
"TRANSFERORS" has the meaning set forth in the preface above.
"TRANSFERORS' REPRESENTATIVE" has the meaning set forth in Section 2.8
-----------
below.
"USI" has the meaning set forth in the preface above.
"USI OPTIONHOLDERS" means the holders of options and warrants for the
purchase of USI Shares and stock appreciation rights listed on the Allocation
Summary.
"USI OPTIONS" means all the agreements between USI and those persons
listed on the Allocation Summary hereto related to the issuance of USI Shares
under any existing option, warrant, stock appreciation rights or similar
agreements or plans.
"USI SHARES" means all outstanding shares of the common stock, no par
value per share, of USI.
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<PAGE>
ARTICLE II
THE EXCHANGE OF SHARES
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of this
-----------------
Agreement, the Acquirer agrees to exchange with the Transferors, and each
Transferor agrees to exchange with the Acquirer, all of the USI Shares for the
consideration specified below in this Section 2.
2.2 TRANSFER CONSIDERATION.
----------------------
(A) GENERALLY. The Transfer Consideration exchanged for USI Shares
---------
shall be composed of (i) the Cash Portion of the Transfer Consideration, (ii)
the Stock Portion of the Transfer Consideration, (iii) the Earned Payout Amount
(as defined below) and (iv) the Acquisition Payment Amount (as defined below).
(B) TRANSFER CONSIDERATION ADJUSTMENTS. The Acquirer agrees to pay to
----------------------------------
the Transferors and the USI Optionholders in the aggregate the sum of (i)
$13,285,863.00 in U.S. currency, to be adjusted dollar for dollar (1) downward
by (A) the amount of payments made by Acquirer on behalf of USI to cancel the
stock options, warrants and stock appreciation rights described in Section 6.8,
-----------
(B) $2,500,000 in the event Acquirer does not successfully acquire Internet
Partners of America, L.C. prior to the Closing Date, and (C) the amount paid by
Acquirer to purchase USI Shares held by unaccredited investors of USI pursuant
to the Tender Offer attached hereto as Exhibit H and (2) upward or downward by
---------
the Net Worth adjustment, if any, made pursuant to Section 2.3 below (the "CASH
-----------
PORTION OF THE TRANSFER CONSIDERATION"); (ii) $12,264,137.00 worth of Acquirer's
Shares, consisting of an aggregate number of shares of Acquirer's Common Stock
pursuant to Annex II (the "STOCK PORTION OF THE TRANSFER CONSIDERATION"); and
--------
(iii) the Earned Payout Amount as determined pursuant to Section 2.5 below; in
-----------
exchange for the USI Shares to be purchased by the Acquirer pursuant to the
terms hereof and the USI Options to be canceled; provided, however, that the
Cash Portion of the Transfer Consideration and the Stock Portion of the Transfer
Consideration may be altered by the Parties prior to December 22, 1998 by mutual
written agreement.
(C) ESCROW PAYMENTS. At the Closing Date, (i) $664,293 of the Cash
---------------
Portion of the Transfer Consideration will be paid in cash by wire transfer of
funds to the Escrow Agent and (ii) five percent (5%) of the Stock Portion of the
Transfer Consideration in the form of Acquirer's Shares valued as of the Closing
Date shall be delivered to the Escrow Agent by the Acquirer to collectively be
held in escrow pursuant to Section 2.10 for satisfaction of the Transferors'
------------
indemnification obligations specified in Article IX.
----------
(D) PAYMENT. The balance of the Cash Portion of the Transfer
-------
Consideration shall be paid by the Acquirer to the Transferors at the Closing by
delivery of cash by wire transfer of funds in the amounts set forth on the
Allocation Summary. The balance of the Stock Portion of the Transfer
Consideration shall be issued by the Acquirer to the Transferors at the Closing
by the delivery of Acquirer's Shares in the amounts set forth on the Allocation
Summary next to such Transferor's name. The sum of the Cash Portion of the
Transfer Consideration, the Stock Portion
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<PAGE>
of the Transfer Consideration and the Earned Payout Amount shall be referred to
as the "TRANSFER CONSIDERATION." Each of (i) the Cash Portion of the Transfer
Consideration, (ii) the Stock Portion and (iii) Earned Payout Amount of the
Transfer Consideration shall be allocated among the Transferors in dollar
amounts set forth on the Allocation Summary. Cash will be paid in lieu of any
fractional shares which would otherwise be issued in accordance with this
Agreement.
2.3 NET WORTH ADJUSTMENT. The Cash Portion of the Transfer Consideration
--------------------
shall be adjusted upward or downward on a dollar for dollar basis by the amount
by which the Net Worth of USI differs from negative $1,213,221 as of the Closing
Date. The Net Worth of USI as of the Closing Date shall be determined prior to
the Closing Date by E&Y in good faith within two business days prior to the
Closing Date.
2.4 RESERVED.
--------
2.5 EARNED PAYOUT AMOUNT.
--------------------
(A) In addition to the Cash Portion of the Transfer Consideration and
the Stock Portion of the Transfer Consideration, the Acquirer agrees to pay to
the Transferors, if earned, an earned payout amount (the "EARNED PAYOUT AMOUNT")
determined pursuant to the terms, conditions and calculations set forth on Annex
-----
I attached hereto.
- -
(B) The Earned Payout Amount shall be payable in a combination, such
combination determined at the discretion of Acquirer, of (i) cash (the "CASH
PORTION OF THE EARNOUT") and/or (ii) Acquirer's Shares (the "STOCK PORTION OF
THE EARNOUT"). The aggregate number of Acquirer's Shares, if any, (the "EARNOUT
SHARES") to be issued as the Stock Portion of the Earnout shall be equal to (A)
the aggregate value in dollars of the non-cash Earned Payout Amount divided by
(B) the (1) ten day moving average price of Acquirer's Common Stock as of June
30, 1999, in the event Acquirer's Common Stock is traded on an exchange or over-
the-counter market, or (2) the price, not less than book value, determined in
good faith and in such a reasonable manner as prescribed by a majority of the
Acquirer's directors who are not officers of the Acquirer, in the event
Acquirer's Common Stock is not traded on an exchange or over-the-counter market.
(C) The Cash Portion of the Earnout, if any, shall be payable in cash
by the Acquirer to the Transferors by wire transfer or other delivery of
immediately available funds to an account or accounts designated by the
Transferors. The Earnout Shares, if any, shall be payable by the delivery of the
certificates representing the Acquirer's Shares.
The Earned Payout Amount shall be determined by E&Y in accordance with the
terms of this Agreement and Annex I hereto and shall be based on an income
-------
statement of the Surviving Corporation prepared by E&Y for the 12 months ended
June 30, 1999. The Earned Payout Amount shall be paid as soon as the amount has
been calculated by E&Y and such final calculation delivered to the Acquirers by
E&Y but in no event later than December 31, 1999, provided, however, that the
Transferors will receive interest equivalent to the Citibank prime rate for each
day the Earned Payout Amount has not been paid by Acquirer after September 15,
1999.
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<PAGE>
A portion of the Earned Payout Amount, determined by E&Y in accordance with
Treasury Regulation section 1.483-4 and based on an interest rate of 4.33
percent per annum, shall be treated as interest for federal and state income tax
purposes. The parties agree that the interest portion of the Earned Payout
Amount shall be treated as paid entirely out of the Cash Portion of the Earnout
and that no part of the Stock Portion of the Earnout shall be treated as a
payment of interest unless the interest portion of the Earned Payout Amount
exceeds the Cash Portion of the Earnout (and then only to the extent of such
excess).
2.6 RESERVED.
--------
2.7 THE CLOSING. The closing of the transactions contemplated by this
-----------
Agreement (the "CLOSING") shall take place at the offices of Hogan & Hartson,
L.L.P. in Washington, D.C. commencing at 9:00 a.m. local time simultaneously
with the closing of the IPO and the other Related Transactions or such other
date as the Acquirer and the Transferors may mutually determine (the "CLOSING
DATE").
2.8 DELIVERIES AT THE CLOSING. At the Closing, (a) the Transferors will
-------------------------
deliver to the Acquirer the various certificates, instruments, and documents
referred to in Section 8.1 below, (b) the Acquirer will deliver to the
-----------
Transferors (as applicable) the various certificates, instruments, and documents
referred to in Section 8.2 below, (c) each of the Transferors will deliver to
-----------
the Acquirer stock certificates representing all of its USI Shares, endorsed in
blank or accompanied by duly executed assignment documents and (d) the Acquirer
will deliver to the Transferors and the USI Optionholders the consideration
specified in Section 2.2 above as may be adjusted after the Closing pursuant to
-----------
Sections 2.3 and 2.4 above and Section 2.10 below.
- ------------ --- ------------
2.9 TRANSFERORS' REPRESENTATIVE.
---------------------------
(A) In order to administer efficiently (i) the execution and
implementation of the Agreement by the Transferors, (ii) the waiver of any
condition to the obligations of the Transferors to consummate the transactions
contemplated hereby and (iii) the settlement of any dispute with respect to the
Agreement, the Transferors at a duly called and held meeting of the Transferors
have designated, and do hereby designate and irrevocably appoint Michael
Crabtree as their representative and attorney-in-fact for all purposes under
this Agreement (the "TRANSFERORS' REPRESENTATIVE"). Niels Jonker shall be the
alternate Transferors' Representative.
(B) The Transferors have authorized and do hereby authorize the
Transferors' Representative (i) to take all action necessary in connection with
the implementation of the Agreement on behalf of the Transferors, the waiver of
any condition to the obligations of the Transferors to consummate the
transactions contemplated hereby, or the settlement of any dispute, (ii) to give
and receive all notices required to be given under the Agreement and (iii) to
take any and all additional action as is contemplated to be taken by or on
behalf of the Transferors by the terms of this Agreement.
(C) In the event that the Transferors' Representative dies, becomes
legally incapacitated or resigns from such position, the Transferors have
authorized and do hereby authorize Niels Jonker to fill such vacancy and shall
be deemed to be the Transferors'
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<PAGE>
Representative for all purposes of this Agreement; however, no change in the
Transferors' Representative shall be effective until the Acquirer is given
notice of it by the Transferors.
(D) All decisions and actions by the Transferors' Representative
shall be binding upon all of the Transferors, and no individual Transferor shall
have the right to object, dissent, protest or otherwise contest the same, in the
absence of fraud, gross negligence or willful misconduct of the Transferors'
Representative.
(E) By their execution of this Agreement, the Transferors agree that:
(i) the Acquirer shall be able to rely conclusively on the instructions and
decisions of the Transferors' Representative as to any actions required or
permitted to be taken by the Transferors or the Transferors' Representative
hereunder, and no party hereunder shall have any cause of action against the
Acquirer for action taken by the Acquirer in reliance upon the instructions or
decisions of the Transferors' Representative; (ii) all actions, decisions and
instructions of the Transferors' Representative shall be conclusive and binding
upon all of the Transferors; no Transferor shall have any cause of action
against the Acquirer or USI for any action taken or omitted to be taken,
decision made or omitted to be made or any instruction given or omitted to be
given by the Transferors' Representative; and no Transferor shall have any cause
of action against the Transferors' Representative for any action taken, decision
made or instruction given by the Transferors' Representative under this
Agreement, except for fraud, gross negligence or willful breach of this
Agreement by the Transferors' Representative; (iii) the Transferors'
Representative shall be deemed to fulfill any fiduciary obligation to the
Transferors so long as no Transferor is adversely affected by any action or
failure to act of the Transferors' Representative in a disproportionate measure
compared to any other Transferor; (iv) remedies available at law for any breach
of the provisions of this Section are inadequate; therefore, the Acquirer shall
be entitled to temporary and permanent injunctive relief without the necessity
of proving damages if the Acquirer brings an action to enforce the provisions of
this Section; (v) the provisions of this Section are independent and severable,
shall constitute an irrevocable power of attorney, coupled with an interest and
surviving death of the Transferors, granted by the Transferors to the
Transferors' Representative and shall be binding upon the executors, heirs,
legal representatives and successors of each Transferor; and (vi) all fees and
expenses incurred by the Transferors' Representative shall be paid by USI.
2.10 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be entered
-------------------
into among the Transferors, the Acquirer and the Escrow Agent (a) $664,293.00 of
the Cash Portion of the Transfer Consideration (the "CASH ESCROW") in
immediately available funds and (ii) five percent (5%) of the Stock Portion of
the Transfer Consideration in the form of Acquirer's Shares shall be delivered
to the Escrow Agent at Closing. Such monies and securities (which, together
with all interest accrued thereon which may be due to the party to whom such
funds are ultimately paid in accordance with the terms of the Escrow Agreement,
is hereinafter referred to as the "ESCROW SUM") shall be held pursuant to the
terms of the Escrow Agreement for payment from such Escrow Sum of the amounts,
if any, owing by the Transferors to the Acquirer pursuant to the indemnification
provisions of Article IX below, together with accrued interest thereon.
----------
Pursuant to the terms of the Escrow Agreement, the Cash Escrow shall be used
first, and the Stock Escrow shall be used second, to satisfy any such owed
amounts. At the conclusion of the period ending on the
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<PAGE>
first anniversary of the Closing Date (such period being referred to herein as
the "ESCROW PERIOD"), such remaining portion of the Escrow Sum not theretofore
paid to the Acquirer in accordance with the terms of the Escrow Agreement or
subject to a pending claim under the Escrow Agreement and this Agreement shall
be disbursed to the Transferors together with accrued interest thereon. The
Transferors and the Acquirer agree that each will execute and deliver such
reasonable instruments and documents as are furnished by any other party to
enable such furnishing party to receive those portions of the Escrow Sum to
which the furnishing party is entitled under the provisions of the Escrow
Agreement and this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
RELATING TO THE TRANSFERORS
Each of Michael Crabtree, Tom Badgett, David Everhart and Niels Jonker
individually represents and warrants to the Acquirer as follows as of the date
of this Agreement and as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Article III).
- -----------
3.1 AUTHORIZATION OF TRANSACTION. Transferors have full power and
----------------------------
authority to authorize the Transferors' Representative to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by the Transferors' Representative. The
Transferors have met at a duly called meeting of the stockholders of USI held in
December, 1998 and have duly approved the terms of this Agreement and the
appointment of the Transferors' Representative to act on their behalf in
accordance with the terms of Section 2.9. This Agreement constitutes the valid
-----------
and legally binding obligation of each Transferor, enforceable in accordance
with its terms and conditions, except that (a) such enforceability may be
subject to bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws, decisions or equitable principles now or hereafter in
effect relating to or affecting the enforcement of creditors' rights or debtors'
obligations generally or non-competition arrangements, and to general equity
principles, and (b) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought (the
terms of clause (a) and (b) are sometimes collectively referred to as the
"EQUITABLE EXCEPTIONS"). The Transferors need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement (other than as provided for in Article II of this Agreement).
----------
3.2 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement by the Transferors' Representative, nor the consummation of the
transactions contemplated hereby by the Transferors, will (a) violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge, or other restriction of any government, governmental agency, or court to
which the Transferors are subject or (b) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any part
the right to accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise, permit,
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<PAGE>
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other agreement to which the Transferors are a party or by
which they are bound or to which any of their assets is subject.
3.3 BROKER'S FEES. The Transferors have no Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Acquirer could become
liable or obligated.
3.4 INVESTMENT. The Transferors are not acquiring the Acquirer's Shares
----------
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
3.5 USI SHARES. Each Transferor holds of record and owns beneficially
----------
the number of USI Shares set forth next to his or her name on Schedule 4.2, and
------------
except as set forth in Schedule 4.2, such USI Shares are free and clear of any
------------
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), claims, Taxes, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities, and demands. Except
as set forth in Schedule 4.2, the Transferors are not a party to (or have
------------
otherwise waived all rights under) any option, warrant, right, contract, call,
put, or other agreement or commitment providing for the disposition or
acquisition of any capital stock of USI (other than this Agreement). The
Transferors are not a party to (or have otherwise terminated) any voting trust,
proxy, or other agreement or understanding with respect to the voting of any
capital stock of USI.
3.6 DISCLOSURE. The representations and warranties contained in this
----------
Article III do not contain any untrue statement of a fact or omit to state any
- -----------
Material fact necessary in order to make the statements and information
contained in this Article III not misleading.
-----------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO USI
Each of Michael Crabtree, Tom Badgett, David Everhart and Niels Jonker
and USI represent and warrant to the Acquirer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV).
----------
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. USI is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. USI is duly authorized to
conduct business and is in good standing under the laws of the State of
Tennessee, which is the only jurisdiction in which the nature of its businesses
or the ownership or leasing of its properties requires such qualification. USI
has full corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Schedule 4.1
------------
lists the directors and officers of USI. The Transferors have delivered to the
Acquirer correct and complete copies of the charter and bylaws of USI (as
amended to date). The minute books containing the records of meetings and/or
resolutions of the stockholders, the board of directors, and any committees of
the board of
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<PAGE>
directors, the stock certificate books and the stock record books of USI are
correct and complete in all Material respects. USI is not in default under or in
violation of any provision of its charter or bylaws.
4.2 CAPITALIZATION. As set forth in Schedule 4.2 of the Disclosure
-------------- ------------
Schedule, the entire authorized capital stock of USI consists of 5,000,000
shares of common stock, no par value, of which 1,899,688 are issued and
outstanding; 508,846 shares are subject to issuance pursuant to vested options,
26,200 are subject to issuance pursuant to unvested options and 0 are reserved
for issuance pursuant to future option grants; 41,051 shares are subject to
unexercised warrants. All of the issued and outstanding USI Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are held
of record by the Transferors. Except as set forth in Schedule 4.2, there are no
------------
outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, or other agreements or commitments to
which USI is a party or which are binding upon USI providing for the issuance,
disposition, or acquisition of any of its capital stock. Except as set forth in
Schedule 4.2, there are no outstanding or authorized stock appreciation, phantom
- ------------
stock, or similar rights with respect to USI. There are no voting trusts,
proxies, or any other agreements or understandings with respect to the voting of
the capital stock of USI except for those agreements or arrangements listed on
Schedule 4.2 as will be terminated at the Closing.
- ------------
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which USI is subject or any provision of the charter or bylaws of
USI, except to the extent any such violation does not or could not result in a
Material adverse effect on USI, or (b) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other arrangement to which USI is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). USI does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
4.4 SUBSIDIARIES. Except as disclosed in Schedule 4.4, USI has no
------------ ------------
Subsidiaries.
4.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the USI's
-------------------- ---------
financial statements (collectively the "FINANCIAL STATEMENTS") for its three
most recent fiscal years and an unaudited consolidated balance sheet and
statement of income, changes in stockholder's equity, and cash flow as of and
for the six month period ended June 30, 1998 for USI (the "STUB PERIOD END").
The Financial Statements have been prepared in accordance with standards
described on Exhibit B applied on a consistent basis throughout the periods
---------
covered thereby, are correct and complete, fairly present the financial
condition of USI as of such dates, and are consistent with the books and records
of USI (which books and records are, to the Knowledge of
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<PAGE>
Transferors and USI, correct and complete), subject, in the case of the Stub
Period Financial Statements or any previously unaudited financial statements, to
normal adjustments upon audit.
4.6 EVENTS SUBSEQUENT TO THE STUB PERIOD END. To Transferor's and USI's
----------------------------------------
Knowledge, since the Stub Period End, there has not been any Material adverse
change in the assets, Liabilities, business, financial condition, operations,
results of operations, or future prospects of USI. Without limiting the
generality of the foregoing since that date except as set forth on Schedule 4.6:
------------
(A) USI has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
ordinary course of business;
(B) USI has not entered into any Material contract, lease, sublease,
license or sublicense (or series or related contracts, leases, subleases,
licenses and sublicenses) outside the ordinary course of business;
(C) Except as set forth in Schedule 4.6, USI has not made any capital
------------
expenditure (or series of related capital expenditures) involving more than
$250,000 in the aggregate, or outside the ordinary course of business;
(D) USI has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any existing
such contract or agreement with any of its full-time staff employees other than
in the ordinary course of business;
(E) USI has not granted any dividends or any increase outside the
ordinary course of business in the base compensation of any of its directors,
officers, and employees, nor has USI made any payments or promises or
commitments to make any other payments (other than salary and reimbursement of
customary expenses) to any of such Persons, including without limitation bonuses
other than in the ordinary course of business; and
(F) Except as set forth on Schedule 4.6, USI has not adopted any (i)
------------
bonus, (ii) profit-sharing, (iii) incentive compensation, (iv) pension, (v)
retirement, (vi) medical, hospitalization, life, or other insurance, (vii)
severance or (viii) other plan, contract or commitment for any of its directors,
officers, and employees, or modified or terminated any existing plan, contract
or commitment.
4.7 UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.7, to
----------------------- ------------
the Knowledge of Transferors and USI, USI does not have any Liability (and to
Transferors' and USI's Knowledge, there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against USI giving rise to any Liability) which is individually in excess
of $25,000, except for (a) Liabilities set forth on the face of the Stub Period
1998 Balance Sheet, (b) Liabilities described on Schedule 4.7 and (c)
------------
Liabilities which have arisen after the Stub Period End in the ordinary course
of business (none of which relates to any breach of contract, breach of
warranty, tort, infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceedings, hearing, investigation, claim, or demand).
-15-
<PAGE>
4.8 TAX MATTERS. Except as set forth on Schedule 4.8:
----------- ------------
(A) USI has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed by
USI (whether or not shown on any Tax Return) based on operations through the
Stub Period End have been paid or accrued on the Stub Period Balance Sheet. USI
currently is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by any taxing authority in a
jurisdiction where USI does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of the
assets of USI that arose in connection with any failure (or alleged failure) to
pay any Tax, other than for Taxes that are not yet due which are accrued for
since December 31, 1997.
(B) USI has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party and USI has properly
reflected the status of all employees and independent contractors in connection
therewith as required by applicable Tax law and the Fair Labor Standards Act of
1938, as amended, and the rules and regulations promulgated thereunder.
(C) USI has not received any notice that any taxing authority intends
to assess any additional Taxes for any period for which Tax Returns have been
filed, and no officer of USI and no employee of USI with responsibility for Tax
matters has Knowledge of any basis upon which a claim for such additional Taxes
could be made. There is no dispute or claim concerning any Tax Liability of USI
either (i) claimed or raised by any authority in writing or (ii) as to which the
Transferors or the officers of USI or employees responsible for Tax matters of
USI have Knowledge based upon personal contact with any agent of such authority.
Schedule 4.8 lists all federal, state, local, and foreign income Tax Returns
- ------------
filed with respect to USI for taxable periods ended on or after November, 1993,
indicates those Tax Returns that have been audited by federal, state or local
agencies, and indicates those Tax Returns that currently to the Knowledge of
Transferors, are the subject of an audit by federal, state or local agencies.
USI has delivered to the Acquirer correct and complete copies of all federal
income Tax Returns filed, examination reports received, and statements of
deficiencies assessed against or agreed to, by USI since November, 1993. USI has
not waived any statute of limitations in respect of Taxes which waiver is
currently in effect. USI is not a party to any "closing agreement," as described
in Section 7121 of the Code or any corresponding provision of state or local Tax
law, and there are no Tax rulings or requests for Tax rulings with respect to
USI.
(D) USI has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations. USI has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that, under any
circumstances, will not be deductible to USI under Code Sec. 280G. USI is not
and has never been a United States real property holding corporation within the
meaning of Code Sec. 897(c)(2). USI has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6662. USI
is not a party to any Tax allocation or sharing agreement. USI has never been
(nor has any Liability for unpaid Taxes because it once was) a member of an
Affiliated Group filing a
-16-
<PAGE>
consolidated federal income Tax Return and has never incurred any Liability for
the Taxes of any Person under Treas. Reg. (S)1.1502-6 (or any similar provision
of state, local, or foreign law). To the best of Transferors and USI's Knowledge
USI has never incurred any Liability for the Taxes of any Person as a transferee
or successor, by contract, or otherwise.
4.9 TANGIBLE ASSETS. USI owns or leases substantially all tangible
---------------
assets necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. To the Knowledge of the Transferors and
USI, each such tangible asset is free from Material defects (patent and latent),
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
4.10 OWNED REAL PROPERTY. USI does not own nor does it have any interest
-------------------
in any real property or improvements thereon (other than the leases disclosed in
Schedule 4.12, and the leasehold improvements relating to the same) nor does USI
- -------------
have any options, agreements or contracts under which it has the right or
obligation to acquire any interest in any real property or improvements (other
than as disclosed in Schedule 4.12)
-------------
4.11 INTELLECTUAL PROPERTY.
---------------------
(A) To the Knowledge of Transferors, attached hereto as Schedule 4.11
-------------
is a list and brief description of all Intellectual Property owned or utilized
by USI. USI has furnished the Acquirer with copies of all license agreements to
which USI is a party, either as licenser or licensee, with respect to any
Intellectual Property. To the Knowledge of Transferors and USI, USI has good
title to or the right to use all the Intellectual Property and all inventions,
processes, designs, formulae, trade secrets and know-how necessary for the
conduct of the USI's business, in its business as presently conducted or
currently proposed to be conducted and USI is not infringing on any Intellectual
Property right of others, and neither USI nor Transferors have Knowledge of any
infringement by others of any such rights owned by USI.
(B) To Transferors' and USI's Knowledge, all licenses set forth on
Schedule 4.11 are valid and binding obligations of USI, and to the Knowledge of
- -------------
the Transferors and USI, of the other parties thereto, and enforceable against
USI, and to the Knowledge of the Transferors and USI, the other parties thereto
in accordance with their respective terms, except for the Equitable Exceptions.
To the Knowledge of Transferors and USI, USI owns and possesses all right, title
and interest in and to, or has the right to use pursuant to a valid license, all
Intellectual Property necessary for the operation of the business of USI as
presently conducted.
(C) To the Knowledge of Transferors and USI, the Transferors and USI
have taken all reasonably necessary measures to protect and maintain the rights
of USI in its Intellectual Property, and each piece of Intellectual Property
used by USI is used with the authorization of every other claimant thereto and
the execution, delivery and performance of this Agreement will not impair such
use.
(D) The Transferors have also delivered to the Acquirer correct and
complete samples or copies of all trademarks, service marks, trade names,
copyrights, patents, registrations
-17-
<PAGE>
and, as relate to the foregoing, applications, licenses, agreements, and
permissions (as amended to date) held by USI, and have made available to the
Acquirer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item. To the
Knowledge of Transferors and USI, with respect to each item of Intellectual
Property used in, or otherwise necessary for the conduct of, the business of USI
as heretofore conducted: (i) the identified owner possesses all right, title,
and interest in and to the item; (ii) the item is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge; (iii) no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or demand is
pending or, to the Knowledge of any of the Transferors or officers (and
employees with responsibility for Intellectual Property matters) of USI, is
threatened which challenges the legality, validity, enforceability, use, or
ownership of the item; and (iv) USI has not agreed to indemnify any person or
entity for or against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(E) To the Knowledge of Transferors and USI, none of the Material
computer software, computer firmware, computer hardware (whether general or
special purpose), and other similar or related items of automated, computerized,
and/or software system(s) that are used or relied on by USI in the conduct of
its business will in any Material respect malfunction, cease to function,
generate incorrect data, or produce incorrect results when processing,
providing, and/or receiving (i) date-related data into and between the twentieth
and twenty-first centuries and (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries up to the year 2030.
4.12 CONTRACTS. Except as disclosed on Schedule 4.12, USI is not a party
--------- -------------
to or bound by, and none of the assets of USI are covered by or subject to the
following contracts, agreements, Subscriber Contracts or Agreements (whether
written or oral):
(A) any written agreement (or group of related written agreements)
for the lease of real or personal property from or to third parties providing
for lease payments in excess of $25,000 per annum;
(B) any Material equipment or supplier agreement;
(C) any written agreement (or group of related written agreement)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $25,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(D) any Material Subscriber contract;
(E) any formal or informal partnering arrangement with any merchant
or service or web content provider;
(F) any agreement with any local exchange carrier, competitive local
exchange carrier, competitive access provider or other telecommunications
carrier;
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<PAGE>
(G) any peering, transit or other agreement with any internet service
provider, online company or similar entity;
(H) any written arrangement requiring confidentiality or
noncompetition other than agreements with customers, employees or subcontractors
in the Ordinary Course of Business; or
(I) any other written arrangement (or group of related written
arrangements) either involving more than $25,000 per annum or not entered into
in the Ordinary Course of Business.
The Transferors have delivered to the Acquirer or made available for
review by the Acquirer a correct and complete copy of each written arrangement
listed in Schedule 4.12 (as amended to date). With respect to each written
-------------
arrangement so listed: To the Knowledge of Transferors (a) the written
arrangement is legal, valid, binding, and enforceable against USI, and is in
full force and effect on and against USI, subject to Equitable Exceptions; (b)
the written arrangement will continue to be legal, valid, binding, and
enforceable against USI, and in full force and effect on identical terms
immediately following the Closing, subject to Equitable Exceptions; (c) USI is
not, nor to the Knowledge of the Transferors is any other party, in breach or
default, and no event has occurred which to the Knowledge of the Transferors
with notice or lapse of time would constitute a Material breach or default or
permit termination, modification, or acceleration, under the written
arrangement; and (d) USI has not, nor to the Knowledge of the Transferors has
any other party, repudiated any provision of the written arrangement. To the
best of the Knowledge of Transferors and USI, USI is not a party to any oral
contract, agreement, or other arrangement which, if reduced to written form,
would be required to be listed in Schedule 4.12 under the terms of this Section
------------- -------
4.12. No unfilled Subscriber Contract or Agreement obligating USI to perform
- ----
services will result in a loss to USI upon completion of performance. Except as
set forth in Schedule 4.12, USI has not been notified that any of its
-------------
Subscribers intend either to dispute charges under or to terminate early a
Material Subscriber Contract or Agreement.
4.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
-----------------------------
USI are reflected properly on its books and records, are valid receivables and
to the Knowledge of the Transferors and USI are subject to no setoffs or
counterclaims, to the Knowledge of Transferors are presently current and
collectible, and to the Knowledge of Transferors will be collected in accordance
with their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Stub Period Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of USI.
4.14 INSURANCE.
---------
(A) Schedule 4.14 sets forth the following information with respect
-------------
to each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which USI has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past two (2) years: the name, address and
telephone number of the agent or broker; the name of the insurer,
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<PAGE>
the name of the policyholder, and the name of each covered insured; the policy
number and the period of coverage; the scope and amount of coverage; and a
description of any material retroactive premium adjustments or other loss
sharing arrangements.
(B) To the Knowledge of Transferors, with respect to each insurance
policy listed on Schedule 4.14: (i) to the Knowledge of USI and Transferors, the
-------------
policy is legal, valid, binding, and enforceable and in full force and effect;
(ii) the policy will continue to be legal, valid, binding, and enforceable and
in full force and effect on identical terms immediately following the Closing
Date; (iii) USI is not in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default or
permit termination, modification, or acceleration under the policy; and (iv) USI
has not and to the Knowledge of the Transferors and USI, no other party to the
policy has repudiated any provision thereof. To the best of the Knowledge of
Transferors and USI, USI has been covered during the past three (3) years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Except as set forth in
Schedule 4.14, USI currently does not have and has never had any self-insurance
- -------------
arrangements.
4.15 LITIGATION. Schedule 4.15 sets forth each instance in which USI (a)
---------- -------------
is subject to any unsatisfied judgment, order, decree, stipulation, injunction,
or charge or (b) is a party or, to the Knowledge of the Transferors and the
directors and officers of USI, is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. Except as specifically
described on Schedule 4.15, no matter listed thereon could reasonably be
-------------
expected, individually, to result in a Material adverse effect to USI. Neither
the Transferors nor any of the directors or the officers (or employees with
responsibility for litigation matters) of USI has any reason to believe that any
such charge, complaint, action, suit, proceeding, hearing, or investigation may
be brought or threatened against USI.
4.16 EMPLOYEES. To the Knowledge of the Transferors and USI, no non-
---------
clerical employee or any full-time group of employees has any plans to terminate
employment with USI and USI has not committed any unfair labor practice.
4.17 EMPLOYEE BENEFITS. Other than as described in Schedule 4.17, USI
-----------------
has no Employee Benefit Plans that USI maintains or to which USI contributes for
the benefit of any current or former employee of USI and USI has never been a
party to any Employee Benefit Plan.
4.18 GUARANTIES. To the Knowledge of Transferors, USI has not agreed to
----------
be a guarantor nor has it otherwise agreed to be liable for any Liability or
obligation (including indebtedness) of any other person other than such
potential liabilities to which USI is subject based on the acts or omissions of
its employees, subcontractors and other agents performing services for USI in
the ordinary course of business (of which USI has no Knowledge of any claim for
actual liability therefor).
-20-
<PAGE>
4.19 LEGAL COMPLIANCE . Except as it would not, individually or in the
----------------
aggregate, have a Material adverse effect, and as limited to the Knowledge of
USI and the Transferors:
(A) USI has complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), including without limitation, all environmental and employee health
and safety laws. No charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced against USI
which is currently pending and alleges any failure to comply with any such law
or regulation;
(B) USI has complied with all applicable laws (including rules and
regulations thereunder) relating to the employment of labor employee civil
rights, hiring of engaging non-United States citizens, and equal employment
opportunities;
(C) USI has not made or agreed to make any contribution, payment, or
gift of funds or property to any governmental official, employee, or agent where
either the contribution, payment, or gift or the purpose thereof was illegal
under the laws of any federal, state, local, or foreign jurisdiction;
(D) USI has filed in a timely manner all reports, documents, and
other materials it was required to file (and the information contained therein
was correct and complete in all respects) under all applicable laws (including
rules and regulations thereunder); and
(E) USI has possession of all records and documents it was required
to retain under all applicable laws (including rules and regulations
thereunder).
4.20 CERTAIN BUSINESS RELATIONSHIPS WITH USI. Except as set forth in
---------------------------------------
Schedule 4.20, neither the Transferors nor its Affiliates has been involved in
- -------------
any business arrangement or relationship with USI within the past twelve (12)
months other than service relationships in the ordinary course of business, and
neither the Transferors nor their Affiliates owns any material property or
right, tangible or intangible, which is used in the business of USI.
4.21 BROKERS' FEES'. USI does not have any Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or similar representative
with respect to the transactions contemplated by this Agreement.
4.22 SYSTEMS. To the Knowledge of Transferors, except as set forth on
-------
Schedule 4.22 and with such other exceptions as will not, individually or in the
- -------------
aggregate, have a Material adverse effect, (i) all of the Systems services and
platform servers are running, or peaking, at no higher than 90% of capacity,
(ii) all of the Systems' services are replicated in a redundant manner across
available platform servers, (iii) all remote physical points of presence
("POPS") are secure, conform to equipment manufacturers' recommended
environmental parameters, and contain an uninterrupted power supply with a
battery back-up of at least 15 minutes, (iv) the average Subscriber blockage
rate for dial-in Subscribers is no greater than 1.0% of Subscriber attempts
across the overall network infrastructure, (v) the configuration diagrams
provided to the Acquirer reasonably represent the redundant network facilities
between major backbone
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<PAGE>
locations, and between remote physical POPs and major network concentration
points, (vi) the existing power plant at USI's main location is equipped with an
uninterrupted power supply with a battery back-up of at least 60 minutes, (vii)
by February 1, 1999, all deployed dial-in modem, modem shelf and corresponding
technology conform to applicable industry standards necessary to support
Subscriber traffic at a rate of 56Kbps or above, (viii) all Systems owned,
leased by, or licensed to or by USI will be year 2000 compliant by February 1,
1999, (ix) USI utilizes an IP address allocation scheme that conforms to
industry standards, and (x) USI has access to the quantity of IP addresses
sufficient to support USI's Subscriber base as currently existing and as
currently contemplated to exist as of April 1, 1999.
4.23 SUBSCRIBERS. Schedule 4.23 sets forth (a) the number of Subscribers
----------- -------------
served by USI by type of business (i.e., segregated by the following categories,
if applicable to USI: (i) dial-up, (ii) dedicated access, (iii) web hosting, and
(iv) other businesses) as of June 30, 1998 and USI's standard rates for such
Subscribers for each type of business; (b) for the period commencing January 1,
1997, USI's monthly churn rate (consisting of (i) cancellations of month-to-
month service and/or long-term subscription or service contracts prior to
expiration (ii) terminations of any such contracts, and (iii) non-renewal of any
such contracts upon expiration) by business type during each full calendar month
prior to the date hereof; and (c) as of June 30, 1998, detail as to the amount
of prepaid subscription or service contracts and the amount of unearned revenue
for all Subscriber contracts with a remaining term of (i) less than or equal to
90 days, (ii) greater than 90 days and less than or equal to one year, (iii)
greater than one year and less than or equal to two years, (iv) greater than two
years and less than or equal to three years and (v) greater than three years.
4.24 DISCLOSURE. The representations and warranties contained in this
----------
Article IV as amended, modified and/or supplemented by the Disclosure Schedules
- ----------
do not contain any untrue statement of a fact or omit to state any Material fact
necessary in order to make the statements and information contained in this
Article IV not misleading.
- ----------
All references in Sections 4.5 through 4.24 to "USI" shall be deemed to
------------ ----
refer to and include all Subsidiaries of the USI.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
The Acquirer represents and warrants to the Transferors the statements
contained in this Article V are correct and complete as of the date of this
---------
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article V):
---------
5.1 ORGANIZATION OF THE ACQUIRER. The Acquirer is a corporation duly
----------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
5.2 AUTHORIZATION OF TRANSACTION. The Acquirer has full power and
----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by
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<PAGE>
the Acquirer. This Agreement constitutes the valid and legally binding
obligation of the Acquirer, enforceable in accordance with its terms and
conditions except for Equitable Exceptions. The Acquirer does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement (other than as provided for in
Article II of this Agreement).
- ----------
5.3 BROKERS' FEES'. The Acquirer has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Transferors could
become liable or obligated.
5.4 ACQUIRER'S CAPITALIZATION'. The authorized capital stock of the
-------------------------
Acquirer consists of (a) 100,000,000 shares of common stock, and (b) 10,000,000
shares of preferred stock. The issued and outstanding shares of and the
holders of record of the Acquirer's Common Stock are as set forth in Annex IV,
--------
and as of the date hereof, there are no issued and outstanding shares of
preferred stock. All of the Acquirer's issued and outstanding common stock have
been duly authorized, are validly issued, fully paid, and nonassessable.
5.5 DISCLOSURE. To the Knowledge of the Acquirer, the representations
----------
and warranties contained in this Article V do not contain any untrue statement
---------
of a fact or omit to state any Material fact necessary in order to make the
statements in Article V not misleading.
---------
5.6 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement by Acquirer, nor the consummation of the transactions contemplated
hereby by the Acquirer, will (a) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency, or court to which Acquirer is subject or
(b) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any part the right to accelerate, terminate,
modify, or cancel, or require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or other
agreement to which Acquirer is a party or by which it is bound or to which any
of its assets are subject.
5.7 CONSOLIDATION ACTIVITIES. As of the date hereof, Acquirer has not
------------------------
engaged in any activity not either (1) previously disclosed to USI or (2)
related to the IPO, the Business, Related Transactions, acquisitions of
companies related to the Business, employment agreements for Acquirer,
professional services related to the aforementioned activities, and other
agreements and activities related to or necessary for the execution of the
aforementioned.
ARTICLE VI
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing or the earlier termination of this
Agreement:
6.1 GENERAL. Each of the Parties will use its reasonable efforts to
-------
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the
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<PAGE>
transactions contemplated by this Agreement (including satisfying the closing
conditions set forth in Article IX below).
----------
6.2 NOTICES AND CONSENTS. Each of the Parties will give any notices to
--------------------
third parties, and will use best efforts to obtain third party consents, that
the other Party may reasonably request in connection with matters disclosed or
required to be disclosed on the Disclosure Schedules. Each of the Parties will
take any additional action (and the Transferors will cause USI to take any
additional action) that may be necessary, proper, or advisable in connection
with any other notices to, filings with, and authorizations, consents, and
approvals of governments, governmental agencies, and third parties that he, she
or it may be required to give, make, or obtain.
6.3 OPERATION OF BUSINESS PRIOR TO THE EFFECTIVE TIME. Except as
-------------------------------------------------
contemplated hereby, or as may be incidental to or in furtherance of the
transactions contemplated hereby, or as may have been set forth herein or in the
Disclosure Schedules, USI will not (and the Transferors will not cause or permit
USI to) engage in any practice, take any action, embark on any course of
inaction, or enter into any transaction outside the ordinary course of business.
Without limiting the generality of the foregoing, from the date hereof to the
Effective Time:
(A) USI will not adopt or propose any change in its certificate of
incorporation or bylaws;
(B) USI will not merge or consolidate with any other Person or
acquire a material amount of assets of any other Person without the written
permission of Acquirer;
(C) USI will not sell, lease, license or otherwise dispose of any
material assets or property except (i) pursuant to existing contracts or
commitments, (ii) in the ordinary course of business, and (iii) as consented to
in writing by Acquirer.
(D) except as otherwise provided for in this Agreement, USI will not
issue, sell, purchase, repurchase, redeem or otherwise acquire any USI
securities;
(E) except with the prior written consent of the Acquirer, USI shall
not make any Tax election that would have an adverse effect on USI;
(F) USI will timely file all Tax Returns due on or before the
Effective Time and pay (or reserve for) all Taxes due and payable with respect
to periods;
(G) USI will not do any of the items described in Section 4.6; and
-----------
(H) USI will not agree or commitment to do any of the foregoing.
6.4 PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may
------------------------
be incidental to or in furtherance of the transactions contemplated hereby, or
as may have been set forth herein or in the Schedules, the Transferors will
cause USI to use reasonable commercial efforts to keep its business and
properties substantially intact, including its present operations,
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<PAGE>
physical facilities, working conditions, and relationships with lessors,
licensers, suppliers, Subscribers, any other customers, and employees.
6.5 ACCESS.
------
(A) Only in the event that neither the Acquirer nor the Transferors
exercise their right to terminate this Agreement as provided in Article X
---------
herein, the Transferors will cause USI to permit the Acquirer's representatives
access at reasonable times, and in a manner so as not to interfere with the
normal business operations of USI, to the headquarters of USI and to all books,
records, contracts, Tax records, and documents of or pertaining to USI;
provided, however, that the Acquirer shall direct all requests for information
and material only through the Transferors' Representative, unless otherwise
agreed to by the Acquirer and the Transferors' Representative in writing.
(B) The Acquirer shall proceed to arrange with the Transferors a
mutually agreeable time and place at which the Acquirer may conduct interviews
with key employees and/or customers of USI mutually agreed to by the Acquirer
and the Transferors' Representative.
6.6 NOTICE OF DEVELOPMENTS. USI will give prompt written notice to the
----------------------
Acquirer after any of USI or the Transferors obtains Knowledge of any Material
development affecting the assets, Liabilities, business, financial condition,
operations, results of operations, or future prospects of USI including but not
limited to (a) any development affecting the ability of USI to consummate the
transactions contemplated by this Agreement, (b) any Outage affecting more than
1% of all Subscribers lasting for 3 hours or more or (c) any loss of any
Material Subscriber or any material equipment or other supplier to USI. No
disclosure by any Party pursuant to this Section 6.6 shall be deemed to amend or
-----------
supplement the Disclosure Schedules or to prevent or cure any misrepresentation,
breach of warranty, and/or breach of covenant, except with respect to Article IX
of this Agreement, provided, however, that in the event Acquirer does not
terminate the Agreement as a result of the modification discussed in this
Section 6.6, such modification shall not be deemed a breach of any
- -----------
representations, warranties or covenants of this Agreement.
6.7 EXCLUSIVITY. Through June 30, 1999, the Transferors will not (and
-----------
the Transferors will not cause or permit USI to) (a) solicit, initiate, or
encourage the submission of any proposal or offer from any person relating to
any (i) liquidation, dissolution, or recapitalization, (ii) Stock Exchange or
consolidation, (iii) acquisition or purchase of securities or assets or (iv)
similar transaction or business combination involving USI, or (b) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any person to do or seek any of the foregoing. The Transferors will
notify the Acquirer immediately if any entity or person makes any such proposal,
offer, inquiry, or contact with respect to any of the foregoing and shall
provide the identity of such entity or person as well as any other relevant
details regarding the contact.
6.8 CANCELLATION OF OPTIONS, WARRANTS, STOCK APPRECIATION RIGHTS, BONUS
-------------------------------------------------------------------
PROGRAMS AND PHANTOM STOCK PLANS. USI shall have provided for the
- --------------------------------
cancellation, at or prior to the Closing, of all USI stock options, warrants,
stock appreciation rights, deferred bonus
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<PAGE>
programs or phantom equity plans. The amounts payable for the cancellation of
the USI Options will be a reduction of the Cash Portion of the Transfer
Consideration pursuant to Section 2.2, will be funded by Acquirer to USI at
-----------
Closing and will be paid by USI to the recipients at Closing. In conjunction
with the cancellation of such programs, all employees earning more than $70,000
who have not executed new employment agreements shall have signed cancellation
agreements which include provisions that each employee will not, for a period of
one year from the date of Closing or one year from the termination of his or her
employment with USI whichever period is longer: (a) compete with USI, (b)
service or solicit any customers of USI, or (c) solicit for employment any
employee of USI.
6.9 RESERVED.
--------
6.10 RESERVED.
--------
6.11 RESERVED.
--------
6.12 TAX MATTERS.
-----------
(A) TAX RETURNS. The Transferors shall cause USI to file with the
-----------
appropriate governmental authorities all Tax returns required to be filed by it
for any taxable period ending prior to the Closing Date and Transferors and/or
USI shall remit any Taxes due in respect of such Tax returns. In addition, the
Transferors shall cause USI's independent accounting firm, Coulter & Justus,
P.C., to prepare a short period tax return for USI covering the period January
1, 1998 through the Closing Date. The cost of preparation of such short period
tax return shall be paid for by the Transferors.
(b) INDEMNITY. The Transferors shall be liable for, and shall
---------
indemnify and hold Acquirer and USI harmless against, any Taxes or other costs
attributable solely to (i) a failure on the part of any of the Transferors to
take all actions required of them under Section 6.12 for periods prior to the
------------
Closing Date or (ii) a failure on the part of USI to qualify, at or prior to the
Closing, as an "S corporation" for federal and/or state income Tax purposes.
6.13 AUDITS. Following the Closing and at Acquirer's expense, the
------
Transferors shall use their best efforts to deliver, or cause to be delivered,
to Acquirer any unqualified and unmodified audit report of E&Y on the balance
sheets of USI as of September 30, 1998, December 31, 1997 and December 31, 1996,
for periods and consolidated audited statements of operations and cash flows of
USI for the fiscal years then ended, which report shall be without limitation as
to the scope of the audit. Transferors and any of the officers or directors of
USI, in their capacities as officers and directors of USI, shall provide all
management letters, reports or representations reasonably requested by such
auditors in connection with such audits, and in connection with audits of USI
for the years ended December 31, 1997 and December 31, 1996 and for the nine
month period ending September 30, 1998.
6.14 DUE DILIGENCE. USI covenants that within 5 days of the date hereof,
-------------
it will provide Acquirer with substantial due diligence material concerning USI,
and Acquirer covenants that within 7 days of the receipt of such due diligence
material to either (i) request
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<PAGE>
further due diligence material from USI, which request will begin the time
period response and review provisions of this Section 6.14 anew; or (ii) notify
------------
USI of its intention whether or not to terminate this Agreement, provided,
however, that termination pursuant to this Section 6.14 will not be deemed a
------------
breach of this Agreement.
ARTICLE VII
POST-CLOSING COVENANTS
7.1 GENERAL. In case at any time after the Closing any further action
-------
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article IX
----------
below). The Transferors acknowledge and agree that from and after the Closing
the Acquirer will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to USI; provided that the
Transferors may retain any copies of the foregoing as shall be necessary to
comply with applicable tax and other laws, regulations and ordinances.
7.2 TRANSITION. The Transferors will not take any action that primarily
----------
is designed or intended to have the effect of discouraging any lessor, licenser,
subscriber, supplier, or other business associate of USI from maintaining the
same business relationships with USI after the Closing for a period of twenty-
four (24) months thereafter as it maintained with USI prior to the Closing.
7.3 CONFIDENTIALITY. USI, the Transferors and Acquirer shall, and shall
---------------
cause their subsidiaries, affiliates, officers, directors, employees,
accountants, counsel, financial advisors and other representatives and agents,
to treat and hold as such all of the Confidential Information, refrain from
disclosing or using any of the Confidential Information except in connection
with this Agreement and the transactions contemplated hereby for a period of two
(2) years from the date hereof, and except as otherwise permitted hereunder or
as may be required by law, deliver promptly to the Acquirer or USI or destroy,
at the request and option of the Acquirer or USI, all tangible embodiments (and
all copies) of the Confidential Information which are in the possession of USI
or Acquirer or any Transferor. In the event that USI or Acquirer or any
Transferor is requested or required (by request for information or documents in
any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar legal process) to disclose any Confidential Information, USI or Acquirer
or such Transferor will notify the Acquirer or USI promptly of the request or
requirement so that the Acquirer or USI may seek an appropriate protective order
or waive compliance with the provisions of this Section 7.3. If, in the absence
-----------
of a protective order or the receipt of a waiver hereunder, Acquirer, USI or any
Transferor is compelled to disclose any Confidential Information or else stand
liable for contempt, then USI or Acquirer or such Transferor may disclose the
Confidential Information; provided, however, that the Transferors, USI and
Acquirer shall use their reasonable efforts to obtain, at the reasonable request
of the Acquirer or USI, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Acquirer or USI shall reasonably designate.
<PAGE>
7.4 COVENANT NOT TO COMPETE. For a period of three (3) years from and
-----------------------
after the Closing Date, all Transferors employed by USI who sign employment
agreements will not, directly or indirectly, as principal, agent, trustee or
through the agency of any corporation, partnership, association or agent or
agency, (i) own, manage, control, participate in, consult with, render services
for, or in any manner engage in any activity or business competing within an
area comprised within a 300 mile radius from USI's executive offices in
Knoxville, Tennessee, and a 100 mile radius from any of USI's offices in the
states of Virginia, Kentucky, Alabama and Georgia, (ii) solicit from USI any
known Subscriber or other customer of USI, (iii) request or advise any known
Subscriber or other customer of USI to withdraw, curtail or cancel such
subscriber's or others customer's business with USI, or (iv) solicit for
employment any person employed by USI at any time within the two (2) year period
immediately preceding such solicitation; provided, however, that no owner of
less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of that
corporation's businesses. For purposes of this Agreement, the Parties have
agreed to allocate $50,000 of the Transfer Consideration to the covenant not to
compete contained in this Section 7.4, provided, however, that such allocation
-----------
will not otherwise affect any other sections of this Agreement.
7.5 TAX FREE EXCHANGE INTENT. The Parties agree that this transaction
------------------------
will occur in conjunction with the Related Transactions, and the Parties intend
that the receipt of the Acquirer's Shares by the Transferors and by the parties
involved in the Related Transactions will be tax-free under Section 351 of the
Code.
7.6 CONDUCT DURING EARNED PAYOUT PERIOD. The Transferors acknowledge
-----------------------------------
and agree that, during the Earned Payout Period, the Acquirer shall be entitled
to oversee the operation and management of USI's Business, including the setting
of goals and review of budgets and performance. USI and those Transferors
holding executive positions in USI, further agree, during the Earned Payout
Period, not to allow USI to cut staff, capital expenditures and general and
administrative expenses or take other actions that are not consistent with USI's
prior practices or approved by Acquirer's board of directors and/or prudent
business practices, and the Transferors agree not and not to allow USI to engage
in any activity involving a Material act primarily intended to be inconsistent
with USI's prior practices in order to increase current earnings and revenue of
the business of USI at the expense of the longer term growth of the business of
USI. During the Earned Payout Period, the Acquirer agrees that it will not (a)
unreasonably require that the business of USI be operated substantially
different than it was prior to the Stock Exchange except in so far as the prior
practices of USI were imprudent or unreasonable or its productivity, efficiency
and profitability can be improved and increased through economies of scale, the
Acquirer's experience or otherwise; (b) unreasonably change (i) the prices
charged for USI's services, (ii) the level of compensation of USI's full-time
corporate employees or (iii) the level USI's general and administrative
expenses, unless the prior business practices were unreasonable or imprudent
and/or unless the changes are reasonably necessary to support the growth of
USI's business.
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<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATIONS OF THE ACQUIRER. The obligation of the
-----------------------------------------
Acquirer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Transferors and USI set forth in Articles III and IV above
shall be true and correct in all material respects at and as of the Closing Date
and the Transferors shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(B) CONSENTS. The Transferors and USI will have procured all third
--------
party consents and given all notices required in connection with this Agreement
and the transactions contemplated hereby, including without limitation all
action necessary in connection with and/or the receipt of any notices to,
filings with, and authorizations, consents and approvals of governments,
governmental agencies, and third parties as set forth herein or in the
Disclosure Schedules including any filing required under the Hart-Scott-Rodino
Act;
(C) RESIGNATIONS. The Acquirer shall have received the
------------
resignations, effective as of the Closing, of each director of USI prior to the
Closing.
(D) DOCUMENTS TO BE DELIVERED BY THE TRANSFERORS. The following
--------------------------------------------
documents shall be delivered at Closing by the Transferors:
(I) CERTIFICATES. The Transferors and USI shall have
------------
delivered to the Acquirer an Officers/Transferors Certificate and a Secretary's
Certificate substantially in the form of the certificates respectively attached
as Exhibit C-1 and C-2 hereto.
----------- ----------
(II) ESCROW AGREEMENT. The Acquirer shall have received from
----------------
the Transferors an executed Escrow Agreement in the form and substance set forth
as Exhibit A attached hereto.
---------
(III) EMPLOYMENT AGREEMENTS. The Acquirer shall have received
---------------------
from Michael C. Crabtree, Niels Jonker, David Everhart, Tom Badgett, Richard
Gannon and Brent Cantrell, an executed employment agreement in the form and
substance attached hereto as Exhibit E.
---------
(IV) REGISTRATION AGREEMENT JOINDER. The Acquirer shall have
------------------------------
received from each Transferor an executed joinder to the Registration Agreement
in the form and substance set forth as Exhibit F attached hereto;
---------
(V) USI OPTION CANCELLATIONS. The Transferors shall have
------------------------
caused USI to cancel each outstanding option, warrant, stock appreciation right,
phantom stock, deferred bonus or other option plan, if any, and all outstanding
USI Options shall have been canceled, with the cost of such cancellation being a
reduction of the Cash Portion of the Transfer Consideration pursuant to
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<PAGE>
Section 2.2, provided, however, that Acquirer shall advance to USI the funds
necessary to accomplish such cancellation.
(VI) SUBSCRIPTION AGREEMENT JOINDER. The Transferors shall
------------------------------
have caused each party receiving Acquirer's Shares under this Agreement to
execute an Equity Subscription Agreement in the form of Exhibit D hereto;
---------
(VII) OPINION OF COUNSEL. The Acquirer shall have received
------------------
from the Transferors and USI opinion of counsel in the form and substance set
forth as Exhibit G hereto.
---------
(E) FINANCIAL CONDITION. Each of the following shall be true and
-------------------
complete as of the Closing Date:
(i) USI shall use its best efforts to ensure the release
within a reasonable time after Closing, of all liens and Security Interests
securing debts of USI which have been paid in full prior to or at the Closing
and all Uniform Commercial Code financing statements covering such paid debts
shall have been terminated;
(ii) no unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against USI, or against or in any way affecting
any USI Share;
(iii) the Transferors and USI shall have caused all of USI's
officers, directors and/or key employees of USI to have repaid in full all debts
and other obligations, if any, owed to USI;
(F) DUE DILIGENCE COMPLETED. The Acquirer shall be satisfied in its
-----------------------
sole discretion with the results of its continuing legal, financial and business
due diligence investigations of USI, all of which shall be final and completed
to the Acquirer's satisfaction by February 15, 1999, provided, however, that USI
has assisted in good faith with such due diligence. By February 15, 1999,
Acquirer shall either immediately terminate this Agreement or it shall be
conclusively presumed that such diligence was satisfactory to Acquirer and this
condition shall terminate;
(G) MATERIAL ADVERSE CHANGE. No Material adverse change shall have
-----------------------
occurred in USI's Business or its future prospects;
(H) IPO. The Acquirer shall have received from USI the Financial
---
Statements and such Financial Statements must, in the opinion of the Acquirer's
independent public accountants, be suitable or readily adaptable for
incorporation in the Registration Statement, and any prospectus and annual and
periodic reports to be filed by the Acquirer with the SEC relating to the IPO
and the Registration Statement filed by the Acquirer with the SEC in connection
with the IPO shall have become effective and there shall be no other impediments
to the closing of the IPO; and
(I) USI SHARES. The Transferors shall deliver the certificates
----------
representing the USI Shares to the Acquirer and the acquisition by the Acquirer
of the USI Shares shall represent one hundred percent (100%) of the issued and
outstanding capital stock of USI and all of such USI
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<PAGE>
Shares shall be free and clear of any Security Interests or other liens, claims
or encumbrances of any nature whatsoever.
The Acquirer may waive any condition specified in this Section 8.1 if
-----------
it executes a writing so stating at or prior to the Closing.
8.2 CONDITIONS TO OBLIGATIONS OF THE TRANSFERORS. The obligations of
--------------------------------------------
the Transferors to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction or waiver of the
following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Acquirer set forth in Article V above shall be true and
----------
correct in all material respects at and as of the Closing Date and the Acquirer
shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing;
(B) CONSENTS. The Acquirer will have procured all third party
--------
consents needed by the Acquirer and given all notices required in connection
with this Agreement and the transactions contemplated hereby, including without
limitation all action necessary in connection with and/or the receipt of any
notices to, filings with, and authorizations, consents and approvals of
governments, governmental agencies, and third parties as set forth herein or in
the Disclosure Schedules including any filing required under the Hart-Scott-
Rodino Act;
(C) USI OPTION CANCELLATION FUNDING. The Acquirer, to the extent of
-------------------------------
the reduction in the Cash Portion of the Transfer Consideration in Section 2.2,
-----------
shall have provided funding to USI sufficient to fund the payments required to
the USI Optionholders to satisfy and secure the cancellation of the USI Options.
(D) MINIMUM IPO PRICE. The Registration Statement filed by the
-----------------
Acquirer with the SEC in connection with the IPO shall have become effective and
there shall be no other impediments to the closing of the IPO. Notwithstanding
the foregoing, the provisions of this Section 8.2(d) may be waived by the
--------------
Majority Co-Transferors in the event that the following conditions have been
attained: (i) Acquirer is able to fund the Cash Portion of the Transfer
Consideration through a private equity investment in the capital stock of the
Acquirer or through borrowed money; (ii) the Transferors receive the Stock
Portion of the Transfer Consideration on a basis reasonably equivalent to what
they would have received in an IPO; (iii) the Transferors will receive the right
to obtain liquidity for the Stock Portion of the Transfer Consideration within a
reasonably short period of years following the Closing; and (iv) following the
Closing, the Acquirer will have access to cash or availability under debt
facilities or equity financing commitments sufficient to enable it to provide a
reasonable amount of financing for working capital, equipment upgrades and
future acquisitions for the USI and the other subsidiaries of the Acquirer;
provided, however, that USI may elect not to participate in any private equity
investment described in this Section 8.2(d).
--------------
(E) DOCUMENTS TO BE DELIVERED BY THE ACQUIRER. The following
-----------------------------------------
documents shall be delivered at the Closing by Acquirer.
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<PAGE>
(I) CERTIFICATES. The Acquirer shall have delivered to the
------------
Transferors an Officers Certificate substantially in the form of the Officer's
Certificate attached as Exhibit C-1 hereto.
-----------
(II) ESCROW AGREEMENT. The Transferors shall have received
from the Acquirer an executed Escrow Agreement in the form and substance set
forth as Exhibit A attached hereto.
---------
(III) SUBSCRIPTION AGREEMENT JOINDER. The Acquirer shall
------------------------------
execute and deliver an Equity Subscription Agreement in the form of Exhibit D
---------
hereto, with each of the Transferors acquiring Acquirer Shares.
(IV) EMPLOYMENT AGREEMENTS. Michael C. Crabtree, Niels
---------------------
Jonker, David Everhart, Tom Badgett, Richard Gannon, and Brent Cantrell shall
have received from USI an executed employment Agreement, in the form and
substance attached hereto as Exhibit E;
---------
(V) REGISTRATION AGREEMENT JOINDER. Each Transferor shall
------------------------------
have received from the Acquirer an executed joinder to the Registration
Agreement in the form and substance set forth as Exhibit F attached hereto;
---------
(VI) OPTIONS. The Acquirer shall have issued options for the
-------
purchase of up to 153,300 shares of the Acquirer's Common Stock to those certain
non-stockholder management and employees of USI listed on Annex VI hereto; and
--------
(F) RECEIPT OF ACQUIRER'S SHARES AND CASH PORTION OF THE TRANSFER
-------------------------------------------------------------
CONSIDERATION. Transferors shall receive the Cash Portion of the Transfer
- -------------
Consideration and the Acquirer's Shares at the Closing.
The Transferors may waive any condition specified in this Section 8.2 if
-----------
they execute a writing so stating at or prior to the Closing.
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<PAGE>
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 INDEMNIFICATION OF THE ACQUIRER Except as provided in and subject
-------------------------------
to Section 9.6, the Transferors agree to indemnify and hold harmless the
-----------
Acquirer, each officer and director of the Acquirer and any successor thereof
(collectively, the "INDEMNIFIED PARTIES") from and against any and all Adverse
Consequences, which any of the Indemnified Parties may sustain, or to which any
of the Indemnified Parties may be subjected, arising out of (a) any
misrepresentation, breach or default by Michael Crabtree, Tom Badgett, David
Everhart and Niels Jonker, the Transferors or USI of or under any of the
representations, warranties, covenants, agreements or other provisions of this
Agreement or any agreement or document executed in connection herewith and (b)
the Transferors or USI's tortious acts or omissions to act prior to Closing for
which USI did not carry liability insurance for itself as the insured party
sufficient to satisfy such claim or liability, whether or not such acts or
omissions to act result in a breach or violation of any representation or
warranty.
9.2 DEFENSE OF THIRD PARTY CLAIMS . If any legal proceeding shall be
-----------------------------
instituted, or any claim or demand made, by any third party against any
Indemnified Parties in respect of which the Transferors may be liable hereunder
(and such determination shall be made without regard to the limitations set
forth in Section 9.6), such Indemnified Party shall give prompt written notice
-----------
thereof to the Transferors and, except as otherwise provided in Section 9.4
-----------
below, the Transferors shall have the right to defend any litigation, action,
suit, demand, or claim for which such Indemnified Party may seek indemnification
with counsel satisfactory to the Transferors; provided, however, that the
Transferors may not settle any such litigation, action, suit, demand, or claim
without the prior written consent of the Acquirer, which shall not be
unreasonably withheld. Notwithstanding the foregoing, if in the reasonable
judgment of the Acquirer, such litigation, action, suit, demand or claim, or the
resolution thereof, would have a (a) Material adverse effect on the Acquirer or
the USI or (b) the Transferors have a conflict of interest in defending such
action on Acquirer's or USI's behalf, at the Acquirer's election, the Acquirer
may defend itself and in either of such instances the Transferors shall be
liable for all expenses reasonably incurred in connection therewith (including,
without limitation, settlement payments and reasonable attorney's fees);
provided, however, that the Acquirer may not settle any such litigation, action,
suit, demand, or claim without the prior written consent of the Transferors,
which shall not be unreasonably withheld. If neither (a) nor (b) are applicable
but the Acquirer desires to participate in the defense of an action the
Transferors are defending because in the Acquirer's reasonable judgment the
outcome of such action could have an ongoing effect on the Acquirer (or its
successors), the Acquirer may participate but at its own expense. In the event
the Transferors fail or refuse to defend any legal proceeding they are required
to defend under this Article IX within a reasonable length of time, the
----------
Indemnified Parties shall be entitled to assume the defense thereof, and the
Transferors shall be liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including, without
limitation, settlement payments and reasonable attorney's fees). If the
Transferors do not or refuse to assume the defense of any litigation, action,
suit, demand, or claim in any legal proceeding they are required to defend under
this Article IX, the Indemnified Parties shall have the absolute right, at the
----------
Transferor's expense, to control the defense of and to
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<PAGE>
settle, in their sole discretion and without the consent of the Transferors,
such litigation, action, suit, demand, or claim, but the Transferors shall be
entitled, at their own expense, to participate in such litigation, action, suit,
demand, or claim, and if the Transferors elect to participate in such litigation
the Indemnified Parties shall consult with the Transferors prior to settling
such litigation. The Party controlling any defense pursuant to this Section 9.2
-----------
shall deliver, or cause to be delivered to the other Party, copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of any such litigation,
action, suit, demand, or claim, and timely notices of any hearing or other court
proceeding relating to such litigation, action, suit, demand, or claim.
9.3 PROCEDURE FOR CLAIMS.
--------------------
(A) ESCROW CLAIMS. If any good faith claim for indemnification is
-------------
made by an Indemnified Party pursuant to this Article IX prior to the expiration
----------
of the Escrow Period, such Indemnified Party shall first apply to the Escrow
Agent for reimbursement of such claim in accordance with the provisions of the
Escrow Agreement; provided, however, the Escrow Sum is not intended to be an
exclusive remedy in the event the Acquirer has indemnification claims hereunder
which exceed such amount. Once the Cash Escrow sum has been fully depleted to
satisfy claims pursuant to Section 9.1, any one or more of the Transferors shall
-----------
have the option to satisfy such Transferor's obligation to the Acquirer by
surrendering to the Acquirer that portion of the Stock Portion of the Transfer
Consideration required to fund the indemnification obligation (with such
surrendered Acquirer's Shares valued at the Fair Market Value of such shares).
Notwithstanding the foregoing, and in lieu of receiving a cash payment or
Acquirer's Shares from the Transferors, the Acquirer, in its sole discretion,
may after the first anniversary of the Closing Date, elect to offset against any
Earned Payout Amount payable to the Transferors, after an indemnification claim
has been made therefor, the amount of any Adverse Consequences or any other
payments to which the Acquirer has become entitled to by reason of the
provisions of this Agreement.
(B) OTHER CLAIMS. If pursuant to this Article IX any claim for
------------
indemnification is made by (i) an Indemnified Party after the expiration of the
Escrow Period, other than claims of third parties which are governed by Section
-------
9.2 hereof, or (ii) the Transferors, the Indemnified Party or the Transferors,
- ---
as the case may be (in either instance, the "CLAIMANT"), shall send written
notice to the other person (by certified mail, return receipt requested or by
personal service as provided in Section 11.7 hereof) setting forth in reasonable
------------
detail a description of the facts upon which the claim is based and a reasonable
estimate of the amount of the claim (a "CLAIM", with the notice thereof referred
to as the "CLAIM NOTICE"). The person against whom the Claim is brought (the
"RESPONDENT") shall have fifteen (15) calendar days from receipt of the Claim
Notice to respond to such Claim. Such response shall be in writing and shall (i)
set forth in reasonable detail the Respondent's objection to the Claim and the
basis for such objection, or (ii) the efforts undertaken or to be undertaken by
the Respondent to cure the Claim. In the event the Respondent fails to respond
to the Claim Notice in the manner set forth above within such 15-day period, the
Respondent shall be deemed to have conceded the Claim in full. In the event the
Parties are unable to resolve the Claim within thirty (30) calendar days from
the date of receipt of the Claim Notice, the Claim shall be submitted to
arbitration in accordance with Section 11.8 below.
------------
-34-
<PAGE>
9.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of USI
---------------
with respect to which an Indemnified Party might be entitled to indemnification
pursuant to this Article IX, the Acquirer shall have the right to control any
----------
and all such audits which may result in the assessment of additional Taxes
against USI and any and all subsequent proceedings in connection therewith,
including appeals (subject to the prior written consent of the Transferors,
which shall not unreasonably be withheld and subject to the right of the
Transferors to have their accountants and attorneys consult with the Acquirer on
such audits or procedures at the Transferors' expense); provided, however, that
the Transferors and the Acquirer shall jointly control, and shall cooperate with
each other in connection with, any and all such audits which may result in the
assessment of additional Taxes against both the Transferors and USI. The
Transferors shall cooperate fully in all matters relating to any such audit or
other Tax proceeding (including according access to all records pertaining
thereto), and will execute and file any and all consents, powers of attorney,
and other documents as shall be reasonably necessary in connection therewith.
If additional Taxes are payable by USI as a result of any such audit or other
proceeding by reason of matters, actions or inactions occurring prior to
Closing, the Transferors shall be responsible for and shall promptly pay all
Taxes, interest, and penalties for which any of the Indemnified Parties shall be
entitled to indemnification.
9.5 INDEMNIFICATION OF TRANSFEROR. The Acquirer agrees to indemnify and
-----------------------------
hold harmless the Transferors and USI and each officer, director, stockholder or
affiliate of USI, from and against any Adverse Consequences arising out of any
misrepresentation, breach or default by the Acquirer of or under any of the
representations, warranties, covenants, agreements or other provisions of this
Agreement or any agreement or document executed in connection herewith, and any
torts or negligent actions or inactions taken pre-closing by Acquirer pursuant
to the Closing which adversely and materially affect USI or the Transferors.
9.6 LIMITS ON INDEMNIFICATION. All Adverse Consequences sought by any
-------------------------
Party hereunder shall be net of any insurance proceeds received by such Party
with respect to such claim (less the present value of any premium increases
occurring as a result of such claim). Except for any claims for breach of the
representations, warranties and covenants of the Transferors under Sections 4.8,
------------
4.19, and 4.21 hereof (for which indemnification claims must be made prior to
- ---- ----
the expiration of the applicable statute of limitations plus sixty (60) days and
if so made, such claims shall continue after such date until finally resolved
and made) and Sections 3.5 and 4.2 hereof (pursuant to which the right to make
------------ ---
claims for indemnification under this Article IX shall survive the Closing Date
----------
indefinitely), the right to make claims for indemnification provided under this
Article IX shall expire on the first anniversary of the Closing Date (except for
- ----------
claims made prior to such date which shall continue after such date until
finally resolved). The Transferor shall not be obligated to pay any amounts for
indemnification under this Article IX until the aggregate indemnification
----------
obligation sought by the Acquirer hereunder exceeds $25,000, whereupon the
Transferors shall be liable for all amounts for which indemnification may be
sought back to the first dollar up to a maximum indemnification by Transferors
equal to the Transfer Consideration. The Acquirer shall not be obligated to pay
any amounts for indemnification under this Article IX until the aggregate
----------
indemnification obligation sought by the Transferors hereunder exceeds $25,000,
whereupon the Acquirer shall be liable for all amounts for which indemnification
may be sought back to the first dollar. For purposes of
-35-
<PAGE>
Section 9.1 or 9.5, any requirement in any representation or warranty that an
- ----------- ---
event or fact be Material or have a Material adverse effect, as appropriate, in
order for such event or fact to constitute a misrepresentation or breach of such
representation or warranty shall be ignored. Notwithstanding the foregoing, in
no event shall the aggregate liability of any individual Transferor to the
Acquirer or the Acquirer to the Transferors exceed the Transfer Consideration
received by such Transferor. However, nothing in this Article IX shall limit the
Acquirer or the Transferors in exercising or securing any remedies provided by
applicable statutory or common law with respect to the conduct of the
Transferors or the Acquirer in connection with this Agreement or in the amount
of damages that it can recover from the other in the event that the Acquirer,
USI or Transferors successfully prove intentional fraud or intentional
fraudulent conduct in connection with this Agreement. The amount of all Adverse
Consequences paid by the Transferors shall be deemed to be a reduction of the
Transfer Consideration paid by Acquirer under this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
------------------------
as provided below:
(A) the Acquirer and the Transferors may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(B) the Acquirer may terminate this Agreement by giving written
notice to the Transferors at any time prior to the Closing in the event the
Transferors are in breach of any representation, warranty, or covenant contained
in this Agreement in any Material respect and such breach has not been cured
within ten (10) days of written notice thereof, and the Transferors may
terminate this Agreement by giving written notice to the Acquirer at any time
prior to the Closing in the event the Acquirer is in breach of any
representation, warranty, or covenant contained in this Agreement in any
Material respect and such breach has not been cured within ten (10) days of
written notice thereof;
(C) this Agreement will terminate if the Closing shall not have
occurred on or before March 31, 1999; provided, however, that in the event
Acquirer has filed a registration agreement with the SEC and either (i)
Acquirer's lead underwriter informs Acquirer that a public offering of stock is
not advisable or (ii) the Registration Statement has not been declared effective
but Acquirer is using reasonable efforts to have the Registration Statement
declared effective, then this Agreement shall terminate if the Closing has not
occurred on or before June 30, 1999; provided, however, that in the event this
Agreement is extended to a date after March 31, 1999, the Cash Portion of the
Transfer Consideration, after accounting for the adjustments described in
Section 2.2(b)(i), and the Stock Portion of the Transfer Consideration will each
be increased by three (3) percent.
(D) Nothing contained in this Section 10.1 shall alter, affect,
------------
modify or restrict any Parties' rights to rely on and/or seek indemnification
for a breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
-36-
<PAGE>
10.2 EFFECT OF TERMINATION. If either the Acquirer or the Transferors
---------------------
terminate this Agreement pursuant to Section 10.1 above, all obligations of the
------------
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
ARTICLE XI
MISCELLANEOUS
11.1 PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
--------------------------------
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or public announcement relating to the subject matter of this
Agreement prior to, at or about the Closing without the prior written approval
of the Acquirer and the Transferors, which written approval will not be
unreasonably withheld by each party; provided, however, that any Party may make
any public disclosure it believes in good faith is required by law or regulation
(in which case the disclosing Party will advise the other Parties prior to
making the disclosure).
11.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
11.3 ENTIRE AGREEMENT. This Agreement shall not confer any rights or
----------------
remedies upon any person other than the Parties and their respective successors
and permitted assigns. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof.
11.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his,
her or its rights, interests, or obligations hereunder without the prior written
approval of the Acquirer and the Transferors; provided, however, that the
Acquirer may assign any or all of rights of the Agreement to any lender
providing debt financing to the Acquirer or its Affiliates.
11.5 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
11.6 NOTICES. All notices or other communications hereunder will be in
-------
writing and shall be delivered by hand, facsimile or sent, postage prepaid, by
registered or certified mail or reputable overnight courier service (and shall
be deemed given when so delivered by hand or facsimile, or, if
-37-
<PAGE>
mailed, five days after mailing (one business day in the case of overnight
courier)) addressed to the intended recipient as set forth below:
If to USI or the Transferors:
United States Internet, Inc. and/or the Transferors'
Representative
1127 N. Broadway
Knoxville, Tennessee 37917
Attn.: Michael C. Crabtree
Tel: (423) 540-7140
Fax: (423) 291-0022
with a copy to:
Kennerly Montgomery & Finley, P.C.
NationsBank Center
550 Main Street, Fourth Floor
Knoxville, TN 37902
Attn.: James H. Price
Tel: (423) 546-7311
Fax: (423) 524-1773
If to the Acquirer:
U.S. Internet Providers, Inc.
c/o Unison Partners
50 Hawthorne Road
Southampton, New York 11968
Attn.: Steven E. Smith
Tel: (516) 287-4084
Fax: (516) 287-4767
with a copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, NW
Washington, D.C. 20004
Attn.: J. Hovey Kemp and
Christopher J. Hagan
Tel: (202) 637-5623
Fax: (202) 637-5910
-38-
<PAGE>
Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
11.7 RESERVED.
---------
11.8 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
-------------
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
11.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Acquirer and the Transferors. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.10 SEVERABILITY. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
11.11 EXPENSES. Each of the Parties and USI will bear his, her or its own
--------
costs and expenses (including legal fees and expenses and investment banking
fees) incurred in connection with this Agreement and the transactions
contemplated hereby. USI shall bear all of USI's expenses.
11.12 CONSTRUCTION. The language used in this Agreement will be deemed to
------------
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant relating to the same subject
matter as any other representation, warranty or covenant (regardless of the
relative levels of specificity) which the Party has not breached, it shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
-39-
<PAGE>
11.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-40-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ACQUIRER:
U.S. INTERNET PROVIDERS, INC.
By: /s/ Stephen E. Smith
---------------------------------
Name: Stephen E. Smith
-------------------------
Title: President
------------------------
UNITED STATES INTERNET, INC.
By: /s/ Michael C. Crabtree
---------------------------------
Name: Michael C. Crabtree
-------------------------
Title: Chairman & CEO
------------------------
TRANSFERORS:
By: TRANSFERORS' REPRESENTATIVE
/s/ Michael C. Crabtree
--------------------------------
Michael C. Crabtree
-41-
<PAGE>
EXHIBIT 10.2
-----------
- --------------------------------------------------------------------------------
SHAREHOLDER CONSENT,
POWER OF ATTORNEY
AND
INVESTOR QUESTIONNAIRE
FOR
[ATTACH LABEL HERE]
A SHAREHOLDER OF UNITED STATES INTERNET, INC.
- --------------------------------------------------------------------------------
THE SIGNATURE OF THE SHAREHOLDER LISTED ABOVE ON THE
CONSENT AND POWER OF ATTORNEY MUST BE ACKNOWLEDGED BY
A NOTARY PUBLIC IN THE SPACE PROVIDED.
<PAGE>
U.S. Internet Providers ("USIP") is negotiating to acquire all of the
outstanding shares of United States Internet, Inc. (the "COMPANY") from its
current shareholders. Shareholders who qualify as "accredited investors" under
the federal securities laws will receive a combination of USIP stock and cash.
Shareholders who do not qualify as "accredited investors" under the federal
securities laws will receive only cash. USIP reserves the exclusive right to
determine which shareholders qualify as accredited investors. In making this
determination, USIP may rely on the representations made by each shareholder in
the Investor Questionnaire previously sent to each shareholder. The terms of the
cash offer to "un-accredited investors" is set forth in detail in this consent
(the "CONSENT") and we urge you to read this Consent in its entirety before
completing this Consent.
THE COMPANY RECOMMENDS THAT EACH SHAREHOLDER ACCEPT THE OFFER.
--------------------------------------------------------------
This letter contains a Shareholder Consent and Power of Attorney, which
seeks each shareholder's consent to the terms of the offer as set forth in this
Consent and includes a power of attorney. The power of attorney grants certain
officers or representatives of the Company a power of attorney solely for the
purpose of executing stock power agreements and certain other documents related
thereto in connection with the purchase by USIP of such shareholder's Company
stock.
SHAREHOLDERS ARE URGED TO READ THIS CONSENT CAREFULLY. ONCE YOU HAVE
ACCEPTED THE OFFER AND RETURNED THIS CONSENT, YOU WILL BE BOUND BY THE TERMS OF
THIS CONSENT, INCLUDING A COMMITMENT BY YOU TO SELL YOUR COMPANY SHARES TO USIP
UPON CONSUMMATION OF THE USIP INITIAL PUBLIC OFFERING. IF YOU HAVE ANY QUESTIONS
REGARDING THE OFFER, PLEASE CONTACT MICHAEL C. CRABTREE AT THE COMPANY AT (423)
540-7140.
PLEASE COMPLETE AND RETURN THIS CONSENT AS SOON AS POSSIBLE BUT NOT LATER
THAN DECEMBER 31, 1998 TO:
United States Internet, Inc.
1127 NORTH BROADWAY
KNOXVILLE, TENNESSEE 37917
ATTENTION: MICHAEL C. CRABTREE
<PAGE>
SHAREHOLDER CONSENT AND POWER OF ATTORNEY
NAME:___________________________________________________________
ADDRESS:________________________________________________________
________________________________________________________________
TELEPHONE NUMBER: ( )
____________________________________________
The undersigned acknowledges that this Consent and Power of Attorney
operates as an approval of all related transactions necessary to effectuate the
sale of the undersigned's stock in the Company to USIP. By executing and
returning this Consent and Power of Attorney, the undersigned (a) agrees to sell
his/her shares to USIP for cash, and (b) grants the power of attorney set forth
in Article II below.
ARTICLE I. FOREIGN PERSON STATUS
- ---------- ---------------------
The undersigned hereby certifies under penalty of perjury that the
undersigned is or is not a foreign person within the meaning of Section 1445 of
the U.S. Internal Revenue Code.
[_] Yes, the undersigned is a foreign person.
[_] No, the undersigned is not a foreign person.
ARTICLE II. CONSENT AND POWER OF ATTORNEY
- ----------- -----------------------------
1. CONSENT
The undersigned hereby agrees to sell all the undersigned's shares of stock
in the Company to USIP upon the terms and subject to the conditions set forth
below, which the undersigned acknowledges having read.
2. POWER OF ATTORNEY
2.1 Grant of Power of Attorney. The undersigned hereby irrevocably
--------------------------
appoints Michael C. Crabtree, acting in his capacity as attorney-in-fact
pursuant hereto, the "ATTORNEY-IN-FACT" as the true and lawful Attorney-In-Fact
and agent of the undersigned, to act on behalf of the undersigned with respect
to all matters related hereto, including the authority to execute any stock
power agreements on behalf of the undersigned and to make, execute and deliver
contracts, receipts and certificates in connection with, and to take all other
actions necessary to carry out the transactions contemplated by this Consent and
Power of Attorney (the "POWER OF ATTORNEY"). The Power of Attorney granted
hereby and all authority conferred hereby is coupled with an interest and
therefore shall be irrevocable and shall not
<PAGE>
be terminated by any act of the undersigned or by operation of law, whether by
the death, disability, incapacity or liquidation of the undersigned or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which the undersigned is acting as a
fiduciary or fiduciaries), and if, after the execution hereof, the undersigned
shall die or become disabled or incapacitated or is liquidated, or if any other
such event or events shall occur before the completion of the transactions
contemplated by this Consent and Power of Attorney, the Attorney-in-Fact shall
nevertheless be authorized and directed to complete all such transactions as if
such death, disability, incapacity, liquidation or other event or events had not
occurred and regardless of notice thereof. In the event Michael C. Crabtree is
unable to fulfill his duties as Attorney-in-Fact, the undersigned hereby
irrevocably appoints Niels Jonker as the substitute Attorney-in-Fact.
2.2 Purchase Price. Each share of common stock of the Company owned by
--------------
the undersigned shall be purchased by USIP for $13.18 (the "PURCHASE PRICE")
simultaneously with the completion of an initial public offering of stock by
USIP (the "IPO"), provided, however, that in the event the IPO does not occur
prior to March 31, 1999, the Purchase Price shall be increased to $13.57.
Payment of the Purchase Price shall be wired to the undersigned within five days
of the IPO. USIP's purchase of the stock described in this Section 2.2 is
-----------
subject to the successful completion of the IPO by June 30, 1999. All rights,
obligations and powers, including the Power of Attorney, created by this Consent
shall terminate and have no further power or effect after June 30, 1999.
2.3 Limitation of Liability. It is understood that the Attorney-in-Fact
-----------------------
assumes no responsibility or liability to any person by virtue of the Power of
Attorney granted by the undersigned hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for any aspect
of this Consent, and he shall not be liable for any error of judgment or for any
act done or omitted or for any mistake of fact or law except for his own gross
negligence or bad faith. The undersigned agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred by him arising out of or in connection with acting
as the Attorney-in-Fact under the Power of Attorney created by the undersigned
hereby, as well as the cost and expense of investigating and defending against
any such loss, claim, damage or liability, except to the extent such loss,
claim, damage or liability is due to the gross negligence or bad faith of the
Attorney-in-Fact. The undersigned agrees that the Attorney-in-Fact may consult
with counsel of his or her own choice (who may also be counsel for USIP) and the
Attorney-in-Fact shall have full and complete authorization and protection for
any action taken or suffered by the Attorney-in-Fact hereunder in good faith and
in accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied obligation to the
undersigned hereunder, release, amend or modify any other power of attorney
granted by any other person under any related agreement.
<PAGE>
2.4 Ratification: Third Party Reliance. The undersigned does hereby
----------------------------------
ratify and confirm all that the Attorney-in-Fact shall lawfully do or cause to
be done by virtue of the exercise of the powers granted unto the Attorney-in-
Fact by the undersigned hereunder, and the undersigned authorizes the reliance
of third parties on this Power of Attorney and waives its rights, if any, as
against any such third party for its reliance hereon.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Shareholder Consent
and Power of Attorney as of the date set forth below.
IF BY AN INDIVIDUAL ON BEHALF OF HIMSELF OR HERSELF:
____________________________________________________
Signature Date
____________________________________________________
Print Name
____________________________________________________
Signature of Co-Owner, if any Date
____________________________________________________
Print Name
IF ON BEHALF OF AN ENTITY, OR AS TRUSTEE, CUSTODIAN OR PARTNER:
____________________________________________________
Print Name of Entity
By:_________________________________________________
Signature of Officer, Trustee or Partner Date
____________________________________________________
Print Name of Officer, Trustee or Partner
<PAGE>
Individual Acknowledgment
- -------------------------
STATE OF )
) SS.
COUNTY OF )
On the ____ day of ______ 1998, before me personally came
____________________________________________________, to me known and known to
me to be the individual described in the foregoing instrument, and acknowledged
that he or she executed the same.
__________________________________
Notary Public
Corporate Acknowledgment
- ------------------------
STATE OF )
) SS.
COUNTY OF )
On the ____ day of ______ 1998, before me personally came
______________________, to me known, who being by me duly sworn, did depose and
say that he or she resides at
__________________________________________________, that he or she is
___________________________, of _______________________________, a
___________________ corporation, which executed the foregoing instrument, and
that he or she signed his or her name thereto on behalf of said corporation by
order of the board of directors of said corporation, and as the act and deed of
said of corporation for the uses and purposes of therein mentioned.
_________________________________
Notary Public
<PAGE>
Trustee Acknowledgment
- ----------------------
STATE OF )
) SS.
COUNTY OF )
On the ____ day of ______ 1998, before me personally came
_____________________________, to me known, who being by me duly sworn, did
depose and say that he or she resides at
________________________________________, that he or she is Trustee for
___________________________________________________, the trust described in and
which executed the foregoing instrument, and that he or she signed his or her
name thereto on behalf of said trust.
________________________________
Notary Public
Partnership Acknowledgment
- --------------------------
STATE OF )
) SS.
COUNTY OF )
On the ____ day of ______ 1998, before me personally came
_______________________________, to me known, who being by me duly sworn, did
depose and say that he or she resides at
________________________________________, that he or she is
______________________ of _____________________________________, a partnership,
which executed the foregoing instrument, and that he or she signed his or her
name thereto on behalf of said partnership, and as the act and deed of said
partnership for the uses and purposes of therein mentioned.
_________________________________
Notary Public
<PAGE>
EXHIBIT 10.3
------------
STOCK EXCHANGE AGREEMENT
BY AND AMONG
U.S. INTERNET PROVIDERS, INC.,
(ACQUIRER)
JPS.NET, CORP.
(COMPANY)
AND
THE SHAREHOLDERS OF COMPANY
(COLLECTIVELY, TRANSFERORS)
DATED AS OF DECEMBER 18, 1998
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
1.1 DEFINITIONS........................................................... 1
ARTICLE II
THE EXCHANGE OF SHARES
2.1 BASIC TRANSACTION..................................................... 8
2.2 TRANSFER CONSIDERATION................................................ 8
2.3 NET WORTH ADJUSTMENT.................................................. 9
2.4 EARNED PAYOUT AMOUNT.................................................. 9
2.5 THE CLOSING........................................................... 10
2.6 DELIVERIES AT THE CLOSING............................................. 10
2.7 TRANSFERORS' REPRESENTATIVE........................................... 10
2.8 ESCROW ARRANGEMENTS................................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES RELATING TO THE TRANSFERORS
3.1 AUTHORIZATION OF TRANSACTION.......................................... 12
3.2 NONCONTRAVENTION...................................................... 12
3.3 BROKER'S FEES......................................................... 12
3.4 INVESTMENT............................................................ 13
3.5 COMPANY SHARES........................................................ 13
3.6 DISCLOSURE............................................................ 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO COMPANY
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER...................... 13
4.2 CAPITALIZATION........................................................ 14
4.3 NONCONTRAVENTION...................................................... 14
4.4 SUBSIDIARIES.......................................................... 14
4.5 FINANCIAL STATEMENTS.................................................. 14
4.6 EVENTS SUBSEQUENT TO THE MOST RECENT FISCAL YEAR END.................. 15
4.7 UNDISCLOSED LIABILITIES............................................... 15
4.8 TAX MATTERS........................................................... 15
4.9 TANGIBLE ASSETS....................................................... 17
4.10 OWNED REAL PROPERTY................................................... 17
4.11 INTELLECTUAL PROPERTY................................................. 17
4.12 CONTRACTS............................................................. 18
4.13 NOTES AND ACCOUNTS RECEIVABLE......................................... 19
4.14 INSURANCE............................................................. 20
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4.15 LITIGATION............................................................ 20
4.16 EMPLOYEES............................................................. 21
4.17 EMPLOYEE BENEFITS..................................................... 21
4.18 GUARANTIES............................................................ 21
4.19 LEGAL COMPLIANCE...................................................... 21
4.20 CERTAIN BUSINESS RELATIONSHIPS WITH COMPANY........................... 22
4.21 BROKERS' FEES......................................................... 22
4.22 SYSTEMS............................................................... 22
4.23 SUBSCRIBERS........................................................... 22
4.24 DISCLOSURE............................................................ 23
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIRER
5.1 ORGANIZATION OF THE ACQUIRER.......................................... 23
5.2 AUTHORIZATION OF TRANSACTION.......................................... 23
5.3 BROKERS' FEES......................................................... 23
5.4 ACQUIRER'S CAPITALIZATION............................................. 23
5.5 DISCLOSURE............................................................ 24
ARTICLE VI PRE-CLOSING COVENANTS
6.1 GENERAL............................................................... 24
6.2 NOTICES AND CONSENTS.................................................. 24
6.3 OPERATION OF BUSINESS PRIOR TO THE EFFECTIVE TIME OF THE CLOSING...... 24
6.4 PRESERVATION OF BUSINESS.............................................. 25
6.5 ACCESS................................................................ 25
6.6 NOTICE OF DEVELOPMENTS................................................ 25
6.7 EXCLUSIVITY........................................................... 26
6.9 TERMINATION OF BANK FACILITIES........................................ 26
6.10 LANDLORDS' CONSENTS................................................... 26
6.11 TAX MATTERS........................................................... 26
6.11 AUDITS................................................................ 27
6.12 LIMITATION ON CAPITAL LEASES.......................................... 27
6.13 DISCLOSURE SCHEDULES.................................................. 28
6.14 RETIREMENT OF COMPANY INDEBTEDNESS.................................... 28
ARTICLE VII POST-CLOSING COVENANTS
7.1 GENERAL............................................................... 28
7.2 TRANSITION............................................................ 28
7.3 COVENANT NOT TO COMPETE............................................... 28
7.4 REORGANIZATION INTENT................................................. 29
7.5 CONDUCT FROM CLOSING UNTIL THE END OF THE EARNED PAYOUT PERIOD........ 29
ARTICLE VIII CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATIONS OF THE ACQUIRER............................. 29
8.2 CONDITIONS TO OBLIGATIONS OF THE TRANSFERORS.......................... 31
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ARTICLE IX REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 INDEMNIFICATION OF THE ACQUIRER....................................... 33
9.2 DEFENSE OF THIRD PARTY CLAIMS......................................... 33
9.3 PROCEDURE FOR CLAIMS.................................................. 34
9.4 TAX AUDITS, ETC....................................................... 35
9.5 INDEMNIFICATION OF TRANSFERORS........................................ 35
9.6 LIMITS ON INDEMNIFICATION............................................. 35
ARTICLE X TERMINATION
10.1 TERMINATION OF AGREEMENT.............................................. 36
10.2 EFFECT OF TERMINATION................................................. 36
ARTICLE XI MISCELLANEOUS
11.1 PRESS RELEASES AND ANNOUNCEMENTS...................................... 37
11.2 NO THIRD-PARTY BENEFICIARIES.......................................... 37
11.3 ENTIRE AGREEMENT...................................................... 37
11.4 SUCCESSION AND ASSIGNMENT............................................. 37
11.5 FACSIMILE/COUNTERPARTS................................................ 37
11.6 NOTICES............................................................... 37
11.7 DISPUTE RESOLUTIONS................................................... 39
11.8 GOVERNING LAW......................................................... 39
11.9 AMENDMENTS AND WAIVERS................................................ 39
11.10 SEVERABILITY.......................................................... 40
11.11 EXPENSES.............................................................. 40
11.12 CONSTRUCTION.......................................................... 40
11.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES..................... 40
11.14 SPECIFIC PERFORMANCE.................................................. 40
11.15 CONFIDENTIALITY....................................................... 41
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LIST OF EXHIBITS AND ANNEXES
EXHIBITS
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Exhibit A Form of Escrow Agreement
Exhibit B Company's Financial Statements
Exhibit C-1 Officer/Transferors' Certificate
Exhibit C-2 Secretary's Certificate
Exhibit D Form of Equity Subscription Agreement
Exhibit E Form of Employment Agreement
Exhibit F Joinder to the Registration Rights Agreement
ANNEXES
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Annex I Determination of Earned Payout Amount
Annex II Determination of Stock Portion of Transfer Consideration
Annex III [Intentionally Deleted]
Annex IV Allocation Summary
Annex V List of Company Employees to Receive Acquirer Options
DISCLOSURES SCHEDULES
Schedule 4.1 Officers and Directors
Schedule 4.2 Capitalization
Schedule 4.6 Materials Events
Schedule 4.7 Material Liabilities
Schedule 4.8 Tax Matters
Schedule 4.11 Intellectual Property
Schedule 4.12 Contracts
Schedule 4.14 Insurance
Schedule 4.15 Litigation
Schedule 4.20 Affiliate Relationships
Schedule 4.22 Systems
Schedule 4.23 Subscribers
The Exhibits and Schedules to this Stock Exchange Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
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EXECUTION COPY
STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE AGREEMENT ("AGREEMENT") is entered into as of the
18th day of December, 1998, by and among U.S. INTERNET PROVIDERS, INC., a
Delaware corporation (the "ACQUIRER"), JPS.NET, Corp., a California corporation
("COMPANY"), and the SHAREHOLDERS OF COMPANY listed on the signature page hereof
(collectively, the "TRANSFERORS"). The Acquirer and the Transferors are
referred to herein individually as a "PARTY" and collectively as the "PARTIES."
RECITALS
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A. The Transferors in the aggregate own all of the outstanding
capital stock of Company a corporation engaged in the business of providing
internet access and services, web hosting and other internet related services
and support (the "BUSINESS").
B. This Agreement contemplates a transaction in which the
Transferors will exchange their respective shares of capital stock of Target for
the right to receive the Transfer Consideration (as hereinafter identified).
C. This Agreement further contemplates that the aforementioned
transaction will occur in conjunction with certain related transactions,
consisting of the IPO (as defined hereinafter) and the transfer of certain other
businesses by their owners to the Acquirer (the "RELATED TRANSACTIONS"), and the
Parties intend that the receipt of Acquirer's Shares (as defined hereinafter) by
the Transferors and by the parties involved in the Related Transactions will be
tax-free under Section 351 of the Code (as defined).
AGREEMENT
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NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
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"ACQUIRER" has the meaning set forth in the preface above.
"ACQUIRER'S COMMON STOCK" means the Acquirer's common stock, par value
$.001 per share.
"ACQUIRER'S SHARES" means the shares of the Acquirer's Common Stock
which are issued to the Transferors pursuant to this Agreement.
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"ADVERSE CONSEQUENCES" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, and injunctions, and all other damages, dues,
penalties, fines, costs, amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses, and fees, including all reasonable attorneys'
fees and court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"ALLOCATION SUMMARY" means the summary of Transferors and their
respective allocation of the Transfer Consideration attached hereto as Annex IV.
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"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the reasonable basis for any
specified consequence.
"CASH PORTION OF THE EARNOUT" has the meaning set forth in Section 2.4
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below.
"CASH PORTION OF THE TRANSFER CONSIDERATION" has the meaning set forth
in Section 2.2 below.
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"CLOSING" has the meaning set forth in Section 2.5 below.
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"CLOSING DATE" has the meaning set forth in Section 2.5 below.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY INDEBTEDNESS" means the outstanding balance as of the Closing
Date on the Promissory Note made by Company and dated September 30, 1998 in the
original principal amount of $1,075,000 made payable to Paul McGovern.
"COMPANY SHARES" means all outstanding shares of the common stock, no
par value, of Company.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Acquirer or Company including, without limitation, the
identity, lists or descriptions of any customers, referral sources or
organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals; provided, that the Confidential Information shall not include
information which (a) was or becomes generally available to the public other
than as a result of a its disclosure by the receiving party, (b) was or becomes
available to the receiving
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party on a non-confidential basis from a source other than the Acquirer or its
advisors without breach of this Agreement provided that such source is not known
to such receiving party to be bound by a confidentiality agreement or otherwise
prohibited from transmitting the information to receiving party by a
contractual, legal or fiduciary obligation known to such receiving party, (c)
was within receiving party's possession prior to its being furnished to such
receiving party by or on behalf of the Acquirer without breach of this
Agreement, provided that the source of such information was not bound by a
confidentiality agreement with the Acquirer or Company or otherwise prohibited
from transmitting the information to the receiving party by a contractual, legal
or fiduciary obligation, or (iv) which is required to be and actually is
disclosed by operation of law.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"DISCLOSURE SCHEDULES" means the informational schedules relating to
the Transferors and Company as attached hereto.
"E&Y" shall mean Ernst & Young, L.L.P.
"EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2.4 below.
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"EARNED PAYOUT PERIOD" means the period from September 30, 1998
through September 30, 1999.
"EARNOUT SHARES" has the meaning set forth in Section 2.4.
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"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section 3.1
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below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means First Union National Bank, N.A.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by and
among the Transferors, the Acquirer and the Escrow Agent in the form of Exhibit
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A attached hereto.
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"ESCROW PERIOD" has the meaning specified in Section 2.8.
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"ESCROW SUM" has the meaning specified in Section 2.8.
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"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.5 below.
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"FUNDED INDEBTEDNESS" means all (a) indebtedness of Company for
borrowed money or other interest-bearing indebtedness (excluding the Company
Indebtedness); (b) obligations of Company to pay the deferred purchase or
acquisition price for goods or services, other than trade accounts payable or
accrued expenses in the ordinary course of business on no more than 90 day
payment terms; (c) indebtedness of others guaranteed by Company or secured by an
encumbrance on Company's property; and (d) indebtedness of Company under
extended credit terms of more than 60 days from vendors to Company.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time.
"GROSS REVENUES" means the gross revenue of Company as normally
calculated on the Financial Statements as calculated in accordance with GAAP on
the accrual basis of accounting.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 9.1 below.
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"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information, (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"IPO" means the first underwritten public offering of the Acquirer's
Common Stock pursuant to an effective registration statement under the
Securities Act that will result in an aggregate post-IPO market capitalization
of the Acquirer of at least $100 million (determined by multiplying the
outstanding shares of the Acquirer's Common Stock by the IPO offering price).
"KNOWLEDGE" means, (a) with respect to each Transferor, information
which is actually known by such Transferor and (b) with respect to the Acquirer
or Company, actual knowledge of the officers of such Party and the employees of
such party with responsibility for the matters in question or which a prudent
person in the position of such officers and employees would reasonably be deemed
to know.
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"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, and whether due or to become due) including any liability for
Taxes.
"MAJORITY CO-TRANSFERORS" shall mean a majority of the transferors,
based on the revenue run rate of such transferors, of all businesses acquired by
the Acquirer in connection with the IPO.
"MATERIAL" means an event or matter that causes any representation or
warranty contained in this Agreement to be inaccurate, incorrect or false. An
event or matter will not be deemed to be "Material," to have a "Material" change
in or in respect of, to have a "Material" adverse effect or to cause a Party to
be "Materially" affected unless the loss that may reasonably be expected to
occur to the respective Party with respect to such event or matter, when taken
together with all other related losses that may reasonably be expected to occur
to such Party as a result of any such events or matters, would exceed $100,000
in the aggregate or unless such event or matter constitutes a criminal violation
of law. For purposes of this definition, the word "loss" shall mean any and all
direct or indirect payments, obligations, assessments, losses, losses of income,
liabilities, costs and expenses paid or incurred, or diminution in value or
reduction in benefits or rights of any kind or character (whether or not known
or asserted before the date of this Agreement, fixed or unfixed, conditional or
unconditional, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise) including without
limitation, penalties, interest on any amount payable to a third party as a
result of the foregoing, and any reasonable legal or other expenses incurred in
connection with defending any demands, claims, actions or causes of action that,
if adversely determined, would result in losses, and all amounts paid in
settlement of claims or actions; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds or any increases in insurance premiums as a direct
result thereof). A Subscriber Contract or Agreement is "Material" if during
either calendar year 1998 such Subscriber Contract or Agreement produced or is
expected to produce $50,000 of Gross Revenues.
"NET WORTH OF COMPANY" means the total assets of Company less the
total liabilities of Company (other than Funded Indebtedness) including any
costs of conversion from a cash basis to an accrual method of accounting,
determined in accordance with GAAP, consistently applied and on the accrual
method of accounting. In calculating the total assets of Company, no material
increase in the intangible assets of Company since September 30, 1998 shall be
included in calculating the Net Worth of Company without the written consent of
the Acquirer.
"ORDINARY COURSE OF BUSINESS" an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if: (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority); and (c)
such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the
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ordinary course of the normal day-to-day operations of other Persons that are in
the same line of business as such Person.
"OUTAGE" means any loss of service to any System of the Business,
including but not limited to network access, e-mail, web, news or other
services.
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement to be entered into prior to or contemporaneous with the Closing by and
among the Acquirer and the stockholders of the Acquirer, which Registration
Rights Agreement shall be consistent with the terms of the Letter of Intent
entered into by and between Acquirer and Company, dated November 25, 1998.
"REGISTRATION STATEMENT" means the Acquirer's registration statement
on Form S-1 once filed with and deemed effective by the SEC in connection with
the IPO.
"RELATED TRANSACTIONS" has the meaning set forth in the Recitals.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings), (c)
liens arising under workers' compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"STUB PERIOD BALANCE SHEET" means the balance sheet included in the
Stub Period Financial Statements.
"STUB PERIOD END" means September 30, 1998.
"STOCK PORTION OF THE EARNOUT" has the meaning set forth in Section
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2.4 below.
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"STOCK PORTION OF THE TRANSFER CONSIDERATION" has the meaning set
forth in Section 2.2 below.
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"STUB PERIOD FINANCIAL STATEMENTS" means the Financial Statements for
and as of the Stub Period End.
"SUBSCRIBER" means any customers of Company who (a) are currently
connected to and receiving internet related services from Company's Systems; (b)
are being charged or have pre-paid the Company standard rates (which rates are
set forth on Schedule 4.23) pursuant to Company's standard form contracts
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previously provided to the Acquirer; (c) have paid such stated rates in full for
at least one full month; (d) are not two or more months delinquent in the
payment of any invoice from Company; (e) have not, in the preceding two months,
been given a waiver or forgiveness of service charges, except as otherwise noted
herein or in the Disclosure Schedule; (f) have not received any inducement to
become connected to Company's Systems or to receive or pay for services (other
than pursuant to the Company's customary marketing practices); and (g) have not
notified Company of their intention to cancel service.
"SUBSCRIBER CONTRACT OR AGREEMENT" means any agreement whereby Company
provides services to a Subscriber.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"SYSTEMS" means the infrastructure used to provide internet access and
related services, including network components, communications facilities,
servers, services and service platforms (including for e-mail, news, DNS, web,
authentication and other services), power plants, data processing platforms, MIS
systems, office automation systems and internal LAN network management systems.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty or addition thereto.
"TAX RETURN" means any federal, foreign, state and local governmental
tax return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"TRANSFER CONSIDERATION" has the meaning set forth in Section 2.2
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below.
"TRANSFERORS" has the meaning set forth in the preface above.
"TRANSFERORS' REPRESENTATIVE" has the meaning set forth in the Section
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2.7 below.
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ARTICLE II
THE EXCHANGE OF SHARES
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of
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this Agreement, the Acquirer agrees to exchange with the Transferors, and each
Transferor agrees to exchange with the Acquirer, all of the Company Shares for
the consideration specified below in this Section 2.
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2.2 TRANSFER CONSIDERATION.
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(A) GENERALLY. The Transfer Consideration exchanged for the Company
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Shares shall be composed of (i) the Cash Portion of the Transfer Consideration;
(ii) the Stock Portion of the Transfer Consideration and (iii) the Earned Payout
Amount (as defined below).
(B) TRANSFER CONSIDERATION ADJUSTMENTS. The Acquirer agrees to pay
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to the Transferors in the aggregate the sum of (i) $10,000,000 in cash, to be
adjusted dollar for dollar upward or downward by the amount outstanding Funded
Indebtedness is more or less than the amount set forth on the Stub Period
Balance Sheet; and downward by (A) the payments made by Company to retire the
Company Indebtedness as described in Section 6.14 below, and (B) the Net Worth
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adjustment, if any, made pursuant to Section 2.3 below (the "CASH PORTION OF THE
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TRANSFER CONSIDERATION"); (ii) $10,000,000 worth of Acquirer's Shares, to be
adjusted dollar for dollar downward by the Net Worth adjustment, if any, made
pursuant to Section 2.3 below, consisting of an aggregate number of shares of
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Acquirer's Common Stock pursuant to Annex II and as set forth in the Allocation
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Summary attached as Annex IV (the "STOCK PORTION OF THE TRANSFER
--------
CONSIDERATION"); and (iii) the Earned Payout Amount as determined pursuant to
Section 2.4 below, in exchange for the Company Shares to be purchased by the
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Acquirer pursuant to the terms hereof.
(C) ESCROW PAYMENTS. At the Closing Date, (i) five percent (5%) of
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the Cash Portion of the Transfer Consideration will be paid in cash by wire
transfer of funds to the Escrow Agent and (ii) ten percent (10%) of the Stock
Portion of the Transfer Consideration in the form of Acquirer's Shares valued as
of the Closing Date shall be delivered to the Escrow Agent by the Acquirer to
collectively be held in escrow pursuant to Section 2.15 for satisfaction of the
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Transferors' indemnification obligations specified in Article IX.
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(D) PAYMENT. The balance of the Cash Portion of the Transfer
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Consideration shall be paid by the Acquirer to the Transferors at the Closing by
delivery of cash by wire transfer of funds in the amounts set forth on the
Allocation Summary. The balance of the Stock Portion of the Transfer
Consideration shall be issued by the Acquirer to the Transferors at the Closing
by the delivery of Acquirer's Shares in the amounts set forth on the Allocation
Summary next to such Transferor's name. The sum of the Cash Portion of the
Transfer Consideration, the Stock Portion of the Transfer Consideration and the
Earned Payout Amount shall be referred to as the "TRANSFER CONSIDERATION." Each
of (i) the Cash Portion of the Transfer Consideration, (ii) the Stock Portion of
the Transfer Consideration and (iii) Earned Payout Amount of the Transfer
Consideration shall be allocated among the Transferors in dollar amounts set
forth on the Allocation Summary. Cash
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will be paid in lieu of any fractional shares which would otherwise be issued in
accordance with this Agreement.
2.3 NET WORTH ADJUSTMENT. The Cash Portion of the Transfer Consideration
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shall be adjusted downward on a dollar-for-dollar basis by the amount by which
the Net Worth of Company is less than negative $1,747,565 as of the Closing
Date. The Net Worth adjustment shall be evenly divided between the Cash Portion
of the Transfer Consideration and the Stock Portion of the Transfer
Consideration. The Net Worth of Company shall be determined by E&Y in good faith
within two business days prior to the Closing Date.
2.4 EARNED PAYOUT AMOUNT.
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(A) In addition to the Cash Portion of the Transfer Consideration and
the Stock Portion of the Transfer Consideration, the Acquirer agrees to pay to
the Transferors, if earned, an earned payout amount (the "EARNED PAYOUT AMOUNT")
determined pursuant to the terms, conditions and calculations set forth on Annex
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I attached hereto.
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(B) The Earned Payout Amount shall be payable, at the option of the
Acquirer, in either (i) cash (the "CASH PORTION OF THE EARNOUT") or (ii)
Acquirer's Shares (the "STOCK PORTION OF THE EARNOUT"), or a combination
thereof. The aggregate number of Acquirer's Shares, if any, (the "EARNOUT
SHARES") to be issued as the Stock Portion of the Earnout shall be equal to (A)
the aggregate value in dollars of the Stock Portion of the Earnout divided by
(B) (1) the average of the closing prices of the Acquirer's Common Stock over
the ten trading days immediately proceeding September 30, 1999, in the event
Acquirer's Common Stock is traded on an exchange or over-the-counter market, or
(2) the price, not less than book value, determined in good faith and in such a
reasonable manner as prescribed by a majority of the Acquirer's directors who
are not officers of the Acquirer, in the event Acquirer's Common Stock is not
traded on an exchange or over-the-counter market.
(C) The Cash Portion of the Earnout, if any, shall be payable in cash
by the Acquirer to the Transferors by wire transfer or other delivery of
immediately available funds to an account or accounts designated by the
Transferors. The Earnout Shares, if any, shall be payable by the delivery of the
certificates representing the Acquirer's Shares.
The Earned Payout Amount shall be determined by E&Y in accordance with the
terms of this Agreement and Annex I hereto and shall be based on an income
-------
statement of the Company prepared by E&Y for the 12 months ended September 30,
1999. The Earned Payout Amount shall be paid as soon as the amount has been
calculated by E&Y and such final calculation delivered to the Acquirers by E&Y
but in no event later than January 15, 2000.
A portion of the Earned Payout Amount, determined by E&Y in accordance with
Treasury Regulation section 1.483-4 and based on an interest rate of 4.33
percent per annum, shall be treated as interest for federal and state income tax
purposes. The parties agree that the interest portion of the Earned Payout
Amount shall be treated as paid entirely out of the Cash Portion of the Earnout
and that no part of the Stock Portion of the Earnout shall be treated as a
payment of interest unless
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<PAGE>
the interest portion of the Earned Payout Amount exceeds the Cash Portion of the
Earnout (and then only to the extent of such excess).
2.5 THE CLOSING. The closing of the transactions contemplated by this
-----------
Agreement (the "CLOSING") shall take place at the offices of Hogan & Hartson,
LLP in Washington, D.C. commencing at 9:00 a.m. local time simultaneously with
the closing of the IPO and the other Related Transactions or such other date as
the Acquirer and the Transferors may mutually determine (the "CLOSING DATE").
2.6 DELIVERIES AT THE CLOSING. At the Closing, (a) the Transferors will
-------------------------
deliver to the Acquirer the various certificates, instruments, and documents
referred to in Section 8.1 below, (b) the Acquirer will deliver to the
-----------
Transferors (as applicable) the various certificates, instruments, and documents
referred to in Section 8.2 below, (c) each of the Transferors will deliver to
-----------
the Acquirer stock certificates representing all of its Company Shares, endorsed
in blank or accompanied by duly executed assignment documents and (d) the
Acquirer will deliver to the Transferors the consideration specified in Section
-------
2.2 above as may be adjusted pursuant to Sections 2.3 and 2.4 above and Section
- --- ------------ --- -------
2.8 below.
- ---
2.7 TRANSFERORS' REPRESENTATIVE.
---------------------------
(A) In order to administer efficiently (i) the implementation of the
Agreement by the Transferors, (ii) the waiver of any condition to the
obligations of the Transferors to consummate the transactions contemplated
hereby and (iii) the settlement of any dispute with respect to the Agreement,
the Transferors hereby designate Brad Jenkins as their representative (the
"TRANSFERORS' REPRESENTATIVE").
(B) The Transferors hereby authorize the Transferors' Representative
(i) to take all action necessary in connection with the implementation of the
Agreement on behalf of the Transferors, the waiver of any condition to the
obligations of the Transferors to consummate the transactions contemplated
hereby, or the settlement of any dispute, (ii) to give and receive all notices
required to be given under the Agreement and (iii) to take any and all
additional action as is contemplated to be taken by or on behalf of the
Transferors by the terms of this Agreement.
(C) In the event that the Transferors' Representative dies, becomes
legally incapacitated or resigns from such position, Pete Engelken shall fill
such vacancy and shall be deemed to be the Transferors' Representative for all
purposes of this Agreement; however, no change in the Transferors'
Representative shall be effective until the Acquirer is given notice of it by
the Transferors.
(D) All decisions and actions by the Transferors' Representative
shall be binding upon all of the Transferors, and no individual Transferor shall
have the right to object, dissent, protest or otherwise contest the same, in the
absence of fraud, gross negligence or willful misconduct of the Transferors'
Representative.
(E) By their execution of this Agreement, the Transferors agree that:
(i) the Acquirer shall be able to rely conclusively on the instructions and
decisions of the Transferors'
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<PAGE>
Representative as to any actions required or permitted to be taken by the
Transferors or the Transferors' Representative hereunder, and no party hereunder
shall have any cause of action against the Acquirer for any action taken by the
Acquirer in reliance upon the instructions or decisions of the Transferors'
Representative; (ii) all actions, decisions and instructions of the Transferors'
Representative shall be conclusive and binding upon all of the Transferors; no
Transferor shall have any cause of action against the Acquirer or Company for
any action taken or omitted to be taken, decision made or omitted to be made or
any instruction given or omitted to be given by the Transferors' Representative;
and no Transferor shall have any cause of action against the Transferors'
Representative for any action taken, decision made or instruction given by the
Transferors' Representative under this Agreement, except for fraud, gross
negligence or willful breach of this Agreement by the Transferors'
Representative; (iii) the Transferors' Representative shall be deemed to fulfill
any fiduciary obligation to the Transferors so long as no Transferor is
adversely affected by any action or failure to act of the Transferors'
Representative in a disproportionate measure compared to any other Transferor;
(iv) remedies available at law for any breach of the provisions of this Section
are inadequate; therefore, the Acquirer shall be entitled to temporary and
permanent injunctive relief without the necessity of proving damages if the
Acquirer brings an action to enforce the provisions of this Section; (v) the
provisions of this Section are independent and severable, shall constitute an
irrevocable power of attorney, coupled with an interest and surviving death,
granted by the Transferors to the Transferors' Representative and shall be
binding upon the executors, heirs, legal representatives and successors of each
Transferor; and (vi) all fees and expenses incurred by the Transferors'
Representative shall be paid by the Transferors.
2.8 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be entered
-------------------
into among the Transferors, the Acquirer and the Escrow Agent (a) five percent
(5%) of the Cash Portion of the Transfer Consideration (the "CASH ESCROW") in
immediately available funds and (ii) ten percent (10%) of the Stock Portion of
the Transfer Consideration in the form of Acquirer's Shares (the "STOCK ESCROW")
shall be delivered to the Escrow Agent at Closing. Such monies and securities
(which, together with all interest accrued thereon which may be due to the party
to whom such funds are ultimately paid in accordance with the terms of the
Escrow Agreement, is hereinafter referred to as the "ESCROW SUM") shall be held
pursuant to the terms of the Escrow Agreement for payment from such Escrow Sum
of the amounts, if any, owing by the Transferors to the Acquirer pursuant to the
indemnification provisions of Article IX below, together with accrued interest
----------
thereon. Pursuant to the terms of the Escrow Agreement, the Cash Escrow shall
be used first, and the Stock Escrow shall be used second, to satisfy any such
owed amounts. At the conclusion of the period ending on the first anniversary
of the Closing Date (such period being referred to herein as the "ESCROW
PERIOD"), such remaining portion of the Escrow Sum not theretofore paid to the
Acquirer in accordance with the terms of the Escrow Agreement or subject to a
pending claim under the Escrow Agreement and this Agreement shall be disbursed
to the Transferors together with any interest, dividends or other amounts
received by the Escrow Agent with respect to the Escrow Sum. The Transferors
and the Acquirer agree that each will execute and deliver such reasonable
instruments and documents as are furnished by any other party to enable such
furnishing party to receive those portions of the Escrow Sum to which the
furnishing party is entitled under the provisions of the Escrow Agreement and
this Agreement.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
RELATING TO THE TRANSFERORS
Each Transferor individually represents and warrants to the Acquirer
as follows as of the date of this Agreement and as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article III):
-----------
3.1 AUTHORIZATION OF TRANSACTION. Each Transferor has full power and
----------------------------
authority to execute and deliver this Agreement and to perform his obligations
hereunder and this Agreement has been duly executed and delivered by the
Transferor. This Agreement constitutes the valid and legally binding obligation
of each Transferor, enforceable in accordance with its terms and conditions,
except that (a) such enforceability may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws, decisions or
equitable principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally or non-
competition arrangements, and to general equity principles, and (b) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought (the terms of clause (a) and (b) are
sometimes collectively referred to as the "EQUITABLE EXCEPTIONS"). The
Transferors need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement (other than
as provided for elsewhere in this Agreement or as identified by specific
reference in the Disclosure Schedule).
3.2 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement by the Transferors, nor the consummation of the transactions
contemplated hereby by the Transferors, will (a) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction, charge, or
other restriction of any government, governmental agency, or court to which the
Transferors are subject or (b) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any part the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, Security
Interest, or other arrangement to which the Transferors are a party or by which
they are bound or to which any of their assets is subject.
3.3 BROKER'S FEES. The Transferors have no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Acquirer could become
liable or obligated.
3.4 INVESTMENT. The Transferors are not acquiring the Acquirer's Shares
----------
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
3.5 COMPANY SHARES. Each Transferor holds of record and owns beneficially
--------------
the number of Company Shares set forth next to his or her name on Schedule 4.2,
------------
and except as set
-12-
<PAGE>
forth in Schedule 4.2, such Company Shares are free and clear of any
------------
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), Taxes, Security Interests, options, warrants,
rights, contracts, calls, commitments, equities, and, to the Knowledge of the
Transferors, claims and demands. Except as set forth in Schedule 4.2, the
------------
Transferors are not a party to (or have otherwise waived all rights under) any
option, warrant, right, contract, call, put, or other agreement or commitment
providing for the disposition or acquisition of any capital stock of Company
(other than this Agreement). The Transferors are not a party to (or have
terminated) any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of Company.
3.6 DISCLOSURE. To the Knowledge of the Transferors, the representations
----------
and warranties contained in this Article III do not contain any untrue statement
-----------
of a fact or omit to state any Material fact necessary in order to make the
statements and information contained in this Article III not misleading.
-----------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO COMPANY
The Transferors and Company severally represent and warrant to the
Acquirer that, subject to the specific qualifications and limitations set forth
herein, the statements contained in this Article IV are correct and complete as
----------
of the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Article IV).
----------
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Company is a
------------------------------------------------
corporation duly organized, validly existing, and is duly authorized to conduct
business and is in good standing under the laws of the jurisdiction of its
incorporation, and in any other jurisdiction in which the failure to qualify
would have a Material adverse effect on the financial condition of Company.
Company has full corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
Schedule 4.1 lists the directors and officers of Company. The Transferors have
- ------------
delivered to the Acquirer correct and complete copies of the charter and bylaws
of Company (as amended to date). The minute books containing the records of
meetings and/or resolutions of the stockholders, the board of directors, and any
committees of the board of directors, the stock certificate books and the stock
record books of Company are correct and complete in all Material respects.
Company is not in default under or in violation of any provision of its charter
or bylaws.
4.2 CAPITALIZATION. The entire authorized capital stock of Company
--------------
consists of 10,000,000 shares of common stock, no par value, of which 4,708,947
are issued and outstanding, 0 are subject to issuance pursuant to vested
options, 0 are subject to issuance pursuant to unvested options and 0 are
reserved for issuance pursuant to future option grants. All of the issued and
outstanding Company Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Transferors. There are
no outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, or other agreements or commitments to
which Company is a party or which
-13-
<PAGE>
are binding upon Company providing for the issuance, disposition, or acquisition
of any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, or similar rights with respect to Company. There
are no voting trusts, proxies, or any other agreements or understandings with
respect to the voting of the capital stock of Company.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which Company is subject or any provision of the charter or bylaws
of Company, except to the extent any such violation does not or could not result
in a Material adverse effect on Company, or (b) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, or, to the
Knowledge of the Transferors, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Company does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
4.4 SUBSIDIARIES. Company has no Subsidiaries.
------------
4.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the Company's
-------------------- ---------
financial statements (collectively the "FINANCIAL STATEMENTS") for its three
most recent fiscal years and an unaudited consolidated balance sheet and
statement of income, changes in stockholder's equity, and cash flow as of and
for the 9 month period ended September 30, 1998 for Company (the "STUB PERIOD
END"). The Financial Statements have been prepared in accordance with standards
described on Exhibit B applied on a consistent basis throughout the periods
---------
covered thereby, are correct and complete, fairly present the financial
condition of Company as of such dates, and are consistent with the books and
records of Company (which books and records are correct and complete in all
Material respects), subject, in the case of the Stub Period Financial
Statements, to normal adjustments upon audit.
4.6 EVENTS SUBSEQUENT TO THE STUB PERIOD END. Since the Stub Period End,
----------------------------------------
there has not been any Material adverse change in the assets, Liabilities,
business, financial condition, operations, or results of operations of Company.
Without limiting the generality of the foregoing since that date except as set
forth on Schedule 4.6 :
------------
(A) Company has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(B) Company has not entered into any Material contract, lease,
sublease, license or sublicense (or series or related contracts, leases,
subleases, licenses and sublicenses) outside the Ordinary Course of Business;
-14-
<PAGE>
(C) Company has not made any capital expenditure (or series of
related capital expenditures) involving more than $200,000 in the aggregate, or
outside the Ordinary Course of Business;
(D) Company has not entered into any written or binding oral
employment contract, or collective bargaining agreement, or modified the terms
of any such existing contract or agreement with any of its full-time salaried
staff employees other than in the Ordinary Course of Business;
(E) Company has not granted any dividends or any increase outside the
Ordinary Course of Business in the base compensation of any of its directors,
officers, and employees, nor has Company made any payments or promises or
commitments to make any other payments (other than salary and reimbursement of
customary expenses) to any of such Persons, including without limitation bonuses
other than in the Ordinary Course of Business; and
(F) Company has not adopted any (i) bonus, (ii) profit-sharing, (iii)
incentive compensation, (iv) pension, (v) retirement, (vi) medical,
hospitalization, life, or other insurance, (vii) severance or (viii) other plan,
contract or commitment for any of its directors, officers, and employees, or
modified or terminated any existing plan, contract or commitment.
4.7 UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.7, Company
----------------------- ------------
does not have any Liability (and to the Knowledge of Transferors and Company
there is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against Company giving rise
to any Liability) which is individually in excess of $50,000, except for (a)
Liabilities set forth on the face of the Stub Period 1998 Balance Sheet, (b)
Liabilities described on Schedule 4.7 and (c) Liabilities which have arisen
------------
after the Stub Period End in the Ordinary Course of Business (none of which
relates to any breach of contract, breach of warranty, tort, infringement, or
violation of law or arose out of any charge, complaint, action, suit,
proceedings, hearing, investigation, claim, or demand).
4.8 TAX MATTERS. Except as set forth on Schedule 4.8:
----------- ------------
(A) Company has filed all Tax Returns that it was required to file
except where the failure to file Tax Returns would not have a Material adverse
effect on the financial condition of the Company. All such Tax Returns were
correct and complete in all Material respects. All Taxes owed by Company
(whether or not shown on any Tax Return) based on operations through the Stub
Period End have been paid or accrued on the Stub Period Balance Sheet except
where the failure to pay taxes would not have a Material adverse effect on the
financial condition of the Company. Company currently is not the beneficiary of
any extension of time within which to file any Tax Return. To the Knowledge of
the Company and the Transferors, no claim has ever been made by any taxing
authority in a jurisdiction where Company does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. To the Knowledge of the
Company and the Transferors, there are no Security Interests on any of the
assets of Company that arose in connection with any failure (or alleged failure)
to pay any Tax, other than for Taxes that are not yet due which are accrued for
since December 31, 1997.
-15-
<PAGE>
(B) To the Knowledge of Transferors and Company, Company has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party and Company has properly reflected the status of all employees
and independent contractors in connection therewith as required by applicable
Tax law and the Fair Labor Standards Act of 1938, as amended, and the rules and
regulations promulgated thereunder.
(C) Company has not received any written notice that any taxing
authority intends to assess any additional Taxes for any period for which Tax
Returns have been filed, and no Transferor, and no officer of Company with
responsibility for Tax matters has Knowledge of any claim for such additional
Taxes could be made. There is no dispute or claim concerning any Tax Liability
of Company either (i) claimed or raised by any authority in writing or (ii) as
to which the Transferors or the officers of Company responsible for Tax matters
of Company have Knowledge based upon personal contact with any agent of such
authority. Schedule 4.8 lists all federal, state, local, and foreign income Tax
------------
Returns filed with respect to Company for taxable periods ended on or after
December 31, 1995 indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The
Transferors have delivered to the Acquirer correct and complete copies of all
federal income Tax Returns filed, examination reports received, and statements
of deficiencies assessed against or agreed to, by Company since December 31,
1995. Company has not waived any statute of limitations in respect of Taxes
which waiver is currently in effect. Company is not a party to any "closing
agreement," as described in Section 7121 of the Code or any corresponding
provision of state or local Tax law, and there are no Tax rulings or requests
for Tax rulings with respect to Company.
(D) Company has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations. Company has not made any payments, is not obligated
to make any payments, and is not a party to any agreement that could obligate it
to make any payments that, under any circumstances, will not be deductible to
Company under Code Sec. 280G. Company is not and has never been a United States
real property holding corporation within the meaning of Code Sec. 897(c)(2).
Company has disclosed on its federal income Tax Returns all positions taken
therein that, to the Knowledge of Company or the Transferors, could give rise to
a substantial understatement of federal income Tax within the meaning of Code
Sec. 6662. Company is not a party to any Tax allocation or sharing agreement.
Company has never been (nor has any Liability for unpaid Taxes because it once
was) a member of an Affiliated Group filing a consolidated federal income Tax
Return and has never incurred any Liability for the Taxes of any Person under
Treas. Reg. (S)1.1502-6 (or any similar provision of state, local, or foreign
law). Company has never incurred any liability for Taxes of any Person as a
transferee or successor, by contract, or otherwise.
4.9 TANGIBLE ASSETS. Company owns or leases substantially all tangible
---------------
assets necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted prior to Closing. To the Knowledge of the
Transferors, each such tangible asset is free from Material defects (patent and
latent), has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
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<PAGE>
4.10 OWNED REAL PROPERTY. Company does not own nor does it have any
-------------------
interest in any real property or improvements thereon (other than the leases
disclosed in Schedule 4.12, and the leasehold improvements relating to the same)
-------------
nor does Company have any options, agreements or contracts under which it has
the right or obligation to acquire any interest in any real property or
improvements (other than as disclosed in Schedule 4.12)
-------------
4.11 INTELLECTUAL PROPERTY.
---------------------
(A) Attached hereto as Schedule 4.11 is a list and brief description
-------------
of all Material Intellectual Property owned or utilized by Company. Company has
furnished the Acquirer with copies of all Material license agreements to which
Company is a party, either as licenser or licensee, with respect to any
Intellectual Property. Company has good title to or the right to use all the
Intellectual Property and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the conduct of the Company's business, in its
business as presently conducted or currently proposed to be conducted prior to
Closing and, to the Knowledge of the Transferors and Company, Company is not
infringing on any Intellectual Property right of others, and neither Company nor
Transferors have Knowledge of any infringement by others of any such rights
owned by Company.
(B) All licenses set forth on Schedule 4.11 are valid and binding
-------------
obligations of Company, and to the Knowledge of the Transferors and Company, of
the other parties thereto, and enforceable against Company, and to the Knowledge
of the Transferors and Company, the other parties thereto in accordance with
their respective terms, except for the Equitable Exceptions. Company owns and
possesses all right, title and interest in and to, or has the right to use
pursuant to a valid license, all Intellectual Property necessary for the
operation of the business of Company as presently conducted.
(C) The Transferors and Company have taken all reasonably necessary
measures to protect and maintain the rights of Company in its Intellectual
Property. Each piece of Intellectual Property used by Company is used with the
authorization of every other claimant thereto and the execution, delivery and
performance of this Agreement will not impair such use.
(D) The Transferors have also delivered to the Acquirer correct and
complete samples or copies of all trademarks, service marks, trade names,
copyrights, patents, registrations and, as relate to the foregoing, pending
effective or disputed applications, licenses, agreements, and permissions (as
amended to date) held by Company, and have made available to the Acquirer
correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. With respect to
each item of Material Intellectual Property used in, or otherwise necessary for
the conduct of, the business of Company as heretofore conducted: (i) the
identified owner possesses all right, title, and interest in and to the item;
(ii) the item is not subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge; (iii) no charge, complaint, action, suit,
proceeding, hearing, investigation is pending or, to the Knowledge of any of the
Transferors or officers (and employees with responsibility for Intellectual
Property matters) of Company, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and (iv) Company has
not agreed to indemnify any person or entity
-17-
<PAGE>
for or against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(E) The Company believes, and it has no information to the contrary,
that it has taken and is taking all reasonable steps to assure that all of its
proprietary hardware and proprietary computer software that is used by the
Company to provide services to its customers or used otherwise in its business
(the "COMPANY PRODUCTS") will be year 2000 compliant. As used in this Agreement
"year 2000 compliant" shall mean that the Company Products will perform and will
continue to perform in accordance with specifications and the agreements under
which they are licensed or used to provide services to the Company's customers
regardless of the year of the date data encountered by such products, provided,
that such data falls within the period ending in the year 2060; provided,
further, that (i) all date data received for use by the Company Products are
accurate and in formats defined by the Company Products from time to time, and
(ii) all date data generated by the Company Products are accepted in formats
defined by the Company Products from time to time. Notwithstanding the
foregoing, Company makes no representation or warranty respecting user defined
fields that contain dates, or as to the functionality of the Company Products in
circumstances where data received from any third party system are invalid,
incorrect or otherwise corrupt.
4.12 CONTRACTS. Except as disclosed on Schedule 4.12, Company is not a
--------- -------------
party to or bound by, and none of the assets of Company are covered by or
subject to the following contracts, agreements, Subscriber Contracts or
Agreements (whether written or oral):
(A) any written agreement (or group of related written agreements)
for the lease of real or personal property from or to third parties providing
for lease payments in excess of $50,000 per annum;
(B) any Material equipment or supplier agreement;
(C) except as disclosed in (a) or (b) above, any written agreement
(or group of related written agreement) under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease obligations) involving more than $50,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(D) any Material Subscriber Contract;
(E) any formal or informal partnering arrangement with any merchant
or service or web content provider;
(F) any agreement with any local exchange carrier, competitive local
exchange carrier, competitive access provider or other telecommunications
carrier that requires payments in excess of $120,000 per annum;
(G) any peering, transit or other agreement with any internet service
provider, online company or similar entity that requires payments in excess of
$120,000 per annum; or
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<PAGE>
(H) any written arrangement requiring confidentiality or
noncompetition other than agreements with customers, employees or subcontractors
in the Ordinary Course of Business;
(I) any other written arrangement (or group of related written
arrangements) either involving more than $50,000 per annum or not entered into
in the Ordinary Course of Business.
The Transferors have delivered to the Acquirer or made available for
review by the Acquirer a correct and complete copy of each written arrangement
listed in Schedule 4.12 (as amended to date). With respect to each written
-------------
arrangement so listed, and except as otherwise provided in Section 4.3: (a) the
-----------
written arrangement is legal, valid, binding, enforceable, and in full force and
effect with respect to Company, subject to Equitable Exceptions; (b) the written
arrangement will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms immediately following the Closing, subject
to Equitable Exceptions; (c) To the Knowledge of the Transferors, Company is
not, nor is any other party, in breach or default, and no event has occurred
which to the Knowledge of the Transferors with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration, under the written arrangement; and (d) Company has not, nor to the
Knowledge of the Transferors has any other party, repudiated any provision of
the written arrangement. To the Knowledge of Transferors and Company, Company is
not a party to any oral contract, agreement, or other arrangement which, if
reduced to written form, would be required to be listed in Schedule 4.12 under
-------------
the terms of this Section 4.12. No unfilled Subscriber Contract or Agreement
------------
obligating Company to perform services will result in a Material loss to Company
upon completion of performance. Except as set forth in Schedule 4.12, Company
-------------
has not been notified in writing that any of its Subscribers intend either to
dispute charges under or to terminate early a Material Subscriber Contract or
Agreement.
4.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
-----------------------------
Company are reflected properly on its books and records, are valid receivables
and to the Knowledge of the Transferors and Company are subject to no Material
setoffs or counterclaims, are presently current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Stub Period Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
Company.
4.14 INSURANCE.
---------
(A) Schedule 4.14 sets forth the following information with respect
-------------
to each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which Company has been a party, a named insured, or otherwise the beneficiary
of coverage at any time within the past two (2) years: the name address and
telephone number of the agent; the name of the insurer, the name of the
policyholder, and the name of each covered insured; the policy number and the
period of coverage; the scope and amount (including a description of how
deductibles and ceilings are
-19-
<PAGE>
calculated and operate) of coverage; and a description of any material
retroactive premium adjustments or other loss sharing arrangements.
(B) With respect to each insurance policy listed on Schedule 4.14 and
-----------------
except as noted on Schedule 4.14: (i) the policy is legal, valid, binding, and
- --------------------------------
enforceable and was or is in full force and effect on the dates indicated; (ii)
the policy will continue to be legal, valid, binding, and enforceable and was or
is in full force and effect on identical terms immediately following the Closing
Date when such policy is in effect prior to the Closing Date; (iii) Company is
not in breach or default (including with respect to the payment of premiums or
the giving of notices), and to the Knowledge of the Transferors and Company, no
event has occurred which, with notice or the lapse of time, would constitute
such a breach or default or permit termination, modification, or acceleration
under the policy; and (iv) Company has not and to the Knowledge of the
Transferors and Company, no other party to the policy has repudiated any
provision thereof. To the Knowledge of the Transferors and Company, since its
inception Company has been covered by insurance in scope and amount customary
and reasonable for the businesses in which it has engaged during the
aforementioned period. Except as set forth in Schedule 4.14, Company currently
-------------
has no and has never had any self-insurance arrangements.
4.15 LITIGATION. Schedule 4.15 sets forth each instance in which Company
---------- -------------
(a) is subject to any unsatisfied judgment, order, decree, stipulation,
injunction, or charge or (b) has received written notice that it is a party or,
to the Knowledge of the Transferors and directors and officers of Company, is
threatened to be made a party to any charge, complaint, action, suit,
proceeding, hearing, or investigation of or in any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. Except as specifically described on Schedule 4.15, no
-------------
matter listed thereon could reasonably be expected, individually, to result in a
Material adverse effect to Company. Neither the Transferors nor any of the
directors or the officers of Company has Knowledge that any such charge,
complaint, action, suit, proceeding, hearing, or investigation may be brought or
threatened against Company.
4.16 EMPLOYEES. To the Knowledge of the Transferors and Company, no
---------
salaried employee or any salaried group of employees has any plans to terminate
employment with Company. To the Knowledge of the Transferors and Company,
Company has not committed any unfair labor practice.
4.17 EMPLOYEE BENEFITS. Except as set forth in Schedule 4.17, Company has
-----------------
no Employee Benefit Plans that Company maintains or to which Company contributes
for the benefit of any current or former employee of Company and Company has
never been a party to any Employee Benefit Plan.
4.18 GUARANTIES. Company is not a guarantor nor is it otherwise liable for
----------
any Liability or obligation (including indebtedness) of any other person other
than such potential liabilities to which Company is subject based on the acts or
omissions of its employees, subcontractors and other agents performing services
for Company in the Ordinary Course of Business (of which Company has no
Knowledge of any claim for actual liability therefor).
-20-
<PAGE>
4.19 LEGAL COMPLIANCE. Except as it would not, individually or in the
----------------
aggregate, have a Material adverse effect:
(A) To the Knowledge of the Transferors and Company, Company has
complied in all Material respects with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), including without limitation, all environmental and employee health
and safety laws. No written charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or commenced
against Company which is currently pending and alleges any failure to comply
with any such law or regulation.
(B) To the Knowledge of the Transferors and Company, Company has
complied with all applicable laws (including rules and regulations thereunder)
relating to the employment of labor employee civil rights, hiring of engaging
non-United States citizens, and equal employment opportunities.
(C) Company has not made or agreed to make any contribution, payment,
or gift of funds or property to any governmental official, employee, or agent
where either the contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state, local, or foreign jurisdiction;
(D) To the Knowledge of the Transferors and Company, Company has
filed in a timely manner all reports, documents, and other materials it was
required to file (and the information contained therein was correct and complete
in all Material respects) under all applicable laws (including rules and
regulations thereunder).
(E) Company has possession of all records and documents it was
required to retain under all applicable laws (including rules and regulations
thereunder).
4.20 CERTAIN BUSINESS RELATIONSHIPS WITH COMPANY. Except as set forth in
-------------------------------------------
Schedule 4.20, neither the Transferors nor Affiliates of Company has been
- -------------
involved in any business arrangement or relationship with Company within the
past twelve (12) months other than service relationships in the Ordinary Course
of Business, and neither the Transferors nor their Affiliates owns any material
property or right, tangible or intangible, which is used in the business of
Company.
4.21 BROKERS' FEES. Company does not have any Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or similar representative
with respect to the transactions contemplated by this Agreement.
4.22 SYSTEMS. Except as set forth on Schedule 4.22 and with such other
------- -------------
exceptions as will not, individually or in the aggregate, have a Material
adverse effect, (i) all of the Systems services and platform servers are
running, or peaking, at no higher than 85% of sustained capacity, (ii) all of
the Systems' services are replicated in a redundant manner across available
platform servers as reasonable and customary in the internet provider industry,
(iii) all remote physical points of presence ("POPS") are secure, conform to
equipment manufacturers'
-21-
<PAGE>
recommended environmental parameters, and contain an uninterrupted power supply
with a battery back-up of at least 30 minutes, (iv) the average daily Subscriber
blockage rate for dial-in Subscribers is no greater than 1.0% of Subscriber
attempts across the overall network infrastructure, (v) the configuration
diagrams provided to the Acquirer reasonably represent the redundant network
facilities between major backbone locations, and between remote physical POPs
and major network concentration points, (vi) the existing power plant at
Company's main location is equipped with an uninterrupted power supply with a
battery back-up of at least 60 minutes, (vii) all deployed dial-in modem, modem
shelf and corresponding technology conform to applicable industry standards
necessary to support Subscriber traffic at a rate of 56Kbps or above, (viii) all
Systems owned, leased by, or licensed to or by Company are year 2000 compliant,
(ix) Company utilizes a DHCP, or other dynamic, IP address allocation scheme
that conforms to industry standards, and (x) Company has access to the quantity
of IP addresses sufficient to support Company's Subscriber base as currently
existing and as currently contemplated to exist as of January 1, 2000.
4.23 SUBSCRIBERS. Schedule 4.23 sets forth (a) the number or Subscribers
----------- -------------
served by Company by type of business (i.e., segregated by the following
categories, if applicable to Company: (i) dial-up, (ii) dedicated access, (iii)
web hosting, and (iv) other businesses as of September 30, 1998 and Company's
standard rates for such Subscribers for each type of business; (b) for the
period commencing January 1, 1997, Company's monthly churn rate (consisting of
(i) cancellations of month-to-month service and/or long-term subscription or
service contracts prior to expiration (ii) terminations of any such contracts,
and (iii) non-renewal of any such contracts upon expiration) by business type
during each full calendar month prior to the date hereof; and (c) as of
September 30, 1998, detail as to the amount of prepaid subscription or service
contracts and the amount of unearned revenue for all Subscriber contracts with a
remaining term of (i) less than or equal to 90 days, (ii) greater than 90 days
and less than or equal to one year, (iii) greater than one year and less than or
equal to two years, (iv) greater than two years and less than or equal to three
years and (v) greater than three years.
4.24 DISCLOSURE. To the Knowledge of the Company, the representations and
----------
warranties contained in this Article IV as amended, modified and/or supplemented
----------
by the Disclosure Schedules do not contain any untrue statement of a fact or
omit to state any Material fact necessary in order to make the statements and
information contained in this Article IV not misleading.
----------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
The Acquirer represents and warrants to the Transferors the statements
contained in this Article V are correct and complete as of the date of this
---------
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article V):
---------
5.1 ORGANIZATION OF THE ACQUIRER. The Acquirer is a corporation duly
----------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
-22-
<PAGE>
5.2 AUTHORIZATION OF TRANSACTION. The Acquirer has full power and
----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by the Acquirer. This Agreement constitutes the
valid and legally binding obligation of the Acquirer, enforceable in accordance
with its terms and conditions except for Equitable Exceptions. The Acquirer does
not need to give any notice to, make any filing with, nor obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement (other than
as provided for in Article II of this Agreement).
----------
5.3 BROKERS' FEES. The Acquirer has no Liability or obligation to pay any
-------------
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Transferors could
become liable or obligated.
5.4 ACQUIRER'S CAPITALIZATION. The authorized capital stock of the
-------------------------
Acquirer consists of (a) 100,000,000 shares of common stock, and (b) 10,000,000
shares of preferred stock. The issued and outstanding shares of and the holders
of record of the Acquirer's Common Stock shall be as set forth in the
Registration Statement, copies of which shall be delivered to Company and the
Transferors, and as of the date hereof, there are no issued and outstanding
shares of preferred stock. All of the Acquirer's issued and outstanding common
stock have been duly authorized, are validly issued, fully paid, and
nonassessable.
5.5 DISCLOSURE. The representations and warranties contained in this
----------
Article V and in the Registration Statement on Form S-1 as amended from time to
- ---------
time and as filed with the SEC by Acquirer, do not contain any untrue statement
of a fact or omit to state any Material fact necessary in order to make the
statements in Article V and the Registration Statement, respectively, not
---------
misleading.
ARTICLE VI
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing or the earlier termination of this
Agreement:
6.1 GENERAL. Each of the Parties will use its reasonable efforts to take
-------
all actions and to do all things necessary, proper, or advisable to consummate
and make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Article IX below).
----------
6.2 NOTICES AND CONSENTS. Each of the Parties will give any notices to
--------------------
third parties, and will use best efforts to obtain third party consents, that
the other Party may reasonably request in connection with matters disclosed or
required to be disclosed on the Disclosure Schedules. Each of the Parties will
take any additional action (and the Transferors will cause Company to take any
additional action) that may be necessary, proper, or advisable in connection
with any other notices to, filings with, and authorizations, consents, and
approvals of
-23-
<PAGE>
governments, governmental agencies, and third parties that he, she or it may be
required to give, make, or obtain.
6.3 OPERATION OF BUSINESS PRIOR TO THE EFFECTIVE TIME OF THE CLOSING.
----------------------------------------------------------------
Except as contemplated hereby, or as may be incidental to or in furtherance of
the transactions contemplated hereby, or as may have been set forth herein or in
the Disclosure Schedules, Company will not (and the Transferors will not cause
or permit Company to) engage in any practice, take any action, embark on any
course of inaction, or enter into any transaction outside the Ordinary Course of
Business, without the prior written consent of Acquirer, which consent shall not
be unreasonably withheld if such action is being undertaken in good faith
consistent with prior prudent business practices of Company. Without limiting
the generality of the foregoing, from the date hereof to the effective time of
the Closing:
(A) Company will not adopt or propose any change in its articles of
incorporation or bylaws;
(B) Company will not merge or consolidate with any other Person or
acquire a Material amount of assets of any other Person;
(C) Company will not sell, lease, license or otherwise dispose of any
Material assets or property except (i) pursuant to existing contracts or
commitments and (ii) in the Ordinary Course of Business;
(D) except as otherwise provided for in this Agreement, Company will
not issue, sell, purchase, repurchase, redeem or otherwise acquire any Company
securities;
(E) except with the prior written consent of the Acquirer, Company
shall not make any Tax election that would have a Material adverse effect on
Company;
(F) Company will timely file all Tax Returns due on or before the
effective time of Closing and pay (or reserve for) all Taxes due and payable
with respect to such periods;
(G) Company will not do any of the items described in Section 4.6;
-----------
and
(H) Company will not agree or commitment to do any of the foregoing.
6.4 PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may be
------------------------
incidental to or in furtherance of the transactions contemplated hereby, or as
may have been set forth herein or in the Schedules, the Transferors will cause
Company to use reasonable commercial efforts to keep its business and properties
substantially intact, including its present operations, physical facilities
(except for the planned relocation of Company facilities as set forth on
Schedule 6.4), working conditions, and relationships with lessors, licensers,
- ------------
suppliers, Subscribers, any other customers, and employees.
6.5 ACCESS.
------
-24-
<PAGE>
(A) Only in the event that neither the Acquirer nor the Transferors
exercise their right to terminate this Agreement as provided in Article X
---------
herein, the Transferors will cause Company to permit the Acquirer's
representatives access at reasonable times, and in a manner so as not to
interfere with the normal business operations of Company, to the headquarters of
Company and to all books, records, contracts, Tax records, and documents of or
pertaining to Company; provided, however, that the Acquirer shall direct all
requests for information and material only through the Transferors'
Representative, unless otherwise agreed to by the Acquirer and the Transferors'
Representative in writing.
(B) The Acquirer shall proceed to arrange with the Transferors a
mutually agreeable time and place at which the Acquirer may conduct interviews
with key employees and/or customers of Company mutually agreed to by the
Acquirer and the Transferors' Representative.
6.6 NOTICE OF DEVELOPMENTS. Company will give prompt written notice to the
----------------------
Acquirer of any Material development affecting the assets, Liabilities,
business, financial condition, operations, or results of operations, including
but not limited to (a) any development affecting the ability of Company to
consummate the transactions contemplated by this Agreement, (b) any Outage
effecting the more than 1% of all Subscribers lasting for 3 hours or more or (c)
any loss of any Material Subscriber or any material equipment or other supplier
to the Company. No disclosure by any Party pursuant to this Section 6.6 shall
-----------
be deemed to amend or supplement the Disclosure Schedules or to prevent or cure
any misrepresentation, breach of warranty, and/or breach of covenant.
6.7 EXCLUSIVITY. The Transferors will not (and the Transferors will not
-----------
cause or permit Company to) (a) solicit, initiate, or encourage the submission
of any proposal or offer from any person relating to any (i) liquidation,
dissolution, or recapitalization of Company, (ii) merger or consolidation of
Company, (iii) acquisition or purchase of securities or assets of Company or
(iv) similar transaction or business combination involving Company, or (b)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. The Transferors will notify the Acquirer immediately if in the
reasonable view of the Transferors any entity or person makes a formal or
otherwise serious proposal, offer, inquiry, or contact with respect to any of
the foregoing and shall provide the identity of such entity or person as well as
any other relevant details regarding the contact.
6.8 TERMINATION OF BANK FACILITIES. The Transferors shall (or shall
------------------------------
cause Company to) assist Acquirer in arranging the retirement of all of
Company's outstanding bank indebtedness and to fully, completely and
unconditionally obtain the release of all Security Interests related thereto.
6.9 LANDLORDS' CONSENTS. The Transferors shall use its best efforts to
-------------------
cause Company, with the assistance of the Acquirer, on or before the Closing
Date to obtain from its landlords (to the extent required under the pertinent
premises lease) written consent to the
-25-
<PAGE>
assignment of all leases being assumed by the Acquirer, which assignments are
deemed to have resulted from the transactions contemplated by this Agreement.
6.10 TAX MATTERS.
------------
(A) TAX RETURNS. The Transferors shall cause Company to file with
-----------
the appropriate governmental authorities all Tax returns required to be filed by
it for any taxable period ending prior to the Closing Date and Transferors
and/or Company shall remit any Taxes due in respect of such Tax returns. In
addition, the Transferors shall cause KPMG Peat Marwick to prepare a short
period tax return for Company covering the period January 1, 1998 through the
Closing Date. The cost of preparation of such short period tax return shall be
paid for by the Transferors.
(B) INDEMNITY. The Transferors shall be liable for, and shall
---------
indemnify and hold Acquirer and Company harmless against, any Taxes or other
costs attributable solely to (i) a failure on the part of any of the Transferors
to take all actions required of them under Section 6.10 for periods prior to
------------
the Closing Date.
(C) COOPERATION ON TAX MATTERS
--------------------------
(i) Acquirer, Company and Transferors shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
the filing of Tax returns pursuant to this section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Company and Transferors agree (A) to retain all books and records
with respect to Tax matters pertinent to Company relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Acquirer any extensions thereof) of
the respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding of any
such books and records and, if the other party so requests, Company or
Transferors, as the case may be, shall allow the other party to take possession
of such books and records.
(ii) Acquirer, and the Transferors and Company further agree,
upon request, to use their best efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
(iii) Acquirer, the Transferors and Company further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
-26-
<PAGE>
6.11 AUDITS. The Transferors shall cooperate and use their best efforts to
------
deliver, or cause to be delivered, to Acquirer the unqualified and unmodified
audit report of E&Y on the balance sheets of Company as of September 30, 1998,
December 31, 1997 and December 31, 1996, and December 31, 1995 for periods and
consolidated audited statements of operations and cash flows of Company for the
fiscal years then ended, which report shall be without limitation as to the
scope of the audit; provided, however, Acquirer shall be solely responsible for
payment of any expenses related to the preparation of such report. Transferors
and any of the officers or directors of Company, in their capacities as officers
and directors of Company, shall provide all management letters, reports or
representations reasonably requested by such auditors in connection with such
audits, and in connection with audits of Company for the years ended December
31, 1997 and December 31, 1996 and December 31, 1995 and for the nine month
period ending September 30, 1998.
6.12 LIMITATION ON CAPITAL LEASES. Company shall not enter into capital
----------------------------
leases that would cause the aggregate obligations payable by Company under
capital leases to exceed the amount set forth on the Stub Period Balance Sheet
without the prior consent of Acquirer.
6.13 DISCLOSURE SCHEDULES. Company covenants that within 7 days after the
--------------------
date hereof, it will provide Acquirer with disclosure schedules relating to
Articles III and IV of this Agreement in form and substance reasonably
- -------------------
satisfactory to Acquirer.
6.14 RETIREMENT OF COMPANY INDEBTEDNESS. Company shall have provided for
----------------------------------
the retirement at Closing of the Company Indebtedness. The amounts payable for
the retirement of the Company Indebtedness will be funded by a reduction of the
Cash Portion of the Transfer Consideration pursuant to Section 2.2, which
-----------
amount will be paid at Closing by the Acquirer on behalf of Company to the
holder of the Company Indebtedness.
ARTICLE VII
POST-CLOSING COVENANTS
7.1 GENERAL. In case at any time after the Closing any further action is
-------
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article IX
----------
below). The Transferors acknowledge and agree that from and after the Closing
the Acquirer will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to Company; provided that
the Transferors shall be entitled to access to the documents, books, records,
agreements and financial data at reasonable times and with advance notice to the
Acquirer, and Transferors may retain any copies of the foregoing as shall be
necessary to comply with applicable tax and other laws, regulations and
ordinances.
7.2 TRANSITION. The Transferors will not take any action that primarily
----------
is designed or intended to have the effect of discouraging any lessor, licenser,
Subscriber, supplier, or other business associate of Company from maintaining
the same business relationships with Company
-27-
<PAGE>
after the Closing for a period of twenty-four (24) months thereafter as it
maintained with Company prior to the Closing.
7.3 COVENANT NOT TO COMPETE. Except as otherwise permitted by the terms
-----------------------
of a specific employment agreement entered into in conjunction with this
Agreement, for a period of three (3) years from and after the Closing Date, all
Transferors employed by Company as of the date of this Agreement will not,
directly or indirectly, as principal, agent, trustee or through the agency of
any corporation, partnership, association or agent or agency, (i) own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any activity or business competing with Company in the State of
California, (ii) service or solicit from Company any Subscriber or other
customer of Company, (iii) request or advise any Subscriber or other customer of
Company to withdraw, curtail or cancel such subscriber's or others customer's
business with Company, or (iv) solicit for employment any full-time salaried
management position employee employed by Company at the time of such
solicitation; provided, however, that no owner of less than five percent (5%) of
the outstanding stock of any publicly traded corporation shall be deemed to
engage solely by reason thereof in any of that corporation's businesses. For
purposes of this Agreement, the Parties have agreed to allocate $50,000 of the
Transfer Consideration to the covenant not to compete contained in this Section
-------
7.5, which shall be allocated to the Transferors in proportion to their
- ---
respective stock ownership.
7.4 REORGANIZATION INTENT. The Parties agree that this transaction will
---------------------
occur in conjunction with the Related Transactions, and the Parties intend that
the receipt of the Acquirer's Shares by the Transferors and by the parties
involved in the Related Transactions will be tax-free under Section 351 of the
Code.
7.5 CONDUCT FROM CLOSING UNTIL THE END OF THE EARNED PAYOUT PERIOD.
--------------------------------------------------------------
During the period from Closing until the end of the Earned Payout Period, the
Acquirer agrees that it will not (a) unreasonably require that the business of
Company be operated substantially different as it was prior to the Closing Date
except in so far as the prior practices of Company were imprudent or
unreasonable or its productivity efficiency and profitability can be improved
and increased through economies of scale, the Acquirer's experience or
otherwise; (b) unreasonably change (i) the prices charged for Company's
services, (ii) the level of compensation of Company's full-time corporate
employees or (iii) the level of Company's general and administrative expenses,
unless the prior business practices were unreasonable or imprudent and/or unless
the changes are reasonably necessary to support the growth of Company's
business.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATIONS OF THE ACQUIRER. The obligation of the
-----------------------------------------
Acquirer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Transferors and Company set forth in Articles III and IV
above shall be true and correct in all material respects at and as of the
Closing Date and the Transferors shall have
-28-
<PAGE>
performed and complied with all of their covenants hereunder in all material
respects through the Closing;
(B) CONSENTS. The Transferors, Company and Acquirer will have
--------
procured all third party consents and given all notices required in connection
with this Agreement and the transactions contemplated hereby, including without
limitation all action necessary in connection with and/or the receipt of any
notices to, filings with, and authorizations, consents and approvals of
governments, governmental agencies, and third parties as set forth herein or in
the Disclosure Schedules including any filing required under the Hart-Scott-
Rodino Act;
(C) RESIGNATIONS. The Acquirer shall have received the
------------
resignations, effective as of the Closing, of each director of Company prior to
the Closing.
(D) DOCUMENTS TO BE DELIVERED BY THE TRANSFERORS. The following
--------------------------------------------
documents shall be delivered at Closing by the Transferors:
(i) Certificates. The Transferors and Company shall have
------------
delivered to the Acquirer an Officers/Transferors Certificate and a Secretary's
Certificate substantially in the form of the certificates respectively attached
as Exhibit C-1 and C-2 hereto.
----------- ---
(ii) Escrow Agreement. The Acquirer shall have received
----------------
from the Transferors an executed Escrow Agreement in the form and substance set
forth as Exhibit A attached hereto.
---------
(iii) Employment Agreements. The Acquirer shall have
---------------------
received from Brad Jenkins and Pete Engelken an executed employment agreement in
the form and substance attached hereto as Exhibit E.
---------
(iv) Registration Rights Agreement Joinder. The Acquirer
-------------------------------------
shall have received from each Transferor an executed joinder to the Registration
Rights Agreement in the form and substance set forth as Exhibit F attached
---------
hereto;
(v) Subscription Agreement Joinder. The Transferors shall
------------------------------
have caused each party receiving Acquirer's Shares under this Agreement to
execute an Equity Subscription Agreement in the form of Exhibit D hereto;
---------
(vi) Opinion of Counsel. The Acquirer shall have received
------------------
from the Transferors and Company an opinion of counsel in form and substance
reasonably satisfactory to Acquirer.
(E) FINANCIAL CONDITION. Each of the following shall be true and
-------------------
complete as of the Closing Date:
(i) the Acquirer shall be satisfied that the Net Worth of
Company on the Closing Date equaled or exceeded negative $1,747,565 or an
appropriate adjustment shall have been made to the Transfer Consideration as
provided in Section 2.3;
-----------
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<PAGE>
(ii) all liens and Security Interests securing debts of Company
which have been paid in full prior to or at the Closing shall have been fully
released of record to the reasonable satisfaction of the Acquirer and all
Uniform Commercial Code financing statements covering such debts shall have been
terminated;
(iii) no unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against Company, or against or in any way
affecting any Company Share;
(iv) the Transferors shall and Company shall cause all of
Company's officers, directors and/or key employees of Company to repay in full
all debts and other obligations, if any, owed to Company, concurrently with or
within 2 days;
(F) DUE DILIGENCE COMPLETED. The Acquirer shall be satisfied with
-----------------------
the results of its continuing legal, financial and business due diligence
investigations of Company, all of which shall be final and completed to the
Acquirer's satisfaction prior to Closing; provided, however, Acquirer shall use
best efforts to notify Company of any dissatisfactions with its due diligence
investigations of Company as soon as reasonably practicable, but in no event
later than 20 days prior to the Closing Date and, provided, further, that in no
event shall any dissatisfaction with the due diligence investigations of Company
cause Acquirer not to be satisfied with such investigations unless such
investigations uncover previously undisclosed events or matters that would have
a Material adverse effect on the financial condition of Company;
(G) MATERIAL ADVERSE CHANGE. No Material adverse change shall have
-----------------------
occurred in Company's Business;
(H) IPO. The Acquirer shall have received from Company the Financial
---
Statements and such Financial Statements must, in the opinion of the Acquirer's
independent public accountants, be suitable or readily adaptable for
incorporation in the Registration Statement, and any prospectus and annual and
periodic reports to be filed by the Acquirer with the SEC relating to the IPO
and the Registration Statement filed by the Acquirer with the SEC in connection
with the IPO shall have become effective and there shall be no other impediments
to the closing of the IPO; and
(I) COMPANY SHARES. The Transferors shall deliver the certificates
--------------
representing the Company Shares to the Acquirer and the acquisition by the
Acquirer of the Company Shares shall represent one hundred percent (100%) of the
issued and outstanding capital stock of the Company and all of such Company
Shares shall be free and clear of any Security Interests or other liens, claims
or encumbrances of any nature whatsoever.
The Acquirer may waive any condition specified in this Section 8.1
-----------
if it executes a writing so stating at or prior to the Closing.
8.2 CONDITIONS TO OBLIGATIONS OF THE TRANSFERORS. The obligations of the
--------------------------------------------
Transferors to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
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<PAGE>
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Acquirer set forth in Article V above shall be true and
---------
correct in all material respects at and as of the Closing Date and the Acquirer
shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing;
(B) CONSENTS. The Acquirer will have procured all third party
--------
consents needed by the Acquirer and given all notices required in connection
with this Agreement and the transactions contemplated hereby, including without
limitation all action necessary in connection with and/or the receipt of any
notices to, filings with, and authorizations, consents and approvals of
governments, governmental agencies, and third parties as set forth herein or in
the Disclosure Schedules including any filing required under the Hart-Scott-
Rodino Act;
(C) MINIMUM IPO PRICE. The Registration Statement filed by the
-----------------
Acquirer with the SEC in connection with the IPO shall have become effective and
there shall be no other impediments to the closing of the IPO. Notwithstanding
the foregoing, the provisions of this Section 8.2(d) may be waived by the
--------------
Majority Co-Transferors in the event that the following conditions have been
attained: (i) Acquirer is able to fund the Cash Portion of the Transfer
Consideration through a private equity investment in the capital stock of the
Acquirer or through borrowed money; (ii) the Transferors receive the Stock
Portion of the Transfer Consideration on a basis reasonably equivalent to what
they would have received in an IPO; (iii) the Transferors will receive the right
to obtain liquidity for the Stock Portion of the Transfer Consideration within a
reasonably short period of years following the Closing; and (iv) following the
Closing, the Acquirer will have access to cash or availability under debt
facilities or equity financing commitments sufficient to enable it to provide a
reasonable amount of financing for working capital, equipment upgrades and
future acquisitions for the Company and the other subsidiaries of the Acquirer.
(D) RETIREMENT OF COMPANY INDEBTEDNESS. The Acquirer, to the
----------------------------------
extent of the reduction in the Cash Portion of the Transfer Consideration in
Section 2.2 shall have provided funding to Company sufficient to fund the
- -----------
payments required to retire the Company Indebtedness.
(E) DOCUMENTS TO BE DELIVERED BY THE ACQUIRER. The following
-----------------------------------------
documents shall be delivered at the Closing by Acquirer.
(i) Certificates. The Acquirer shall have delivered to the
------------
Transferors an Officer's and Secretary's Certificate substantially in the form
of the Officer's and Secretary's Certificates attached as Exhibits C-1 and C-2
--------------------
hereto.
(ii) Escrow Agreement. The Transferors shall have received
----------------
from the Acquirer an executed Escrow Agreement in the form and substance set
forth as Exhibit A attached hereto.
---------
(iii) Subscription Agreement Joinder. The Acquirer shall
------------------------------
execute and deliver an Equity Subscription Agreement in the form of Exhibit D
---------
hereto, with each of the Transferors acquiring Acquirer Shares.
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<PAGE>
(iv) Employment Agreements. Brad Jenkins and Pete Engelken
---------------------
shall have received from Company an executed Employment Agreement, in the form
and substance attached hereto as Exhibit E;
---------
(v) Registration Rights Agreement Joinder. Each Transferor
-------------------------------------
shall have received from the Acquirer an executed joinder to the Registration
Rights Agreement in the form and substance set forth as Exhibit F attached
---------
hereto; and
(vi) Options. The Acquirer shall have issued options for
-------
the purchase of up to 121,000 shares of the Acquirer's Common Stock to the
employees of Company listed on Annex V which shall be delivered to Acquirer no
-------
later than ten business days prior to Closing.
(vii) Stock Certificates. The Transferors shall receive at the
------------------
Closing the Acquirer's Shares representing the Stock Portion of the Transfer
Consideration in the names and amounts listed on Annex IV attached hereto. The
--------
Escrow Agent shall receive stock certificates required pursuant to Section
2.2(c) hereof and the Escrow Agreement.
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 INDEMNIFICATION OF THE ACQUIRER Except as provided in and subject
-------------------------------
to Section 9.6, the Transferors agree to indemnify and hold harmless the
-----------
Acquirer, each officer and director of the Acquirer and any successor thereof
(collectively, the "INDEMNIFIED PARTIES") from and against any and all Adverse
Consequences, which any of the Indemnified Parties may sustain, or to which any
of the Indemnified Parties may be subjected, arising out of (a) any
misrepresentation, breach or default by the Transferors or Company of or under
any of the representations, warranties, covenants, agreements or other
provisions of this Agreement or any agreement or document executed in connection
herewith and (b) the Transferors or Company's tortuous acts or omissions to act
prior to Closing for which Company did not carry liability insurance for itself
as the insured party sufficient to satisfy such claim or liability, whether or
not such acts or omissions to act result in a breach or violation of any
representation or warranty.
9.2 DEFENSE OF THIRD PARTY CLAIMS. If any legal proceeding shall be
-----------------------------
instituted, or any claim or demand made, by any third party against any
Indemnified Parties in respect of which the Transferors may be liable hereunder
(and such determination shall be made without regard to the limitations set
forth in Section 9.6), such Indemnified Party shall give prompt written notice
-----------
thereof to the Transferors and, except as otherwise provided in Section 9.4
-----------
below, the Transferors shall have the right to defend any litigation, action,
suit, demand, or claim for which such Indemnified Party may seek indemnification
with counsel satisfactory to the Transferors; provided, however, that the
Transferors may not settle any such litigation, action, suit, demand, or claim
without the prior written consent of the Acquirer, which shall not be
unreasonably withheld. Notwithstanding the foregoing, if in the reasonable
judgment of the Acquirer, such litigation, action, suit, demand or claim, or the
resolution thereof, would have a (a) Material adverse effect on the Acquirer or
the Company or (b) the Transferors have a conflict of interest in defending such
action on Acquirer's or Company's behalf, at the Acquirer's election, the
Acquirer may defend itself and in either of such instances the Transferors shall
be
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<PAGE>
liable for all expenses reasonably incurred in connection therewith (including,
without limitation, settlement payments and reasonable attorney's fees);
provided, however, that the Acquirer may not settle any such litigation, action,
suit, demand, or claim without the prior written consent of the Transferors,
which shall not be unreasonably withheld. If neither (a) nor (b) are applicable
but the Acquirer desires to participate in the defense of an action the
Transferors are defending because in the Acquirer's reasonable judgment the
outcome of such action could have an ongoing effect on the Acquirer (or its
successors), the Acquirer may participate but at its own expense. In the event
the Transferors fail or refuse to defend any legal proceeding they are required
to defend under this Article IX within a reasonable length of time, the
----------
Indemnified Parties shall be entitled to assume the defense thereof, and the
Transferors shall be liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including, without
limitation, settlement payments and reasonable attorney's fees). If the
Transferors do not or refuse to assume the defense of any litigation, action,
suit, demand, or claim in any legal proceeding they are required to defend under
this Article IX, the Indemnified Parties shall have the absolute right, at the
----------
Transferor's expense, to control the defense of and to settle, in their sole
discretion and without the consent of the Transferors, such litigation, action,
suit, demand, or claim, but the Transferors shall be entitled, at their own
expense, to participate in such litigation, action, suit, demand, or claim, and
if the Transferors elect to participate in such litigation the Indemnified
Parties shall consult with the Transferors prior to settling such litigation.
The Party controlling any defense pursuant to this Section 9.2 shall deliver, or
-----------
cause to be delivered to the other Party, copies of all correspondence,
pleadings, motions, briefs appeals or other written statements relating to or
submitted in connection with the defense of any such litigation, action, suit,
demand, or claim, and timely notices of any hearing or other court proceeding
relating to such litigation, action, suit, demand, or claim.
9.3 PROCEDURE FOR CLAIMS.
--------------------
(A) ESCROW CLAIMS. If any claim for indemnification is made by an
-------------
Indemnified Party pursuant to this Article IX such Indemnified Party shall apply
----------
to the Escrow Agent for reimbursement of such claim in accordance with the
provisions of the Escrow Agreement. The Escrow Sum is intended to be the
exclusive source of funds in the event the Indemnified Parties have
indemnification claims hereunder.
(B) OTHER CLAIMS. If pursuant to this Article IX any claim for
------------ ----------
indemnification is made by the Transferors, the Indemnified Party or the
Acquirer, as the case may be (in either instance, the "CLAIMANT"), shall send
written notice to the other person (by certified mail, return receipt requested
or by personal service as provided in Section 11.7 hereof) setting forth in
------------
reasonable detail a description of the facts upon which the claim is based and a
reasonable estimate of the amount of the claim (a "CLAIM", with the notice
thereof referred to as the "CLAIM NOTICE"). The person against whom the Claim is
brought (the "RESPONDENT") shall have fifteen (15) calendar days from receipt of
the Claim Notice to respond to such Claim. Such response shall be in writing and
shall (i) set forth in reasonable detail the Respondent's objection to the Claim
and the basis for such objection, or (ii) the efforts undertaken or to be
undertaken by the Respondent to cure the Claim. In the event the Respondent
fails to respond to the Claim Notice in the manner set forth above within such
15-day period, the Respondent shall be deemed to have conceded the Claim in
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<PAGE>
full. In the event the Parties are unable to resolve the Claim within thirty
(30) calendar days from the date of receipt of the Claim Notice, the Claim shall
be submitted to arbitration in accordance with Section 11.8 below.
-------------
9.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article IX, the Acquirer shall have the right
----------
to control any and all such audits which may result in the assessment of
additional Taxes against the Company and any and all subsequent proceedings in
connection therewith, including appeals (subject to the prior written consent of
the Transferors, which shall not unreasonably be withheld and subject to the
right of the Transferors to have their accountants and attorneys consult with
the Acquirer on such audits or procedures at the Transferors' expense);
provided, however, that the Transferors and the Acquirer shall jointly control,
and shall cooperate with each other in connection with, any and all such audits
which may result in the assessment of additional Taxes against both the
Transferors and the Company. The Transferors shall cooperate fully in all
matters relating to any such audit or other Tax proceeding (including according
access to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by the
Company as a result of any such audit or other proceeding, the Transferors shall
be responsible for and shall promptly pay all Taxes, interest, and penalties for
which any of the Indemnified Parties shall be entitled to indemnification.
9.5 INDEMNIFICATION OF TRANSFERORS. The Acquirer agrees to indemnify and
------------------------------
hold harmless the Transferors and Company and each officer, director,
stockholder or affiliate of Company, from and against any Adverse Consequence
arising out of any misrepresentation, breach or default by the Acquirer of or
under any of the covenants, representations, warranties, agreements or other
provisions of this Agreement or any agreement or document executed in connection
herewith.
9.6 LIMITS ON INDEMNIFICATION. All Adverse Consequence sought by any
-------------------------
Party hereunder shall be net of any insurance proceeds received by, or made
available to, such Party with respect to such claim (less the present value of
any premium increases occurring as a result of such claim). Except for any
claims for breach of the representations, warranties and covenants of the
Transferors under Sections 3.5 and 4.2 hereof (pursuant to which the right to
------------ ---
make claims for indemnification under this Article IX shall survive the Closing
----------
Date indefinitely), the right to make claims for indemnification provided under
this Article IX shall expire on the first anniversary of the Closing Date
----------
(except for claims made prior to such date which shall continue after such date
until finally resolved). The Transferor shall not be obligated to pay any
amounts for indemnification under this Article IX until the aggregate
----------
indemnification obligation sought by the Acquirer hereunder exceeds $150,000,
whereupon the Transferors shall be liable for all amounts for which
indemnification may be sought back to the first dollar up to a maximum
indemnification by Transferors equal to the Escrow Sum. The Acquirer shall not
be obligated to pay any amounts for indemnification under this Article IX until
----------
the aggregate indemnification obligation sought by the Transferors hereunder
exceeds $150,000, whereupon the Acquirer shall be liable for all amounts for
which indemnification may be sought back to the first dollar. For
-34-
<PAGE>
purposes of Section 9.1 or 9.5, any requirement in any representation or
----------- ---
warranty that an event or fact be Material or have a Material adverse effect, as
appropriate, in order for such event or fact to constitute a misrepresentation
or breach of such representation or warranty shall be ignored. Notwithstanding
the foregoing, in no event shall the aggregate liability of the Acquirer to the
Transferors exceed the Transfer Consideration received by such Transferor.
However nothing in this Article IX shall limit the Acquirer or the Transferors
in exercising or securing any remedies provided by applicable statutory or
common law with respect to the conduct of the Transferors or the Acquirer in
connection with this Agreement or in the amount of damages that it can recover
from the other in the event that the Acquirer successfully proves intentional
fraud or intentional fraudulent conduct in connection with this Agreement. The
amount of all Adverse Consequences paid by the Transferors shall be deemed to be
a reduction of the Transfer Consideration paid by Acquirer under this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
------------------------
as provided below:
(A) the Acquirer and the Transferors may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(B) the Acquirer may terminate this Agreement by giving written
notice to the Transferors at any time prior to the Closing in the event the
Transferors are in breach of any representation, warranty, or covenant contained
in this Agreement in any Material respect and such breach has not been cured
within ten (10) days of receipt of written notice thereof, and the Transferors
may terminate this Agreement by giving written notice to the Acquirer at any
time prior to the Closing in the event the Acquirer is in breach of any
representation, warranty, or covenant contained in this Agreement in any
Material respect and such breach has not been cured within ten (10) days of
receipt of written notice thereof; or
(C) this Agreement will terminate if the Closing shall not have
occurred on or before June 30, 1999.
10.2 EFFECT OF TERMINATION. Each party's right of termination under
---------------------
Section 10.1 is in addition to any other rights it may have under this Agreement
- ------------
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 10.1, all
------------
further obligations of the parties under this Agreement will terminate, except
that the obligations of Section 11.2 will survive; provided, however, that if
------------
this Agreement is terminated by a party because of the breach of the Agreement
by the other party or because of one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
ARTICLE XI
MISCELLANEOUS
-35-
<PAGE>
11.1 PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
--------------------------------
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or public announcement relating to the subject matter of this
Agreement prior to, at or about the Closing without the prior written approval
of the Acquirer and the Transferors, which written approval will not be
unreasonably withheld by each party; provided, however, that any Party may make
any public disclosure it believes in good faith is required by law or regulation
(in which case the disclosing Party will advise the other Parties prior to
making the disclosure).
11.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
11.3 ENTIRE AGREEMENT. This Agreement shall not confer any rights or
----------------
remedies upon any person other than the Parties and their respective successors
and permitted assigns. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof.
11.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
-------------------------
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his, her or its rights, interests, or obligations hereunder without the
prior written approval of the Acquirer and the Transferors; provided, however,
that the Acquirer may assign (i) any or all of its rights and interests
hereunder to a wholly-owned Subsidiary of Acquirer (in any or all of which cases
the Acquirer nonetheless shall remain liable and responsible for the performance
of all of its respective obligations hereunder) or (ii) any or all of rights of
the Agreement to any lender providing debt financing to the Acquirer or its
Affiliates (in any or all of which cases the Acquirer nonetheless shall remain
liable and responsible for the performance of all of its respective obligations
hereunder).
11.5 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
11.6 NOTICES. All notices or other communications hereunder will be in
-------
writing and shall be delivered by hand, facsimile or sent, postage prepaid, by
registered or certified mail or reputable overnight courier service (and shall
be deemed given when so delivered by hand or facsimile, or, if mailed, five days
after mailing (one business day in the case of overnight courier)) addressed to
the intended recipient as set forth below:
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<PAGE>
If to Company or the Transferors:
Company, Inc. and/or the Transferors' Representative
JPS.Net, Corp.
770 L Street, Suite 960
Sacramento, CA 95814
Attn.: Brad Jenkins, President
Tel: (916) 810-8844
Fax: (916) 441.1805
with a copy to:
Graham & James, LLP
400 Capitol Mall, Suite 2400
Sacramento, California 95814
Attn.: Gilles S. Attia, Esq.
Tel: (916) 558-6700
Fax: (916) 441-6700
If to the Acquirer:
U.S. Internet Providers, Inc.
c/o Unison Partners, LP
50 Hawthorne Road
Southhampton, NY 11968
Attn.: Stephen E. Smith
Tel: (516) 287-4084
Fax: (516) 287-4767
with a copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, NW
Washington, D.C. 20004
Attn.: J. Hovey Kemp and
Christopher J. Hagan
Tel: (202) 637-5623
Fax: (202) 637-5910
Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
11.7 DISPUTE RESOLUTIONS. THE PARTIES AGREE TO SUBMIT TO ARBITRATION,
-------------------
IN ACCORDANCE WITH THESE PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING
FROM
-37-
<PAGE>
OR RELATED TO THE ALLEGED BREACH OF THIS AGREEMENT OR ANY DISPUTED
INDEMNIFICATION CLAIM MADE PURSUANT TO THIS ARTICLE XI. THE PARTIES FURTHER
----------
AGREE THAT THE ARBITRATION PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE
MEANS FOR RESOLVING ALL DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT NO
ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION
PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE CONDUCTED UNDER THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY
MAY INVOKE ARBITRATION PROCEDURES HEREIN BY WRITTEN NOTICE FOR ARBITRATION
CONTAINING A STATEMENT OF THE MATTER TO BE ARBITRATED. THE PARTIES SHALL THEN
HAVE FOURTEEN (14) DAYS IN WHICH THEY MAY IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL
ARBITRATOR. AFTER THE FOURTEEN (14) DAY PERIOD HAS EXPIRED, THE PARTIES SHALL
PREPARE AND SUBMIT TO THE AAA A JOINT SUBMISSION, WITH EACH PARTY TO CONTRIBUTE
HALF OF THE APPROPRIATE ADMINISTRATIVE FEE. IN THE EVENT THE PARTIES CANNOT
AGREE UPON A NEUTRAL ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER WRITTEN NOTICE
FOR ARBITRATION IS RECEIVED, THEIR JOINT SUBMISSION TO THE AAA SHALL REQUEST
ARBITRATORS WHO ARE PRACTICING ATTORNEYS WITH PROFESSIONAL EXPERIENCE IN THE
FIELD OF CORPORATE LAW, AND THE PARTIES SHALL ATTEMPT TO SELECT AN ARBITRATOR
FROM THE PANEL ACCORDING TO AAA PROCEDURES. UNLESS OTHERWISE AGREED BY THE
PARTIES, THE ARBITRATION HEARING SHALL TAKE PLACE IN THE WASHINGTON, D.C.
METROPOLITAN AREA, AT A PLACE DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES
HEREUNDER SHALL BE CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE FOR ITS COSTS
INCURRED IN ANY ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE AUTHORITY TO
INCLUDE ALL OR ANY PORTION OF SAID COSTS IN AN AWARD REGARDLESS OF WHICH PARTY
PREVAILS. THE ARBITRATOR MAY INCLUDE EQUITABLE RELIEF. ANY ARBITRATION AWARDED
SHALL BE ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A SUMMARY OF THE ISSUES
IN CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN EXPLANATION OF THE REASONS
FOR THE AWARD.
11.8 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
-------------
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
11.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Acquirer and the Transferors. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.10 SEVERABILITY. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
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<PAGE>
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
11.11 EXPENSES. Each of the Parties and Company will bear his, her or
--------
its own costs and expenses (including legal fees and expenses and investment
banking fees) incurred in connection with this Agreement and the transactions
contemplated hereby. The Transferors acknowledge and agree that Company has not
borne or will bear any of the Transferors' costs and expenses (including any
legal fees and expenses) in connection with this Agreement or any of the
transactions contemplated hereby.
11.12 CONSTRUCTION. The language used in this Agreement will be deemed
------------
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant relating to the same subject
matter as any other representation, warranty or covenant (regardless of the
relative levels of specificity) which the Party has not breached, it shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
11.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
11.15 CONFIDENTIALITY. Each Party to this Agreement shall, and shall
---------------
cause their respective Subsidiaries, Affiliates, officers, directors, employees,
accountants, counsel, financial advisors and other representatives and agents,
to treat and hold as such all of the Confidential Information, refrain from
disclosing or using any of the Confidential Information except in connection
with this Agreement and the transactions contemplated hereby for a period of
three (3) years from the date hereof, and except as otherwise permitted
hereunder or as may be required by law, deliver promptly or destroy, all
tangible embodiments (and all copies) of the
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<PAGE>
Confidential Information concerning the other party upon the other Party's
request. In the event that any Party is requested or required (by request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal process) to disclose any Confidential
Information concerning another Party, such Party will notify the other Party
promptly of the request or requirement so that the other Party may seek an
appropriate protective order or waive compliance with the provisions of this
Section 11.15. If, in the absence of a protective order or the receipt of a
- -------------
waiver hereunder, a party is compelled to disclose any Confidential Information
or else stand liable for contempt, then such party may disclose the Confidential
Information; provided, however, that such party shall use its reasonable efforts
to obtain, at the reasonable request of the party to which the Confidential
Information pertains, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as such party shall reasonably designate.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ACQUIRER:
U.S. INTERNET PROVIDERS, INC.
By: /s/ Stephen E. Smith
-------------------------------------
Name: Stephen E. Smith
-----------------------------
Title: President
-----------------------------
COMPANY:
JPS.NET, Corp..
By: /s/ Brad Jenkins
-------------------------------------
Name: Brad Jenkins
Title: President
TRANSFERORS:
/s/ Brad Jenkins
------------------------------------------
BRAD JENKINS
/s/ Pete Engelken
------------------------------------------
PETE ENGELKEN
-41-
<PAGE>
EXHIBIT 10.4
------------
STOCK EXCHANGE AGREEMENT
BY AND AMONG
U.S. INTERNET PROVIDERS, INC.,
(ACQUIRER)
D & E SUPERNET, INC.,
(SUPERNET)
AND
THE SHAREHOLDERS OF D & E SUPERNET, INC.
(COLLECTIVELY, TRANSFERORS)
DATED AS OF DECEMBER 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions.......................................................... 1
ARTICLE II
THE EXCHANGE OF SHARES
2.1 Basic Transaction................................................... 8
2.2 Transfer Consideration.............................................. 8
2.3 Net Worth Adjustment................................................ 9
2.4 Revenue Run Rate Adjustment......................................... 9
2.5 Earned Payout Amount................................................ 9
2.6 The Closing......................................................... 10
2.7 Deliveries at the Closing........................................... 10
2.8 The Acquisition Payment............................................. 11
2.9 Escrow Arrangements................................................. 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE TRANSFERORS
3.1 Authorization of Transaction........................................ 12
3.2 Noncontravention.................................................... 12
3.3 Broker's Fees....................................................... 13
3.4 Investment.......................................................... 13
3.5 Target Shares....................................................... 13
3.6 Disclosure.......................................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO SUPERNET
4.1 Organization, Qualification, and Corporate Power.................... 13
4.2 Capitalization...................................................... 14
4.3 Noncontravention.................................................... 14
4.4 Subsidiaries........................................................ 14
4.5 Financial Statements................................................ 14
4.6 Events Subsequent to the Most Recent Fiscal Year End................ 15
4.7 Undisclosed Liabilities............................................. 15
4.8 Tax Matters......................................................... 16
4.9 Tangible Assets..................................................... 17
4.10 Owned Real Property................................................. 17
4.11 Intellectual Property............................................... 17
4.12 Contracts........................................................... 18
4.13 Notes and Accounts Receivable....................................... 20
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.14 Insurance........................................................... 20
4.15 Litigation.......................................................... 20
4.16 Employees........................................................... 21
4.17 Employee Benefits................................................... 21
4.18 Guaranties.......................................................... 21
4.19 Legal Compliance.................................................... 21
4.20 Certain Business Relationships with Target.......................... 22
4.21 Brokers' Fees....................................................... 22
4.22 Systems............................................................. 22
4.23 Subscribers......................................................... 22
4.24 Disclosure.......................................................... 23
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
5.1 Organization of the Acquirer........................................ 23
5.2 Authorization of Transaction........................................ 23
5.3 Brokers' Fees....................................................... 23
5.4 Acquirer's Capitalization........................................... 23
5.5 Noncontravention.................................................... 24
5.6 Litigation.......................................................... 24
5.7 Tax Matters......................................................... 24
5.8 Disclosure.......................................................... 25
5.9 Legal Compliance.................................................... 25
5.10 Undisclosed Liabilities............................................. 26
5.11 Information Supplied................................................ 26
5.12 Intellectual Property............................................... 26
ARTICLE VI
PRE-CLOSING COVENANTS
6.1 General............................................................. 27
6.2 Notices and Consents................................................ 27
6.3 Operation of Business Prior to the Effective Time................... 27
6.4 Preservation of Business............................................ 28
6.5 Access.............................................................. 28
6.6 Notice of Developments.............................................. 28
6.7 Exclusivity......................................................... 28
6.8 Cancellation of Options, Bonus Programs and Phantom Stock Plans..... 29
6.9 Termination of Bank Facilities...................................... 29
6.10 Landlords' Consents................................................. 29
6.11 Tax Matters......................................................... 29
6.12 Audits.............................................................. 30
6.13 Pre-Closing Merger.................................................. 30
ARTICLE VII
POST-CLOSING COVENANTS
7.1 General............................................................. 30
7.2 Transition.......................................................... 30
7.3 Confidentiality..................................................... 30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.4 Covenant Not to Compete............................................ 31
7.5 Tax Free Exchange Intent........................................... 31
7.6 Conduct During Earned Payout Period................................ 31
7.7 Certain............................................................ 32
7.8 Certain Covenants of the Acquirer.................................. 34
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 Conditions to Obligations of the Acquirer.......................... 35
8.2 Conditions to Obligations of the Transferors....................... 37
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 Indemnification of The Acquirer.................................... 39
9.2 Defense of Third-party Claims...................................... 39
9.3 Procedure for Claims............................................... 40
9.4 Tax Audits, Etc.................................................... 41
9.5 Indemnification of Transferor...................................... 42
9.6 Limits on Indemnification.......................................... 42
ARTICLE X
TERMINATION
10.1 Termination of Agreement........................................... 43
10.2 Effect of Termination.............................................. 43
ARTICLE XI
MISCELLANEOUS
11.1 Press Releases and Announcements................................... 43
11.2 No Third-Party Beneficiaries....................................... 44
11.3 Entire Agreement................................................... 44
11.4 Succession and Assignment.......................................... 44
11.5 Facsimile/Counterparts............................................. 44
11.6 Notices............................................................ 44
11.7 Dispute Resolutions................................................ 46
11.8 Governing Law...................................................... 47
11.9 Amendments and Waivers............................................. 47
11.10 Severability....................................................... 47
11.11 Expenses........................................................... 47
11.12 Construction....................................................... 47
11.13 Incorporation of Exhibits, Annexes, and Schedules.................. 48
11.14 Specific Performance............................................... 48
</TABLE>
<PAGE>
LIST OF EXHIBITS AND ANNEXES
Exhibits
- --------
Exhibit A Form of Escrow Agreement
Exhibit B SUPERNET's Financial Statements
Exhibit C-1 Officer/Transferors Certificate
Exhibit C-2 Secretary's Certificate
Exhibit D Form of Equity Subscription Agreement
Exhibit E Form of Employment Agreement
Exhibit F-1 Joinder to the Registration Agreement
Exhibit F-2 Form of Registration Agreement
Exhibit G Form of Opinion of the Transferors' and SUPERNET's Legal Counsel
Exhibit H Form of Opinion of Acquirer's Legal Counsel
ANNEXES
- -------
Annex I Determination of Earned Payout Amount
Annex II Determination of Stock Portion of Transfer Consideration
Annex III RESERVED
Annex IV Acquirer's Capitalization Schedule
Annex V Allocation Summary
Annex VI List of Optionholders
Annex VII Acquisition Payment Amount
DISCLOSURE SCHEDULES
Schedule 4.1 Officers and Directors
Schedule 4.2 Capitalization
Schedule 4.4 Subsidiaries
Schedule 4.6 Material Events
Schedule 4.7 Material Liabilities
Schedule 4.8 Tax Matters
Schedule 4.11 Intellectual Property
Schedule 4.12 Contracts
Schedule 4.14 Insurance
Schedule 4.15 Litigation
Schedule 4.20 Affiliate Relationships
Schedule 4.22 Systems
Schedule 4.23 Subscribers
The Exhibits and Schedules to this Stock Exchange Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
<PAGE>
STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE AGREEMENT ("AGREEMENT") is entered into as of the
21st day of December, 1998, by and among U.S. INTERNET PROVIDERS, INC., a
Delaware corporation (the "ACQUIRER"), D & E SUPERNET, INC., a Delaware
corporation ("SUPERNET"), and the SHAREHOLDERS OF SUPERNET listed on the
signature page hereof (collectively, the "TRANSFERORS"). The Acquirer, SUPERNET
and the Transferors are referred to herein individually as a "PARTY" and
collectively as the "PARTIES."
RECITALS
--------
A. The Transferors in the aggregate own all of the outstanding
capital stock of SUPERNET a corporation engaged in the business of providing
Internet access and services, web hosting and other Internet related services
and support (the "BUSINESS").
B. This Agreement contemplates a transaction in which the
Transferors will exchange their respective shares of capital stock of SUPERNET
for the right to receive the Transfer Consideration (as hereinafter identified).
C. The Agreement further contemplates that the aforementioned
transaction will occur in conjunction with certain Related Transactions,
consisting of the IPO (as hereinafter defined) and the transfer of certain other
businesses by their owners to the Acquirer and the Parties intend that the
receipt of Acquirer's Shares (as hereinafter defined) by the Transferors and by
the parties involved in the Related Transactions will qualify as tax-free under
Section 351 of the Code (as defined).
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
-----------
"ACQUIRER" has the meaning set forth in the preface above.
"ACQUIRER'S COMMON STOCK" means the Acquirer's common stock, par value
$0.001 per share.
"ACQUIRER'S SHARES" means the shares of the Acquirer's Common Stock
which are issued to the Transferors pursuant to this Agreement.
-1-
<PAGE>
"Adverse Consequences" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"ALLOCATION SUMMARY" means the summary of Transferors and their
respective allocation of the Transfer Consideration attached hereto as Annex V.
-------
"BASIS" means, to the best of such Party's Knowledge, any past or
present fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction that
forms the reasonable basis for any specified consequence.
"CASH PORTION OF THE EARNOUT" has the meaning set forth in Section 2.5
-----------
below.
"CASH PORTION OF THE TRANSFER CONSIDERATION" has the meaning set forth
in Section 2.2 below.
-----------
"CLOSING" has the meaning set forth in Section 2.6 below.
-----------
"CLOSING DATE" has the meaning set forth in Section 2.6 below.
-----------
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Acquirer or SUPERNET including, without limitation, the
identity, lists or descriptions of any customers, referral sources or
organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals; provided, that the Confidential Information shall not include
information which (a) was or becomes generally available to the public other
than as a result of a its disclosure by the receiving party, (b) was or becomes
available to the receiving party on a non-confidential basis from a source other
than the Acquirer or its advisors without breach of this Agreement provided that
such source is not known to such receiving party to be bound by a
confidentiality agreement or otherwise prohibited from transmitting the
information to receiving party by a contractual,
-2-
<PAGE>
legal or fiduciary obligation known to such receiving party, (c) was within
receiving party's possession prior to its being furnished to such receiving
party by or on behalf of the Acquirer without breach of this Agreement, provided
that the source of such information was not bound by a confidentiality agreement
with the Acquirer or SUPERNET or otherwise prohibited from transmitting the
information to the receiving party by a contractual, legal or fiduciary
obligation, or (iv) which is required to be and actually is disclosed by
operation of law.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"D&E" means D&E Communications, Inc., a Pennsylvania corporation.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Treas. Reg. (S)1.1502-13.
"DISCLOSURE SCHEDULES" means the informational schedules relating to
the Transferors and SUPERNET as attached hereto.
"E&Y" shall mean Ernst & Young, L.L.P.
"EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2.5 below.
-----------
"EARNED PAYOUT PERIOD" means the period from July 1, 1998 through June
30, 1999.
"EARNOUT SHARES" has the meaning set forth in Section 2.5.
-----------
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section 3.1
-----------
below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means First Union National Bank, N.A.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by and
among the Transferors, the Acquirer and the Escrow Agent in the form of Exhibit
-------
A attached hereto.
- -
"ESCROW PERIOD" has the meaning specified in Section 2.9.
-----------
-3-
<PAGE>
"ESCROW SUM" has the meaning specified in Section 2.9.
-----------
"FAIR MARKET VALUE" of the Acquirer's Common Stock as of a particular
date means: (a) if traded on an exchange or the over-the-counter market, quoted
on the Nasdaq National Market or reported by the National Quotation Bureau, the
average of the closing or bid prices for the last 20 trading days prior to June
30, 1999 or (b) otherwise, the price, not less than book value, determined in
good faith and in such a reasonable manner as prescribed by a majority of the
Acquirer's directors who are not officers of the Acquirer.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.5 below.
-----------
"FUNDED INDEBTEDNESS" means all (a) indebtedness of SUPERNET for
borrowed money or other interest-bearing indebtedness; (b) capital lease
obligations of SUPERNET; (c) obligations of SUPERNET to pay the deferred
purchase or acquisition price for goods or services, other than trade accounts
payable or accrued expenses in the ordinary course of business on no more than
90 day payment terms; (d) indebtedness of others guaranteed by SUPERNET or
secured by an encumbrance on SUPERNET's property; (e) indebtedness of SUPERNET
under extended credit terms of more than 60 days from vendors to SUPERNET; and
(f) transaction costs of SUPERNET and/or the Transferors associated with this
Agreement or the transactions contemplated hereby that are paid by SUPERNET.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time.
"GROSS REVENUES" means the gross revenue of SUPERNET as normally
calculated on the Financial Statements as calculated in accordance with GAAP on
the accrual basis of accounting.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 9.1 below.
-----------
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information, (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"IPO" means the first underwritten public offering of the Acquirer's
Common Stock pursuant to an effective registration statement under the
Securities Act that will result in an aggregate post-IPO market capitalization
of the Acquirer of at least $100 million (determined by multiplying the
outstanding shares of the Acquirer's Common Stock by the IPO offering price).
-4-
<PAGE>
"KNOWLEDGE" means, with respect to each Transferor, information which
is actually known by such Transferor or which a prudent person in the position
of such Transferor would reasonably be deemed to know and (b) with respect to
the Acquirer or SUPERNET, actual knowledge of the officers of such Party and the
employees of such party with responsibility for the matters in question or which
a reasonably prudent person in the position of the officers or employees of such
Party would reasonably be deemed to know.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, and whether due or to become due) including any liability for
Taxes.
"MAJORITY CO-TRANSFERORS" shall mean a majority, based on Revenue Run
Rate, of the transferors of all businesses acquired by the Acquirer in
connection with the IPO.
"MATERIAL" means an event or matter that causes any representation or
warranty contained in this Agreement to be inaccurate, incorrect or false will
not be deemed to be "Material," to have a "Material" change in or in respect of,
to have a "Material" adverse effect or to cause a Party to be "Materially"
affected unless the loss that may reasonably be expected to occur to the
respective Party with respect to such event or matter, when taken together with
all other related losses that may reasonably be expected to occur to such Party
as a result of any such events or matters, would exceed $50,000 in the aggregate
or unless such event or matter constitutes a criminal violation of law. For
purposes of this definition, the word "loss" shall mean any and all direct or
indirect payments, obligations, assessments, losses, losses of income,
liabilities, costs and expenses paid or incurred, or reasonably likely to be
paid or incurred, or diminution's in value or reduction in benefits or rights of
any kind or character (whether or not known or asserted before the date of this
Agreement, fixed or unfixed, conditional or unconditional, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise) that are reasonably likely to occur, including without limitation,
penalties, interest on any amount payable to a third-party as a result of the
foregoing, and any reasonable legal or other expenses reasonably expected to be
incurred in connection with defending any demands, claims, actions or causes of
action that, if adversely determined, could reasonably be expected to result in
losses, and all amounts paid in settlement of claims or actions; provided,
however, that losses shall be net of any insurance proceeds entitled to be
received from a nonaffiliated insurance company on account of such loss (after
taking into account any cost incurred in obtaining such proceeds or any
increases in insurance premiums as a direct result thereof). A Subscriber
Contract or Agreement is "Material" if during either calendar year 1998 such
Subscriber Contract or Agreement produced or is expected to produce $25,000 of
Gross Revenues. For purposes of Article V of this Agreement, "Material" shall
---------
be defined as above, provided that with respect to any such event or matter,
when taken together with all other related losses that may reasonably be
expected to occur to the Acquirer as a result of any such events or matters,
would exceed the greater of $200,000 in the aggregate or 10% of Acquirer's
combined pro forma net income after the IPO and as of the Closing Date, or
unless such event or matter constitutes a criminal violation of law.
"NET WORTH OF SUPERNET" means the total assets of SUPERNET less the
total liabilities of SUPERNET including any costs of conversion from a cash
basis to an accrual method
-5-
<PAGE>
of accounting, determined in accordance with GAAP, consistently applied and on
the accrual method of accounting. In calculating the total assets of SUPERNET,
no material increase in the intangible assets of SUPERNET since June 30, 1998
shall be included in calculating the Net Worth of SUPERNET without the written
consent of the Acquirer.
"OUTAGE" means any loss of service to any system of the Business,
including but not limited to network access, e-mail, web, news or other
services.
"PARTY" has the meaning set forth in the preface above.
"TRANSFER CONSIDERATION" has the meaning set forth in Section 2.8
-----------
below.
"REGISTRATION AGREEMENT" means that certain Registration Agreement to
be entered into by and among the Acquirer and the stockholders of the Acquirer
in form and substance as set forth in Exhibit F-2 attached hereto.
"RELATED TRANSACTIONS" has the meaning set forth in the Recitals.
"REGISTRATION STATEMENT" means the Acquirer's registration statement
on Form S-1 once filed with and deemed effective by the SEC in connection with
the IPO.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"REVENUE RUN RATE" shall mean at any given time the total revenues of
SUPERNET for the three month period ended June 30, 1998 multiplied by a factor
of four.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings), (c)
liens arising under workers' compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"STUB PERIOD BALANCE SHEET" means the balance sheet included in the
Stub Period Financial Statements.
"STUB PERIOD END" has the meaning set forth in Section 4.5 below.
-----------
"STOCK PORTION OF THE EARNOUT" has the meaning set forth in Section
-------
2.5 below.
- ---
-6-
<PAGE>
"STOCK PORTION OF THE TRANSFER CONSIDERATION" has the meaning set
forth in Section 2.2 below.
-----------
"STUB PERIOD FINANCIAL STATEMENTS" means the Financial Statements for
and as of the Stub Period End.
"SUBSCRIBER" means any customers of SUPERNET who (a) are now currently
or will be after the Closing connected to and receiving Internet related
services from or through SUPERNET's or the Acquirer's Systems within the
Territory; (b) are being charged or have pre-paid SUPERNET standard rates (which
rates are set forth on Schedule 4.23) pursuant to SUPERNET's standard form
-------------
contracts previously provided to the Acquirer; (c) have paid such stated rates
in full for at least one full month; (d) are not two or more months delinquent
in the payment of any invoice from SUPERNET; (e) have not, in the preceding two
months, been given a waiver or forgiveness of service charges; (f) have not
received any inducement to become connected to SUPERNET's Systems or to receive
or pay for services (other than pursuant to SUPERNET's customary marketing
practices); and (g) have not notified SUPERNET of their intention to cancel
service.
"SUBSCRIBER CONTRACT OR AGREEMENT" means any agreement whereby
SUPERNET provides services to a Subscriber.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"SUBSIDIARY AFFILIATES" shall mean any Affiliate of which a majority
of the ownership of such Person is owned, directly or indirectly, by such
Person.
"SUPERNET" has the meaning set forth in the preface above.
"SUPERNET OPTIONHOLDERS" means the holders of options for the purchase
of SUPERNET Shares listed on the Allocation Summary.
"SUPERNET OPTIONS" means all the agreements between SUPERNET and those
persons listed on the Allocation Summary hereto related to the issuance of
SUPERNET Shares.
"SUPERNET SHARES" means all outstanding shares of the common stock, no
par value per share, of SUPERNET.
"SYSTEMS" means the infrastructure used to provide Internet access and
related services, including network components, communications facilities,
servers, services and service platforms (including for e-mail, news, DNS, web,
authentication and other services), power plants, data processing platforms, MIS
systems, office automation systems and internal LAN network management systems,
including those interfacing with D&E.
-7-
<PAGE>
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty or addition thereto.
"TAX RETURN" means any federal, foreign, state and local governmental
tax return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"TERRITORY" shall mean the current operating territory of the Business
in the counties of Berks, Lancaster, Lebanon, York, Dauphin, Cumberland, Adams,
Franklin and Perry Counties in the Commonwealth of Pennsylvania.
"TRANSFERORS" has the meaning set forth in the preface above.
ARTICLE II
THE EXCHANGE OF SHARES
(A) 2.1 BASIC TRANSACTION. On and subject to the terms and
-----------------
conditions of the Agreement, the Acquirer agrees to exchange with the
Transferors, and each Transferor agrees to exchange with the Acquirer, all of
the SUPERNET Shares for the consideration specified below in this Section 2.
---------
2.2 TRANSFER CONSIDERATION.
----------------------
(A) GENERALLY. The Transfer Consideration exchanged for SUPERNET
---------
Shares shall be composed of (i) the Cash Portion of the Transfer Consideration;
(ii) the Stock Portion of the Transfer Consideration, (iii) the Earned Payout
Amount (as defined below), and (iv) the Acquisition Payment Amount (as defined
below).
(B) TRANSFER CONSIDERATION ADJUSTMENTS. The Acquirer agrees to pay
----------------------------------
to the Transferors in the aggregate the sum of (i) $6,664,375 in cash (including
the escrowed cash), to be adjusted dollar for dollar (or as otherwise provided
for by this Agreement) (A) downward by the sum of (1) the payments made by
SUPERNET to cancel the stock options described in Section 6.8; (2) the amount
-----------
of any outstanding Funded Indebtedness as of the Closing Date; and (3) the
downward Net Worth adjustment, if any, made pursuant to Section 2.3 below; and
-----------
(B) upward or downward by the Revenue Run Rate adjustment, if any, made pursuant
to Section 2.4 below in cash (the "CASH PORTION OF THE TRANSFER CONSIDERATION");
-----------
(ii) $6,664,375 worth of Acquirer's Shares (including the escrowed shares),
consisting of an aggregate number of shares of Acquirer's Common Stock pursuant
to Annex II and as set forth in the Allocation Summary attached as Annex V (the
--------
"STOCK PORTION OF THE TRANSFER CONSIDERATION"); (iii) the Earned Payout Amount
as determined pursuant to Section 2.5 below, (iv) the Acquisition Payment Amount
-----------
as determined pursuant to Section 2.8 below, in exchange for the SUPERNET Shares
-----------
to be purchased by the Acquirer pursuant to the terms hereof and the SUPERNET
Options to be canceled.
-8-
<PAGE>
(C) ESCROW PAYMENTS. At the Closing Date, (i) $333,219 of the Cash
---------------
Portion of the Transfer Consideration will be paid in cash by wire transfer of
funds to the Escrow Agent and (ii) five percent (5%) of the Stock Portion of the
Transfer Consideration in the form of Acquirer's Shares valued as of the Closing
Date at $333,219 shall be delivered to the Escrow Agent by the Acquirer to
collectively be held in escrow pursuant to Section 2.9 for satisfaction of the
-----------
Transferors' indemnification obligations specified in ARTICLE IX.
----------
(D) PAYMENT. The balance of the Cash Portion of the Transfer
-------
Consideration shall be paid by the Acquirer to the Transferors at the Closing by
wire transfer of immediately available funds in the amounts set forth on the
Allocation Summary. The balance of the Stock Portion of the Transfer
Consideration shall be issued by the Acquirer to the Transferors at the Closing
by the delivery of Acquirer's Shares in the amounts set forth on the Allocation
Summary next to such Transferor's name. The sum of the Cash Portion of the
Transfer Consideration, the Stock Portion of the Transfer Consideration and the
Earned Payout Amount shall be referred to as the "TRANSFER CONSIDERATION." Each
of (i) the Cash Portion of the Transfer Consideration, (ii) the Stock Portion of
the Transfer Consideration and (iii) the Earned Payout Amount of the Transfer
Consideration shall be allocated among the Transferors in dollar amounts set
forth on the Allocation Summary. Cash will be paid in lieu of any fractional
shares which would otherwise be issued in accordance with this Agreement.
2.3 NET WORTH ADJUSTMENT. The Cash Portion of the Transfer Consideration
--------------------
shall be adjusted downward on a dollar-for-dollar basis by the amount by which
the Net Worth of SUPERNET is less than $201,052 as of the Closing Date. The Net
Worth of SUPERNET as of the Closing Date shall be determined prior to the
Closing Date by E&Y in good faith within two business days prior to the Closing
Date.
2.4 REVENUE RUN RATE ADJUSTMENT. The Cash Portion of the Transfer
---------------------------
Consideration shall be adjusted upward or downward, as the case may be, by $2.50
for every $1.00 that the Revenue Run Rate of SUPERNET is more or less than
$5,331,500. The Revenue Run Rate of SUPERNET shall be determined prior to the
Closing Date by E&Y in good faith within two business days prior to the Closing
Date and shall include Cyberia and CVN.
2.5 EARNED PAYOUT AMOUNT.
--------------------
(A) In addition to the Cash Portion of the Transfer Consideration,
the Stock Portion of the Transfer Consideration and the Acquisition Payment
Amount, the Acquirer agrees to pay to the Transferors, if earned, an earned
payout amount (the "EARNED PAYOUT AMOUNT") determined pursuant to the terms,
conditions and calculations set forth on Annex I attached hereto.
-------
(B) The Earned Payout Amount shall be payable, at Acquirer's option,
in a combination of (i) cash (the "CASH PORTION OF THE EARNOUT") or (ii)
Acquirer's Shares (the "STOCK PORTION OF THE EARNOUT"); provided, however, that
in no event will the Stock Portion of the Earnout be less than 50% of the Earned
Payout Amount without the written consent of Transferors. The aggregate number
of Acquirer's Shares, if any, (the "EARNOUT SHARES") to be issued as the Stock
Portion of the Earnout shall be equal to (A) the aggregate value in dollars of
the Stock Portion of the Earnout divided by (B) the (10) ten day moving average
of Acquirer's Common
-9-
<PAGE>
Stock as of June 30, 1999, in the event Acquirer's Common Stock is traded on an
exchange or over-the-counter market, or (2) the price, not less than book value,
determined in good faith and in such a reasonable manner as prescribed by a
majority of the Acquirer's directors who are not officers of the Acquirer, in
the event Acquirer's Common Stock is not traded on an exchange or over-the-
counter market.
(C) The Cash Portion of the Earnout, if any, shall be payable in cash by
the Acquirer to the Transferors by wire transfer or other delivery of
immediately available funds to an account or accounts designated by the
Transferors. The Earnout Shares, if any, shall be payable by the delivery of the
certificates representing the Acquirer's Shares.
The Earned Payout Amount shall be determined by E&Y in accordance with the
terms of this Agreement and Annex I hereto and shall be based on an income
-------
statement of SUPERNET prepared by E&Y for the 12 months ended June 30, 1999.
The Earned Payout Amount shall be paid as soon as the amount has been calculated
by E&Y and such final calculation delivered to the Acquirers and the Transferors
by E&Y but in no event later than September 30, 1999, or when all other earnouts
to other transferors are paid.
A portion of the Earned Payout Amount, determined by E&Y i n accordance
with Treasury Regulation section 1.483-4 and based on an interest rate of 4.33
percent per annum, shall be treated as interest for federal and state income tax
purposes. The parties agree that the interest portion of the Earned Payout
Amount shall be treated as paid entirely out of the Cash Portion of the Earnout
and that no part of the Stock Portion of the Earnout shall be treated as a
payment of interest unless the interest portion of the Earned Payout Amount
exceeds the Cash Portion of the Earnout (and then only to the extent of such
excess).
2.6 THE CLOSING. The closing of the transactions contemplated by this
-----------
Agreement (the "CLOSING") shall take place at the offices of Hogan & Hartson
L.L.P. in Washington, D.C. commencing at 9:00 a.m. local time simultaneously
with the closing of the IPO and the Related Transactions or such other date as
the Acquirer and the Transferors may mutually determine (the "CLOSING DATE").
2.7 DELIVERIES AT THE CLOSING. At the Closing, (a) the Transferors will
-------------------------
deliver to the Acquirer the various certificates, instruments, and documents
referred to in Section 8.1 below, (b) the Acquirer will deliver to the
-----------
Transferors (as applicable) the various certificates, instruments, and documents
referred to in Section 8.2 below, (c) each of the Transferors will deliver to
-----------
the Acquirer stock certificates representing all of its SUPERNET Shares,
endorsed in blank or accompanied by duly executed assignment documents and (d)
the Acquirer will deliver to the Transferors and the SUPERNET Optionholders the
consideration specified in Section 2.2 above as may be adjusted after the
-----------
Closing pursuant to Sections 2.3 and 2.4 above and Section 2.9 below.
------------ --- -----------
2.8 THE ACQUISITION PAYMENT.
-----------------------
(A) In addition to the Cash Portion of the Transfer Consideration,
the Stock Portion of the Transfer Consideration and the Earned Payout Amount,
the Acquirer agrees to pay to the Transferors, if earned, an acquisition payment
(the "ACQUISITION PAYMENT AMOUNT")
-10-
<PAGE>
determined pursuant to the terms, conditions and calculations set forth on Annex
-----
VII attached hereto.
- ---
(B) The Acquisition Payment Amount shall be payable in a combination
of (i) cash (the "CASH PORTION OF THE ACQUISITION PAYMENT") or (ii) the
Acquirer's Shares (the "STOCK PORTION OF THE ACQUISITION PAYMENT") in the same
ratio as the Cash Portion of the Transfer Consideration to the Stock Portion of
the Transfer Consideration.
(C) The aggregate number of Acquirer's Shares, if any (the
"ACQUISITION SHARES") to be issued as the Stock Portion of the Acquisition
Payment shall be equal to (1) the aggregate value in dollars of the Stock
Portion of the Acquisition Amount divided by (2) 10, as adjusted in the event of
an IPO price of $8 or less in the same manner as described in Annex II.
--------
(D) The Cash Portion of the Acquisition Payment, if any, shall be
payable in cash by the Acquirer to the Transferors by wire transfer or other
delivery of immediately available funds to an account or accounts designated by
the Transferors. The Acquisition Shares, if any, shall be payable by the
delivery of the certificates representing the Acquirer's Shares.
The Acquisition Payment Amount shall be determined by E&Y in accordance
with the terms of this Agreement and Annex VII hereto and shall be based on an
---------
income statement of each acquired company prepared by E&Y for the last full
quarter ending prior to the acquisition. The Acquisition Payment Amount shall be
paid as soon as the amount has been calculated by E&Y and such final calculation
delivered to the Acquirers by E&Y but in no event later than December 31, 1999.
2.9 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be entered
-------------------
into among the Transferors, the Acquirer and the Escrow Agent (a) $333,219 of
the Cash Portion of the Transfer Consideration (the "CASH ESCROW") in
immediately available funds and (ii) five percent (5%) of the Stock Portion of
the Transfer Consideration in the form of Acquirer's Shares valued at $333,219
during the Escrow Period (as defined below) using the same price per share as of
the Closing Date (the "STOCK ESCROW") shall be delivered to the Escrow Agent at
Closing. Such monies and securities (which, together with all interest accrued
thereon which may be due to the party to whom such funds are ultimately paid in
accordance with the terms of the Escrow Agreement, is hereinafter referred to as
the "ESCROW SUM") shall be held pursuant to the terms of the Escrow Agreement
for payment from such Escrow Sum of the amounts, if any, owing by the
Transferors to the Acquirer pursuant to the indemnification provisions of
Article IX below, together with accrued interest thereon. Pursuant to the terms
- ----------
of the Escrow Agreement, the Stock Escrow shall be used first, and the Cash
Escrow shall be used second, to satisfy any such owed amounts. At the
conclusion of the period ending on the first anniversary of the Closing Date
(such period being referred to herein as the "ESCROW PERIOD"), such remaining
portion of the Escrow Sum not theretofore paid to the Acquirer in accordance
with the terms of the Escrow Agreement or subject to a pending claim under the
Escrow Agreement and this Agreement shall be disbursed to the Transferors
together with accrued interest thereon. The Transferors and the Acquirer agree
that each will execute and deliver such reasonable instruments and documents as
are furnished by any
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<PAGE>
other party to enable such furnishing party to receive those portions of the
Escrow Sum to which the furnishing party is entitled under the provisions of the
Escrow Agreement and this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
RELATING TO THE TRANSFERORS
Each Transferor individually represents and warrants to the Acquirer
as follows as of the date of this Agreement and as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article III):
-----------
3.1 AUTHORIZATION OF TRANSACTION. Each Transferor has full power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder and this Agreement has been duly executed and delivered by the
Transferor. This Agreement constitutes the valid and legally binding obligation
of each Transferor, enforceable in accordance with its terms and conditions,
except that (a) such enforceability may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws, decisions or
equitable principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally or non-
competition arrangements, and to general equity principles, and (b) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought (the terms of clause (a) and (b) are
sometimes collectively referred to as the "EQUITABLE EXCEPTIONS"). The
Transferors need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement (other than
as provided for in Article II of this Agreement or as required by federal or
----------
state securities laws).
3.2 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement by the Transferors, nor the consummation of the transactions
contemplated hereby by the Transferors, will (a) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction, charge, or
other restriction of any government, governmental agency, or court to which the
Transferors are subject or (b) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any part the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, Security
Interest, or other arrangement to which the Transferors are a party or by which
they are bound or to which any of their assets is subject.
3.3 BROKER'S FEES. The Transferors have no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Acquirer could become
liable or obligated.
3.4 INVESTMENT. The Transferors are not acquiring the Acquirer's Shares
----------
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
-12-
<PAGE>
3.5 SUPERNET SHARES. Each Transferor holds of record and owns beneficially
---------------
the number of SUPERNET Shares set forth next to his or her name on Schedule 4.2,
and except as set forth in Schedule 4.2, such SUPERNET Shares are free and clear
------------
of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), claims, Taxes, Security Interests,
options, warrants, rights, contracts, calls, commitments, equities, and demands.
Except as set forth in Schedule 4.2, the Transferors are not a party to (or have
------------
otherwise waived all rights under) any option, warrant, right, contract, call,
put, or other agreement or commitment providing for the disposition or
acquisition of any capital stock of SUPERNET (other than this Agreement). The
Transferors are not a party to (or have otherwise terminated) any voting trust,
proxy, or other agreement or understanding with respect to the voting of any
capital stock of SUPERNET.
3.6 DISCLOSURE. To the Knowledge of the Transferors, the representations
----------
and warranties contained in this Article III do not contain any untrue statement
-----------
of a Material fact or omit to state any Material fact necessary in order to make
the statements and information contained in this Article III not misleading.
-----------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO SUPERNET
The Transferors and SUPERNET jointly and severally represent and
warrant to the Acquirer that, subject to the specific qualifications and
limitations set forth herein, the statements contained in this Article IV are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Article
-------
IV).
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. SUPERNET is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. SUPERNET is duly authorized to conduct business
and is in good standing under the laws of the Commonwealth of Pennsylvania,
which is the only jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification. SUPERNET
has full corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Schedule 4.1
------------
lists the directors and officers of SUPERNET. The Transferors have delivered to
the Acquirer correct and complete copies of the charter and bylaws of SUPERNET
(as amended to date). The minute books containing the records of meetings
and/or resolutions of the stockholders, the board of directors, and any
committees of the board of directors, the stock certificate books and the stock
record books of SUPERNET are correct and complete in all Material respects.
SUPERNET is not in default under or in violation of any provision of its charter
or bylaws.
4.2 CAPITALIZATION. The entire authorized capital stock of SUPERNET
--------------
consists of 1,000 shares of common stock, no par value, of which 200 are issued
and outstanding, none are subject to issuance pursuant to vested or unvested
options and none are reserved for issuance pursuant to future option grants.
All of the issued and outstanding SUPERNET Shares have been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record by
-13-
<PAGE>
the Transferors. Except as set forth in Schedule 4.2, there are no outstanding
------------
or authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which
SUPERNET is a party or which are binding upon SUPERNET providing for the
issuance, disposition, or acquisition of any of its capital stock. Except as set
forth in Schedule 4.2, there are no outstanding or authorized stock
------------
appreciation, phantom stock, or similar rights with respect to SUPERNET. There
are no voting trusts, proxies, or any other agreements or understandings with
respect to the voting of the capital stock of SUPERNET.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which SUPERNET is subject or any provision of the charter or bylaws
of SUPERNET, except to the extent any such violation does not or could not
result in a Material adverse effect on SUPERNET, or (b) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which SUPERNET is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
SUPERNET does not need to give any notice to, make any filing with, nor obtain
any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement.
4.4 SUBSIDIARIES. Except as disclosed in Schedule 4.4, SUPERNET has no
------------ ------------
Subsidiaries.
4.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are SUPERNET's
-------------------- ---------
financial statements (collectively the "FINANCIAL STATEMENTS") for its three
most recent fiscal years and an unaudited consolidated balance sheet and
statement of income, changes in stockholder's equity, and cash flow as of and
for the six month period ended June 30, 1998 for SUPERNET (the "STUB PERIOD
END"). The Financial Statements have been prepared in accordance with standards
described on Exhibit B applied on a consistent basis throughout the periods
---------
covered thereby, are correct and complete, fairly present the financial
condition of SUPERNET as of such dates, and are consistent with the books and
records of SUPERNET (which books and records are correct and complete in all
Material respects), subject, in the case of the Stub Period Financial
Statements, to normal adjustments upon audit.
4.6 EVENTS SUBSEQUENT TO THE STUB PERIOD END. To the Transferors and
----------------------------------------
SUPERNET's Knowledge, since the Stub Period End, there has not been any Material
adverse change in the assets, Liabilities, business, financial condition,
operations, results of operations, or future prospects of SUPERNET. Without
limiting the generality of the foregoing since that date except as set forth on
Schedule 4.6 :
- ------------
-14-
<PAGE>
(A) SUPERNET has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(B) SUPERNET has not entered into any Material contract, lease,
sublease, license or sublicense (or series or related contracts, leases,
subleases, licenses and sublicenses) outside the Ordinary Course of Business;
(C) Except as set forth in Schedule 4.6, SUPERNET has not made any
------------
capital expenditure (or series of related capital expenditures) involving more
than $200,000 in the aggregate, or outside the Ordinary Course of Business;
(D) SUPERNET has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement with any of its full-time staff employees
other than in the Ordinary Course of Business;
(E) SUPERNET has not granted an increase outside the Ordinary Course
of Business in the base compensation of any of its directors, officers, and
employees, nor has SUPERNET made any payments or promises or commitments to make
any other payments (other than salary and reimbursement of customary expenses)
to any of such Persons, including without limitation bonuses other than in the
Ordinary Course of Business; and
(F) Except as set forth on Schedule 4.6, SUPERNET has not adopted any
-------------
(i) bonus, (ii) profit-sharing, (iii) incentive compensation, (iv) pension, (v)
retirement, (vi) medical, hospitalization, life, or other insurance, (vii)
severance or (viii) other plan, contract or commitment for any of its directors,
officers, and employees, or modified or terminated any existing plan, contract
or commitment.
4.7 UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.7, SUPERNET
-----------------------
does not have any Liability (and there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against SUPERNET giving rise to any Liability) which is individually in
excess of $40,000, except for (a) Liabilities set forth on the face of the Stub
Period 1998 Balance Sheet, (b) Liabilities described on Schedule 4.7 and (c)
------------
Liabilities which have arisen after the Stub Period End in the Ordinary Course
of Business (none of which relates to any breach of contract, breach of
warranty, tort, infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceedings, hearing, investigation, claim, or demand).
4.8 TAX MATTERS. Except as set forth on Schedule 4.8:
----------- ------------
(A) SUPERNET has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all Material respects. All
Taxes owed by SUPERNET (whether or not shown on any Tax Return) based on
operations through the Stub Period End have been paid or accrued on the Stub
Period Balance Sheet. SUPERNET currently is not the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by any
taxing authority in a jurisdiction where SUPERNET does not file Tax Returns that
it
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<PAGE>
is or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of SUPERNET that arose in connection with any
failure (or alleged failure) to pay any Tax, other than for Taxes that are not
yet due which are accrued for since December 31, 1997.
(B) SUPERNET has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third-party and SUPERNET has to its
Knowledge properly reflected the status of all employees and independent
contractors in connection therewith as required by applicable Tax law and the
Fair Labor Standards Act of 1938, as amended, and the rules and regulations
promulgated thereunder.
(C) SUPERNET has not received any notice that any taxing authority
intends to assess any additional Taxes for any period for which Tax Returns have
been filed, and no Transferor, no officer of SUPERNET and no employee of
SUPERNET with responsibility for Tax matters has Knowledge of any Basis upon
which a claim for additional Taxes could be made. There is no dispute or claim
concerning any Tax Liability of SUPERNET either (i) claimed or raised by any
authority in writing or (ii) as to which the Transferors or the officers of
SUPERNET or employees responsible for Tax matters of SUPERNET have Knowledge
based upon personal contact with any agent of such authority. Schedule 4.8 lists
------------
all federal, state, local, and foreign income Tax Returns filed with respect to
SUPERNET for taxable periods ended on or after December 31, 1996, indicates
those Tax Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Transferors have delivered to the
Acquirer correct and complete copies of all federal income Tax Returns filed,
examination reports received, and statements of deficiencies assessed against or
agreed to, by SUPERNET since December 31, 1996. SUPERNET has not waived any
statute of limitations in respect of Taxes which waiver is currently in effect.
SUPERNET is not a party to any "closing agreement" as described in Section 7121
of the Code or any corresponding provision of state or local Tax law, and there
are no Tax rulings or requests for Tax rulings with respect to SUPERNET.
(D) SUPERNET has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. SUPERNET has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that could
obligate it to make any payments that, under certain circumstances, will not be
deductible to SUPERNET under Code Sec. 280G. SUPERNET is not and has never been
a United States real property holding corporation within the meaning of Code
Sec. 897(c)(2). SUPERNET has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Sec. 6662. SUPERNET is not a party
to any Tax allocation or sharing agreement. SUPERNET has never been (and has no
Liability for unpaid Taxes because it once was) a member of an Affiliated Group
filing a consolidated federal income Tax Return and has never incurred any
Liability for the Taxes of any Person under Treas. Reg. (S)1.1502-6 (or any
similar provision of state, local, or foreign law). SUPERNET has never incurred
any liability for the Taxes of any Person as a transferee or successor, by
contract, or otherwise.
4.9 TANGIBLE ASSETS. SUPERNET owns or leases substantially all tangible
---------------
assets necessary for the conduct of its businesses as presently conducted and as
presently proposed to be
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<PAGE>
conducted. To the Knowledge of the Transferors and SUPERNET, each such tangible
asset is free from Material defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
4.10 OWNED REAL PROPERTY. SUPERNET does not own nor does it have any
interest in any real property or improvements thereon (other than the leases
disclosed in Schedule 4.12, and the leasehold improvements relating to the same)
-------------
nor does SUPERNET have any options, agreements or contracts under which it has
the right or obligation to acquire any interest in any real property or
improvements (other than as disclosed in Schedule 4.12)
-------------
4.11 INTELLECTUAL PROPERTY.
---------------------
(A) Attached hereto as Schedule 4.11 is a list and brief description
-------------
of all Intellectual Property owned or utilized by SUPERNET. SUPERNET has
furnished the Acquirer with copies of all license agreements to which SUPERNET
is a party, either as licenser or licensee, with respect to any Intellectual
Property. To the knowledge of the Transferors, SUPERNET has good title to or the
right to use all the Intellectual Property and all inventions, processes,
designs, formulae, trade secrets and know-how necessary for the conduct of
SUPERNET's business, in its business as presently conducted or currently
proposed to be conducted, and to the knowledge of the Transferors and without
any independent investigation to verify the accuracy of the following, it is not
infringing on any Intellectual Property right of others, and neither SUPERNET
nor Transferors have Knowledge of any infringement by others of any such rights
owned by SUPERNET.
(B) All licenses set forth on Schedule 4.11 are valid and binding
-------------
obligations of SUPERNET, and to the Knowledge of the Transferors and SUPERNET,
of the other parties thereto, and enforceable against SUPERNET, and to the
Knowledge of the Transferors and SUPERNET, the other parties thereto in
accordance with their respective terms, except for the Equitable Exceptions. To
the knowledge of the Transferors and SUPERNET, SUPERNET owns and possesses all
right, title and interest in and to, or has the right to use pursuant to a valid
license, all Intellectual Property necessary for the operation of the business
of SUPERNET as presently conducted.
(C) The Transferors and SUPERNET have taken all reasonably necessary
measures to protect and maintain the rights of SUPERNET in its Intellectual
Property. To the Knowledge of the Transferors and SUPERNET, each piece of
Intellectual Property used by SUPERNET is used with the authorization of every
other claimant thereto and the execution, delivery and performance of this
Agreement will not impair such use.
(D) The Transferors have also delivered to the Acquirer correct and
complete samples or copies of all trademarks, service marks, trade names,
copyrights, patents, registrations and, as relate to the foregoing,
applications, licenses, agreements, and permissions (as amended to date) held by
SUPERNET, and have made available to the Acquirer correct and complete copies of
all other written documentation evidencing ownership and prosecution (if
applicable) of each such item. With respect to each item of Intellectual
Property used in, or otherwise necessary for the conduct of, the business of
SUPERNET as heretofore conducted, to the Knowledge of the
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<PAGE>
Transferors and SUPERNET and without any independent investigation to verify the
accuracy of the following: (i) the identified owner possesses all right, title,
and interest in and to the item; (ii) the item is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge; (iii) no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or demand is
pending or, to the Knowledge of any of the Transferors or officers (and
employees with responsibility for Intellectual Property matters) of SUPERNET, is
threatened which challenges the legality, validity, enforceability, use, or
ownership of the item; and (iv) SUPERNET has not agreed to indemnify any person
or entity for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(E) To the Knowledge of the Transferors and SUPERNET and without any
independent investigation to verify the accuracy of the following, none of the
computer software, computer firmware, computer hardware (whether general or
special purpose), and other similar or related items of automated, computerized,
and/or software system(s) that are used or relied on by SUPERNET in the conduct
of its business will in any Material respect malfunction, cease to function,
generate incorrect data, or produce incorrect results when processing,
providing, and/or receiving (i) date-related data into and between the twentieth
and twenty-first centuries and (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries.
4.12 CONTRACTS. Except as disclosed on Schedule 4.12, SUPERNET is not a
--------- -------------
party to or bound by, and none of the assets of SUPERNET are covered by or
subject to the following contracts, agreements, Subscriber Contracts or
Agreements (whether written or oral):
(A) any written agreement (or group of related written agreements)
for the lease of real or personal property from or to third-parties providing
for lease payments in excess of $35,000 per annum;
(B) any Material equipment or supplier agreement;
(C) any written agreement (or group of related written agreements)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $25,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible ;
(D) any Material Subscriber contract;
(E) any formal or informal partnering arrangement with any merchant
or service or web content provider;
(F) any agreement with any local exchange carrier, competitive local
exchange carrier, competitive access provider or other telecommunications
carrier;
(G) any peering, transit or other agreement with any Internet service
provider, online company or similar entity; or
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<PAGE>
(H) any written arrangement requiring confidentiality or
noncompetition other than agreements with customers, employees or subcontractors
in the Ordinary Course of Business;
(I) any other written arrangement (or group of related written
arrangements) either involving more than $25,000 per annum or not entered into
in the Ordinary Course of Business.
The Transferors have delivered to the Acquirer or made available for
review by the Acquirer a correct and complete copy of each written arrangement
listed in Schedule 4.12 (as amended to date). With respect to each written
-------------
arrangement so listed: (a) the written arrangement is legal, valid, binding,
enforceable, and in full force and effect, subject to Equitable Exceptions; (b)
except as disclosed on Schedule 4.12, the written arrangement will continue to
-------------
be legal, valid, binding, enforceable and in full force and effect on identical
terms immediately following the Closing, subject to Equitable Exceptions; (c)
SUPERNET is not, and, to the Knowledge of the Transferors, no other party is in
breach or default, and no event has occurred which to the Knowledge of the
Transferors with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration, under the written
arrangement; and (d) SUPERNET has not, and, to the Knowledge of the Transferors,
no other party has repudiated any provision of the written arrangement. SUPERNET
is not a party to any oral contract, agreement, or other arrangement which, if
reduced to written form, would be required to be listed in Schedule 4.12 under
-------------
the terms of this Section 4.12. No unfilled Subscriber Contract or Agreement
------------
obligating SUPERNET to perform services will result in a loss to SUPERNET upon
completion of performance. Except as set forth in Schedule 4.12, SUPERNET has
-------------
not been notified that any of its Subscribers intend either to dispute charges
under or to terminate early a Material Subscriber Contract or Agreement.
4.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
-----------------------------
SUPERNET are reflected properly on its books and records, are valid receivables
and to the Knowledge of the Transferors and SUPERNET are subject to no setoffs
or counterclaims, are presently current and collectible, and will be collected
in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Stub Period Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of SUPERNET.
4.14 INSURANCE.
---------
(A) Schedule 4.14 sets forth the following information with respect
-------------
to each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which SUPERNET has been a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past two (2) years: the name
address and telephone number of the agent; the name of the insurer, the name of
the policyholder, and the name of each covered insured; the policy number and
the period of coverage; the scope and amount (including a description of how
deductibles and
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<PAGE>
ceilings are calculated and operate) of coverage; and a description of any
Material retroactive premium adjustments or other loss sharing arrangements.
(B) With respect to each insurance policy listed on Schedule 4.14:
--------------
(i) the policy is legal, valid, binding, and enforceable and in full force and
effect; (ii) the policy will continue to be legal, valid, binding, and
enforceable and in full force and effect on identical terms immediately
following the Closing Date; (iii) SUPERNET is not in breach or default
(including with respect to the payment of premiums or the giving of notices),
and to the Knowledge of the Transferors and SUPERNET, no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default or permit termination, modification, or acceleration under the policy;
and (iv) SUPERNET has not and to the Knowledge of the Transferors and SUPERNET,
no other party to the policy has repudiated any provision thereof. SUPERNET has
been covered during the past three (3) years by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. Except as set forth in Schedule 4.14, SUPERNET currently
-------------
has no and has never had any self-insurance arrangements.
4.15 LITIGATION. Schedule 4.15 sets forth each instance in which SUPERNET
---------- -------------
(a) is subject to any unsatisfied judgment, order, decree, stipulation,
injunction, or charge or (b) is a party or, to the Knowledge of the Transferors
and the directors and officers (and employees with responsibility for litigation
matters) of SUPERNET, is threatened to be made a party to any charge, complaint,
action, suit, proceeding, hearing, or investigation of or in any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. Except as specifically described on
Schedule 4.15, no matter listed thereon could reasonably be expected,
- -------------
individually, to result in a Material adverse effect to SUPERNET. Neither the
Transferors nor any of the directors or the officers (or employees with
responsibility for litigation matters) of SUPERNET has any reason to believe
that any such charge, complaint, action, suit, proceeding, hearing, or
investigation may be brought or threatened against SUPERNET.
4.16 EMPLOYEES. To the Knowledge of the Transferors and SUPERNET, no
---------
non-clerical employee or any full-time group of employees has any plans to
terminate employment with SUPERNET, and SUPERNET has not committed any unfair
labor practice.
4.17 EMPLOYEE BENEFITS. Except as disclosed on Schedule 4.17, SUPERNET
----------------- -------------
has no Employee Benefit Plans that SUPERNET maintains or to which SUPERNET
contributes for the benefit of any current or former employee of SUPERNET and
SUPERNET has never been a party to any Employee Benefit Plan. [STANDARD 401(K)
AND ERISA REPS TO BE ADDED IF PENSION OR 401(K) PLANS EXIST]
4.18 GUARANTIES. SUPERNET is not a guarantor, and it is not otherwise
----------
liable for any Liability or obligation (including indebtedness) of any other
person other than such potential liabilities to which SUPERNET is subject based
on the acts or omissions of its employees, subcontractors and other agents
performing services for SUPERNET in the Ordinary Course of Business (of which
SUPERNET has no Knowledge of any claim for actual liability therefor).
-20-
<PAGE>
4.19 LEGAL COMPLIANCE. To the knowledge of the Transferors and SUPERNET,
----------------
except as it would not, individually or in the aggregate, have a Material
adverse effect:
(A) SUPERNET has complied with all laws (including rules and
regulations thereunder) of federal, state, local, and foreign governments (and
all agencies thereof), including without limitation, all environmental and
employee health and safety laws. SUPERNET has received no notice of any charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand, or
notice having been filed or commenced against SUPERNET which is currently
pending and alleges any failure to comply with any such law or regulation.
(B) SUPERNET has complied with all applicable laws (including rules
and regulations thereunder) relating to the employment of labor, employee civil
rights, hiring or engaging non-United States citizens, and equal employment
opportunities.
(C) SUPERNET has not made or agreed to make any contribution,
payment, or gift of funds or property to any governmental official, employee, or
agent where either the contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state, local, or foreign jurisdiction;
(D) SUPERNET has filed in a timely manner all reports, documents, and
other materials it was required to file (and the information contained therein
was correct and complete in all respects) under all applicable laws (including
rules and regulations thereunder).
(E) SUPERNET has possession of all records and documents it was
required to retain under all applicable laws (including rules and regulations
thereunder).
4.20 CERTAIN BUSINESS RELATIONSHIPS WITH SUPERNET. Except as set forth in
--------------------------------------------
Schedule 4.20, neither the Transferors nor their Affiliates have been involved
- -------------
in any business arrangement or relationship with SUPERNET or D&E within the past
twelve (12) months other than service relationships in the Ordinary Course of
Business, and neither the Transferors nor their Affiliates own any material
property or right, tangible or intangible, which is used in the business of
SUPERNET.
4.21 BROKERS' FEES. SUPERNET does not have any Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or similar representative
with respect to the transactions contemplated by this Agreement.
4.22 SYSTEMS. Except as set forth on Schedule 4.22 and with such other
------- -------------
exceptions as will not, individually or in the aggregate, have a Material
adverse effect, (i) all of the Systems services and platform servers are
running, or peaking, at no higher than 60% of capacity, (ii) all of the Systems'
services are replicated in a redundant manner across available platform servers,
(iii) all remote physical points of presence ("POPS") are secure, conform to
equipment manufacturers' recommended environmental parameters, and contain an
uninterrupted power supply with a battery back-up of at least 30 minutes, (iv)
the average Subscriber blockage rate for dial-in Subscribers is no greater than
1.0% of Subscriber attempts across the overall network infrastructure, (v) the
configuration diagrams provided to the Acquirer reasonably represent the
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<PAGE>
redundant network facilities between major backbone locations, and between
remote physical POPs and major network concentration points, (vi) the existing
power plant at SUPERNET's main location is equipped with an uninterrupted power
supply with a battery back-up of at least 60 minutes, (vii) all deployed dial-in
modem, modem shelf and corresponding technology conform to applicable industry
standards necessary to support Subscriber traffic at a rate of 56Kbps or above,
(viii) to the Knowledge of the Transferors and SUPERNET and without having
conducted any independent investigation as to those systems leased by or
licensed to SUPERNET, all Systems owned, leased by, or licensed to or by
SUPERNET are year 2000 compliant, (ix) SUPERNET utilizes a DHCP, or other
dynamic, IP address allocation scheme that conforms to industry standards, and
(x) SUPERNET has access to the quantity of IP addresses sufficient to support
SUPERNET's Subscriber base as currently existing and as currently contemplated
to exist for at least the next six months.
4.23 SUBSCRIBERS. Schedule 4.23 sets forth (a) the number of Subscribers
----------- -------------
served by SUPERNET by type of business (i.e., segregated by the following
categories, if applicable to SUPERNET: (i) dial-up, (ii) dedicated access, (iii)
web hosting, and (iv) other businesses) as of June 30, 1998 and SUPERNET's
standard rates for such Subscribers for each type of business; (b) for the
period commencing January 1, 1997, SUPERNET's monthly churn rate (consisting of
(i) cancellations of month-to-month service and/or long-term subscription or
service contracts prior to expiration, (ii) terminations of any such contracts,
and (iii) non-renewal of any such contracts upon expiration) by business type
during each full calendar month prior to the date hereof; and (c) as of June 30,
1998, detail as to the amount of prepaid subscription or service contracts and
the amount of unearned revenue for all Subscriber contracts with a remaining
term of (i) less than or equal to 90 days, (ii) greater than 90 days and less
than or equal to one year, (iii) greater than one year and less than or equal to
two years, (iv) greater than two years and less than or equal to three years and
(v) greater than three years.
4.24 DISCLOSURE. To the Knowledge of the Transferors and SUPERNET, the
----------
representations and warranties contained in this Article IV as amended, modified
----------
and/or supplemented by the Disclosure Schedules do not contain any untrue
statement of a Material fact or omit to state any Material fact necessary in
order to make the statements and information contained in this Article IV not
----------
misleading.
All references in Sections 4.5 through 4.24 to "SUPERNET" shall be deemed
to refer to and include all Subsidiaries of SUPERNET.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
The Acquirer represents and warrants to the Transferors that the
statements contained in this Article V are correct and complete as of the date
---------
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article V):
---------
5.1 ORGANIZATION OF THE ACQUIRER. The Acquirer is a corporation duly
----------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
-22-
<PAGE>
5.2 AUTHORIZATION OF TRANSACTION. The Acquirer has full power and
----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by the Acquirer. This Agreement constitutes the
valid and legally binding obligation of the Acquirer, enforceable in accordance
with its terms and conditions except for Equitable Exceptions. The Acquirer does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement (other than
as provided for in Article II of this Agreement).
----------
5.3 BROKERS' FEES. The Acquirer has no Liability or obligation to pay any
-------------
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Transferors could
become liable or obligated.
5.4 ACQUIRER'S CAPITALIZATION. As of the date of this Agreement, the
-------------------------
authorized capital stock of the Acquirer consists of (a) 100,000,000 shares of
common stock, and (b) 10,000,000 shares of preferred stock. The issued and
outstanding shares of and the holders of record of the Acquirer's Common Stock
are as set forth in Annex III, and as of the date hereof, there are no issued
---------
and outstanding shares of preferred stock. All of the Acquirer's issued and
outstanding common stock have been duly authorized, are validly issued, fully
paid, and nonassessable.
5.5 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which Acquirer is subject or any provision of the charter or bylaws
of Acquirer, except to the extent any such violation does not or could not
result in a Material adverse effect on Acquirer, or (b) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which Acquirer is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
5.6 LITIGATION. Schedule 5.6 sets forth each instance in which Acquirer
---------- ------------
(a) is subject to any unsatisfied judgment, order, decree, stipulation,
injunction, or charge or (b) is a party or, to the Knowledge of the directors
and officers (and employees with responsibility for litigation matters) of
Acquirer, is threatened to be made a party to any charge, complaint, action,
suit, proceeding, hearing, or investigation of or in any court or quasi-judicial
or administrative agency of any federal, state, local, or foreign jurisdiction
or before any arbitrator. Except as specifically described on Schedule 5.6, no
------------
matter listed thereon could reasonably be expected, individually, to result in a
Material adverse effect to Acquirer. None of the directors or the officers (or
employees with responsibility for litigation matters) of Acquirer has any reason
to believe that
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<PAGE>
any such charge, complaint, action, suit, proceeding, hearing, or investigation
may be brought or threatened against Acquirer.
5.7 TAX MATTERS. Except as set forth on Schedule 5.7, and with respect to
---------- ------------
Acquirer only:
(A) Acquirer has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all Material respects. All
Taxes owed by Acquirer (whether or not shown on any Tax Return) based on
operations through the Stub Period End have been paid or accrued on the Stub
Period Balance Sheet. Acquirer currently is not the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by any
taxing authority in a jurisdiction where Acquirer does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of Acquirer that arose in connection with any
failure (or alleged failure) to pay any Tax, other than for Taxes that are not
yet due which are accrued for since December 31, 1997.
(B) Acquirer has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third-party and Acquirer has to its
Knowledge properly reflected the status of all employees and independent
contractors in connection therewith as required by applicable Tax law and the
Fair Labor Standards Act of 1938, as amended, and the rules and regulations
promulgated thereunder.
(C) Acquirer has not received any notice that any taxing authority
intends to assess any additional Taxes for any period for which Tax Returns have
been filed, and no officer of Acquirer and no employee of Acquirer with
responsibility for Tax matters has Knowledge of any Basis upon which a claim for
additional Taxes could be made. There is no dispute or claim concerning any Tax
Liability of Acquirer either (i) claimed or raised by any authority in writing
or (ii) as to which the officers of Acquirer or employees responsible for Tax
matters of Acquirer have Knowledge based upon personal contact with any agent of
such authority. Acquirer has not waived any statute of limitations in respect of
Taxes which waiver is currently in effect.
(D) Acquirer has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. Acquirer has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that could
obligate it to make any payments that, under certain circumstances, will not be
deductible to Acquirer under Code Sec. 280G. Acquirer is not and has never been
a United States real property holding corporation within the meaning of Code
Sec. 897(c)(2). Acquirer has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Sec. 6662. Acquirer is not a party
to any Tax allocation or sharing agreement. Acquirer has never been (and has no
Liability for unpaid Taxes because it once was) a member of an Affiliated Group
filing a consolidated federal income Tax Return and has never incurred any
Liability for the Taxes of any Person under Treas. Reg. (S)1.1502-6 (or any
similar provision of state, local, or foreign law).
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<PAGE>
5.8 DISCLOSURE. To the Knowledge of the Acquirer, the representations and
----------
warranties contained in this Article V do not contain any untrue statement of a
---------
fact or omit to state any Material fact necessary in order to make the
statements in Article V not misleading.
---------
5.9 LEGAL COMPLIANCE. To the knowledge of the Acquirer, except as it
----------------
would not, individually or in the aggregate, have a Material adverse effect:
(A) the Acquirer has complied with all laws (including rules and
regulations thereunder) of federal, state, local, and foreign governments (and
all agencies thereof), including without limitation, all environmental and
employee health and safety laws. the Acquirer has received no notice of any
charge, complaint, action, suit, proceeding, hearing, investigation, claim,
demand, or notice having been filed or commenced against the Acquirer which is
currently pending and alleges any failure to comply with any such law or
regulation.
(B) the Acquirer has complied with all applicable laws (including
rules and regulations thereunder) relating to the employment of labor, employee
civil rights, hiring or engaging non-United States citizens, and equal
employment opportunities.
(C) the Acquirer has not made or agreed to make any contribution,
payment, or gift of funds or property to any governmental official, employee, or
agent where either the contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state, local, or foreign jurisdiction;
(D) the Acquirer has filed in a timely manner all reports, documents,
and other materials it was required to file (and the information contained
therein was correct and complete in all respects) under all applicable laws
(including rules and regulations thereunder).
(E) the Acquirer has possession of all records and documents it was
required to retain under all applicable laws (including rules and regulations
thereunder).
5.10 UNDISCLOSED LIABILITIES. Except as set forth on Schedule 5.10, to
----------------------- -------------
the Knowledge of the Acquirer, the Acquirer does not have any Liability (and
there is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against Acquirer giving
rise to any Liability) which is individually in excess of $200,000 or ten
percent (10%), whichever is greater, of the Acquirer's combined pro forma net
income after the IPO and as of the Closing Date, except for Liabilities
described on Schedule 5.10 (none of which relates to any breach of contract,
-------------
breach of warranty, tort, infringement, or violation of law or arose out of any
charge, complaint, action, suit, proceedings, hearing, investigation, claim, or
demand).
5.11 INFORMATION SUPPLIED. To the knowledge of the Acquirer, none of
--------------------
the information supplied or to be supplied by the Acquirer for inclusion or
incorporation by reference into the Registration Statement, at the time it is
filed with the SEC and at the time the Registration Statement is declared
effective under the Securities Act, will contain any untrue statement of
Material fact necessary in order to make the statements in the Registration
Statement true.
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<PAGE>
5.12 INTELLECTUAL PROPERTY. To the knowledge of Acquirer and based on the
---------------------
accuracy of the relevant Intellectual Property-related representations and
warranties of Acquirer's various target companies which have executed Share
Exchange Agreements such as this Agreement, after the Closing Date Acquirer and
its Subsidiaries will own and possess all right, title and interest in and to,
or has the right to use pursuant to a valid license, all Intellectual Property
necessary for the operation of the business of Acquirer as presently intended to
be conducted as of the Closing Date.
ARTICLE VI
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing or the earlier termination of this Agreement:
6.1 GENERAL. Each of the Parties will use its reasonable efforts to take
-------
all action and to do all things necessary, proper, or advisable to consummate
and make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Article IX below).
----------
6.2 NOTICES AND CONSENTS. Each of the Parties will give any notices to
--------------------
third-parties, and will use best efforts to obtain third-party consents, that
the other Party may reasonably request in connection with matters disclosed or
required to be disclosed on the Disclosure Schedules. Each of the Parties will
take any additional action (and the Transferors will cause SUPERNET to take any
additional action) that may be necessary, proper, or advisable in connection
with any other notices to, filings with, and authorizations, consents, and
approvals of governments, governmental agencies, and third-parties that he, she
or it may be required to give, make, or obtain.
6.3 OPERATION OF BUSINESS PRIOR TO THE EFFECTIVE TIME. Except as
-------------------------------------------------
contemplated hereby, or as may be incidental to or in furtherance of the
transactions contemplated hereby, or as may have been set forth herein or in the
Disclosure Schedules, SUPERNET will not (and the Transferors will not cause or
permit SUPERNET to) engage in any practice, take any action, embark on any
course of inaction, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, from the date
hereof to the Effective Time:
(A) SUPERNET will not adopt or propose any change in its certificate
of incorporation or bylaws;
(B) SUPERNET will not merge or consolidate with any other Person or
acquire a material amount of assets of any other Person;
-26-
<PAGE>
(C) SUPERNET will not sell, lease, license or otherwise dispose of
any material assets or property except (i) pursuant to existing contracts or
commitments and (ii) in the Ordinary Course of Business;
(D) except as otherwise provided for in this Agreement, SUPERNET will
not issue, sell, purchase, repurchase, redeem or otherwise acquire any SUPERNET
securities;
(E) except with the prior written consent of the Acquirer, SUPERNET
shall not make any Tax election that would have an adverse effect on SUPERNET;
(F) SUPERNET will timely file all Tax Returns due on or before the
Effective Time and pay (or reserve for) all Taxes due and payable with respect
to periods prior to the Effective Time;
(G) SUPERNET will not do any of the items described in Section 4.6;
and
(H) SUPERNET will not agree or commit to do any of the foregoing.
6.4 PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may
------------------------
be incidental to or in furtherance of the transactions contemplated hereby, or
as may have been set forth herein or in the Schedules, the Transferors will
cause SUPERNET to use reasonable commercial efforts to keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensers,
suppliers, Subscribers, any other customers, and employees.
6.5 ACCESS.
------
(A) Only in the event that neither the Acquirer nor the Transferors
exercise their right to terminate this Agreement as provided in Article X
---------
herein, the Transferors will cause SUPERNET to permit the Acquirer's
representatives access at reasonable times, and in a manner so as not to
interfere with the normal business operations of SUPERNET, to the headquarters
of SUPERNET and to all books, records, contracts, Tax records, and documents of
or pertaining to SUPERNET; provided, however, that the Acquirer shall direct all
requests for information and material only through the Transferors' designated
representative agreed to by the Acquirer and the Transferors in writing.
(B) The Acquirer shall proceed to arrange with the Transferors a
mutually agreeable time and place at which the Acquirer may conduct interviews
with key employees and/or customers of SUPERNET mutually agreed to by the
Acquirer and the Transferors.
6.6 NOTICE OF DEVELOPMENTS. SUPERNET will give prompt written notice to
----------------------
the Acquirer of any Material development affecting the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of SUPERNET including but not limited to (a) any development affecting
the ability of SUPERNET to consummate the transactions contemplated by this
Agreement, (b) any Outage affecting more than 1% of all Subscribers that lasts
for 3 hours or more or (c) any loss of any Material Subscriber or any
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<PAGE>
material equipment or other supplier to SUPERNET. No disclosure by any Party
pursuant to this Section 6.6 shall be deemed to amend or supplement the
-----------
Disclosure Schedules or to prevent or cure any misrepresentation, breach of
warranty, and/or breach of covenant unless such supplemental disclosure is in
written form reasonably acceptable to the Acquirer specifically identifying
which Schedule is being amended.
6.7 EXCLUSIVITY. The Transferors will not (and the Transferors will not
-----------
cause or permit SUPERNET to) (a) solicit, initiate, or encourage the submission
of any proposal or offer from any person relating to any (i) liquidation,
dissolution, or recapitalization, (ii) merger or consolidation, (iii)
acquisition or purchase of securities or assets or (iv) similar transaction or
business combination involving SUPERNET, or (b) participate in any discussions
or negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. The Transferors will notify the
Acquirer immediately if any entity or person makes any such proposal, offer,
inquiry, or contact with respect to any of the foregoing and shall provide the
identity of such entity or person as well as any other relevant details
regarding the contact.
6.8 CANCELLATION OF OPTIONS, BONUS PROGRAMS AND PHANTOM STOCK PLANS.
---------------------------------------------------------------
SUPERNET shall have provided for the cancellation, at or prior to the Closing,
of all SUPERNET stock options, deferred bonus programs or phantom equity plans.
The amounts payable for the cancellation of the SUPERNET Options will be a
reduction of the Cash Portion of the Transfer Consideration pursuant to Section
-------
2.2, will be funded by the Acquirer to SUPERNET at Closing and will be paid by
- ---
SUPERNET to the recipients at Closing. In conjunction with the cancellation of
such programs, all eligible employees who have not executed new employment
agreements shall have signed cancellation agreements which include provisions
that each employee will not, for a period of one year from the date of Closing
or one year from the termination of his or her employment with SUPERNET
whichever period is longer: (a) compete with SUPERNET, (b) service or solicit
any customers of SUPERNET, or (c) solicit for employment any employee of
SUPERNET.
6.9 TERMINATION OF BANK FACILITIES. The Transferors shall (or shall
------------------------------
cause SUPERNET) to arrange for the retirement all of SUPERNET's outstanding bank
indebtedness and to obtain the full, complete and unconditional release of all
Security Interests related thereto.
6.10 LANDLORDS' CONSENTS. The Transferors shall cause SUPERNET on or
-------------------
before the Closing Date to use its best efforts to obtain from its landlords (to
the extent required under the pertinent premises lease) written consent to the
assignment of all leases being assumed by the Acquirer, which assignments are
deemed to have resulted from the transactions contemplated by this Agreement.
6.11 TAX MATTERS.
------------
(A) TAX RETURNS. The Transferors shall cause SUPERNET to file with
-----------
the appropriate governmental authorities all Tax returns required to be filed by
it for any taxable period ending prior to the Closing Date, and SUPERNET shall
remit any Taxes due in respect of such Tax returns. In addition, the Transferors
shall prepare a short period tax return for
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SUPERNET covering the period January 1, 1998 through the Closing Date. The cost
of preparation of such short period tax return shall be paid for by the
Transferors.
(b) INDEMNITY. The Transferors shall be liable for, and shall
---------
indemnify and hold Acquirer and SUPERNET harmless against, any Taxes or other
costs attributable solely to a failure on the part of any of the Transferors to
take all actions required of them under Section 6.11 for periods prior to the
------------
Closing Date.
6.12 AUDITS. Following the Closing, at SUPERNET's expense, the Transferors
------
shall use their best efforts to deliver, or cause to be delivered, to Acquirer
any unqualified and unmodified audit report of E&Y on the balance sheets of
SUPERNET as of September 30, 1998, December 31, 1997 and December 31, 1996, for
periods and consolidated audited statements of operations and cash flows of
SUPERNET for the fiscal years then ended, which report shall be without
limitation as to the scope of the audit. Transferors and any of the officers or
directors of SUPERNET, in their capacities as officers and directors of
SUPERNET, shall provide all management letters, reports or representations
reasonably requested by such auditors in connection with such audits, and in
connection with audits of SUPERNET for the years ended December 31, 1997 and
December 31, 1996 and for the nine month period ending September 30, 1998.
6.13 PRE-CLOSING MERGER. SUPERNET and the Transferor shall use their best
------------------
efforts prior to the Closing to cause a merger to occur by and among Supernet
Interactive Services, Inc. ("SIS") (one of the Transferors) into SUPERNET, with
SUPERNET being the surviving corporation, in order (among other things) to
ensure that Acquirer will acquire all of the assets and personnel of SIS
currently used by SUPERNET in the Business upon consummation of this Agreement.
If such merger is consummated before the Closing as is anticipated, SUPERNET and
the Transferors shall cause Allon Lefever, Carlton Miller and Rod Lefever, as
the shareholders of SIS, to execute a joinder to this Agreement with the effect
of making such persons Transferors hereunder.
ARTICLE VII
POST-CLOSING COVENANTS
7.1 GENERAL. In case at any time after the Closing any further action
-------
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article IX
----------
below). The Transferors acknowledge and agree that from and after the Closing
the Acquirer will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to SUPERNET; provided that
the Transferors may retain any copies of the foregoing as shall be necessary to
comply with applicable tax and other laws, regulations and ordinances.
7.2 TRANSITION. The Transferors will not take any action that primarily
----------
is designed or intended to have the effect of discouraging any lessor, licenser,
subscriber, supplier, or other business associate of SUPERNET from maintaining
the same business relationships with
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SUPERNET after the Closing for a period of twenty-four (24) months thereafter as
it maintained with SUPERNET prior to the Closing.
7.3 CONFIDENTIALITY. SUPERNET, the Transferors and the Acquirer shall
---------------
and shall cause their subsidiaries, affiliates, officers, directors, employees,
accountants, counsel, financial advisors and other representatives and agents,
to treat and hold as such all of the Confidential Information, refrain from
disclosing or using any of the Confidential Information except in connection
with this Agreement and the transactions contemplated hereby for a period of
three (3) years from the date hereof, and except as otherwise permitted
hereunder or as may be required by law, deliver promptly to the Acquirer or
destroy, at the request and option of the Acquirer, all tangible embodiments
(and all copies) of the Confidential Information which are in the possession of
SUPERNET or any Transferor. In the event that SUPERNET or any Transferor is
requested or required (by request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
legal process) to disclose any Confidential Information, SUPERNET or such
Transferor will notify the Acquirer promptly of the request or requirement so
that the Acquirer may seek an appropriate protective order or waive compliance
with the provisions of this Section 7.3. If, in the absence of a protective
-----------
order or the receipt of a waiver hereunder, SUPERNET or any Transferor is
compelled to disclose any Confidential Information or else stand liable for
contempt, then SUPERNET or such Transferor may disclose the Confidential
Information; provided, however, that the Transferors shall use their reasonable
efforts to obtain, at the reasonable request of the Acquirer, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Acquirer shall
reasonably designate.
7.4 COVENANT NOT TO COMPETE. For a period of two (2) years from and
-----------------------
after the Closing Date, the Transferors will not, directly or indirectly, as
principal, agent, trustee or through the agency of any corporation, partnership,
association or agent or agency, (i) own, manage, control, participate in,
consult with, render services for, or in any manner engage in any activity or
business competing with SUPERNET and relating to the provision of internet
access in the Commonwealth of Pennsylvania, (ii) service or solicit from
SUPERNET any Subscriber of SUPERNET, (iii) request or advise any Subscriber of
SUPERNET to withdraw, curtail or cancel such Subscriber's business with
SUPERNET, or (iv) solicit for employment any person employed by SUPERNET at any
time within the two (2) year period immediately preceding such solicitation;
provided, however, that no owner of less than five percent (5%) of the
outstanding stock of any publicly traded corporation shall be deemed to engage
solely by reason thereof in any of that corporation's businesses. For purposes
of this Agreement, the Parties have agreed to allocate $50,000 of the Transfer
Consideration to the covenant not to compete contained in this Section 7.4.
-----------
7.5 TAX FREE EXCHANGE INTENT. The Parties agree that this transaction
------------------------
will occur in conjunction with the Related Transactions and the Parties intend
that the receipt of the Acquirer's Shares by the Transferors and by the parties
involved in the Related Transactions will qualify as tax-free under Section 351
of the Code.
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7.6 CONDUCT DURING EARNED PAYOUT PERIOD. The Transferors acknowledge
-----------------------------------
and agree that, during any portion of the Earned Payout Period occurring after
the Closing, the Acquirer shall be entitled to oversee the operation and
management of SUPERNET's Business, including the setting of goals and review of
budgets and performance. The Transferors further agree, during that portion of
the Earned Payout Period occurring after the Closing, not to allow SUPERNET to
cut staff, capital expenditures and general and administrative expenses or take
other actions that are not consistent with SUPERNET's prior practices and/or
prudent business practices, and the Transferors agree not and not to allow
SUPERNET to engage in any activity in order to increase current earnings and
revenue of the business of SUPERNET at the expense of the longer term growth of
the business of SUPERNET. During the Earned Payout Period, the Acquirer agrees
that it will not (a) unreasonably require that the business of SUPERNET be
operated substantially different as it was prior to the Closing Date except in
so far as the prior practices of SUPERNET were imprudent or unreasonable or its
productivity efficiency and profitability can be improved and increased through
economies of scale, the Acquirer's experience or otherwise; (b) unreasonably
change (i) the prices charged for SUPERNET's services, (ii) the level of
compensation of SUPERNET's full-time corporate employees or (iii) the level
SUPERNET's general and administrative expenses, unless the prior business
practices were unreasonable or imprudent and/or unless the changes are
reasonably necessary to support the growth of SUPERNET's business.
7.7 CERTAIN ADDITIONAL COVENANTS.
----------------------------
(a) CO-BRANDING/MARKETING ARRANGEMENT. The Acquirer and D&E agree
---------------------------------
that following the Closing they will operate pursuant to an exclusive co-
branding or marketing arrangement (the "CO-BRANDING ARRANGEMENT"), in accordance
with the following terms and conditions:
(i) D&E shall only sell internet access through Acquirer's
system using the "D&E" or "D&E SuperNet" name and logo
(with appropriate references to the affiliation with or
ownership of such system by Acquirer) to customers located
within the Territory, including but not limited to D&E's
customers of local or long distance telephone, voice-mail,
computer networking, wireless and other communication-
related products and services offered from time to time by
D&E (the "D&E TELECOMMUNICATION SERVICES").
(ii) Acquirer shall only sell, provide or otherwise distribute
internet access within the Territory through its
arrangements with D&E and using the "D&E" or "D&E SUPERNET"
name and logo. Notwithstanding the foregoing, Acquirer may
provide direct internet access within the Territory under
the terms of subparagraph (iv) below.
-----------------
(iii) D&E shall establish pricing for such internet access
products and services in the Territory and D&E shall
perform the billing function in respect of same to D&E's
customers subject to
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reimbursement by Acquirer of the appropriate, allocable
billing expenses and other direct marketing costs incurred
by D&E in performing such marketing services on behalf of
Acquirer. However, D&E shall accept Acquirer's pricing for
its internet access products and services where same is
demonstrated to be part of a national or system-wide
program unless such pricing is demonstrated by D&E to be
uncompetitive within the Territory.
(iv) If in Acquirer's sole discretion Acquirer determines that
it is in Acquirer's best interest to directly or
indirectly offer internet access on its system within the
Territory in connection with any regional or national
sales, promotional or advertising program, whether
conducted in affiliation with third parties (such as
selling compact discs through a national chain of third
party retail outlets) or otherwise, Acquirer may do so
without violating the exclusivity feature of the Co-
Branding Arrangement; provided, however, that any internet
access subscribers attracted to Acquirer's system within
the Territory as a result of such regional or national
program shall count toward D&E's satisfaction of the
performance criteria described in paragraph (v)(B) below.
----------------
Acquirer shall promptly provide D&E with the names,
addresses, phone numbers and any other pertinent
information on such subscribers.
(v) The Co-Branding Arrangement shall be terminable by D&E on
thirty (30) days prior written notice at any time after
the Closing Date, and by Acquirer upon the earlier of (A)
the date of any change of control of D&E such that D&E
becomes an Affiliate of a competitor of Acquirer, or (B)
that date which is thirty (30) days after D&E's receipt
from Acquirer of written notice of the latter's election
to terminate the Co-Branding Arrangement due to the
failure to achieve, by the sixth anniversary of the
Closing Date, a level of at least 80,000 subscribers on
Acquirer's internet access system within the Territory.
(vi) Unless it is earlier terminated by the operation of
paragraph (v)(A) or (B) above, the Co-Branding Arrangement
---------------- ---
shall have a term of twenty (20) years from the Closing
Date.
(vii) The provisions of this paragraph (a) are expressly binding
-------------
on all successors and assigns of D&E and Acquirer
(including in the event of a sale of Acquirer) with
respect to the operations and activities of D&E, SUPERNET
and Acquirer within the Territory.
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<PAGE>
(B) D&E TELECOMMUNICATIONS SERVICES.
-------------------------------
(i) The Acquirer shall use its reasonable best efforts to offer
a preferred opportunity to D&E and its Affiliates
(including partnerships or 50/50 joint ventures with third
parties) to offer Acquirer and its Subsidiary Affiliates
D&E Telecommunications Services within the Territory so
long as such services are generally competitive and
substantially comparable to competing services provided by
third parties.
(ii) In addition, Acquirer shall use its reasonable best efforts
to allow D&E to provide the D&E Telecommunications Services
to Acquirer and its Subsidiary Affiliates outside the
Territory, subject to Acquirer's considerations in respect
to competitive pricing of services and strategic issues as
determined in good faith by Acquirer.
(iii) Any rights of D&E created as a result of this paragraph
---------
(b) shall be co-terminous with the Co-Branding Arrangement
---
such that absent the written agreement of both parties to
extend same, the termination (for whatever reason) of the
Co-Branding Arrangement shall cause a termination of D&E's
rights and Acquirer's obligations under this paragraph (b).
-------------
(C) BOARD MEMBERSHIP FOR D&E REPRESENTATIVE. Effective upon the
---------------------------------------
effective date of the IPO, Don Kaufman shall be appointed as a director of
Acquirer's Board of Directors, to serve no less than a one-year term.
7.8 CERTAIN COVENANTS OF THE ACQUIRER. The Acquirer covenants and
----------------------------------
agrees with the Transferors as follows:
(A) NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the date
---------------------------------------------
of this Agreement and the Closing Date, without the written consent of the
Transferors, the Acquirer will not do any act or suffer any omission of any
nature whatsoever which would cause any of the representations or warranties
made in Article V of this Agreement to become untrue or incorrect in any
---------
Material respect.
(B) ACCESS TO INFORMATION. Between the date of this Agreement and the
---------------------
Closing Date, to the extent reasonable under the circumstances, the Acquirer
will confer with the Transferors and will furnish to the Transferors either
orally or by means of such records, documents and memoranda as are reasonably
available or capable of preparation, such other information as the Transferors
may reasonably request in writing.
(C) COMPLIANCE WITH SECURITIES LAWS. After the effective date of the
-------------------------------
Registration Statement, the Acquirer shall do all things necessary to comply
with the state and federal securities laws applicable to the transactions
contemplated by this Agreement including the
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filing of all reports, forms, schedules and other documents required under the
Securities Act or the Exchange Act.
(D) CORRECTION OF INFORMATION. Between the date of this Agreement and
-------------------------
the Closing Date, the Acquirer shall promptly correct and supplement any
information furnished under the Agreement to the Transferors so that such
information shall be correct and complete in all Material respects at all times,
and shall include all facts necessary to make such information correct and
complete in all Material respects at all times.
(E) BLUE SKY REGISTRATION. The Acquirer shall, to the extent required
---------------------
by applicable state securities or "blue sky" laws, as promptly as practicable
after the execution of this Agreement but prior to the Registration Statement
being declared effective by the SEC, file with applicable state securities or
blue sky administrators, and use its best efforts to cause to become effective
or be approved, all registration statements or applications required to be so
filed with respect to the issuance of the Acquirer's common stock.
(F) EXCHANGE OR NASDAQ LISTING. The Acquirer will file a listing
--------------------------
application with the NASDAQ National Stock Market, as required by NASDAQ, at the
time prescribed by applicable rules and regulations. In addition, the Acquirer
will use its reasonable best efforts to maintain its listing on the NASDAQ
National Stock Market.
(G) UNDERWRITING AGREEMENT. In connection with the IPO, the Acquirer
----------------------
intends to enter into an underwriting agreement (the "UNDERWRITING AGREEMENT")
with the investment banks who are underwriting the IPO, and it is expected that
such Underwriting Agreement will be executed prior to the consummation of the
IPO. Assuming the Underwriting Agreement is so executed, the Acquirer will
comply with its terms.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATIONS OF THE ACQUIRER. The obligation of the
-----------------------------------------
Acquirer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Transferors and SUPERNET set forth in Articles III and IV
above shall be true and correct in all material respects at and as of the
Closing Date and the Transferors shall have performed and complied with all of
their covenants hereunder in all material respects through the Closing, and the
Acquirer shall so certify in accordance with paragraph (e)(i) below;
---------
(B) CONSENTS. The Transferors and SUPERNET will have procured all
--------
third-party consents and given all notices required in connection with this
Agreement and the transactions contemplated hereby, including without limitation
all action necessary in connection with and/or the receipt of any notices to,
filings with, and authorizations, consents and approvals of governments,
governmental agencies, and third-parties as set forth herein or in the
Disclosure Schedules including any filing required under the Hart-Scott-Rodino
Act;
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(C) RESIGNATIONS. The Acquirer shall have received the resignations,
------------
effective as of the Closing, of each director of SUPERNET prior to the Closing.
(D) DOCUMENTS TO BE DELIVERED BY THE TRANSFERORS. The following documents
--------------------------------------------
shall be delivered at Closing by the Transferors:
(i) Certificates. The Transferors and SUPERNET shall have delivered
------------
to the Acquirer an Officers/Transferors Certificate and a Secretary's
Certificate substantially in the form of the certificates respectively attached
as Exhibit C-1 and C-2 hereto.
----------- ---
(ii) Escrow Agreement. The Acquirer shall have received from the
----------------
Transferors an executed Escrow Agreement in the form and substance set forth as
Exhibit A attached hereto.
- ---------
(iii) Employment Agreements. The Acquirer shall have received from
---------------------
Allon Lefever, Carlton Miller and Rodney Lefever an executed employment
agreement in the form and substance attached hereto as Exhibit E.
---------
(iv) Registration Agreement Joinder. The Acquirer shall have received
------------------------------
from each Transferor an executed joinder to the Registration Agreement in the
form and substance set forth as Exhibit F attached hereto;
---------
(v) Option Cancellations. The Transferors shall have caused SUPERNET
--------------------
to cancel each outstanding phantom stock, deferred bonus or option plan, if any,
and all outstanding SUPERNET Options shall have been canceled with the cost of
such cancellation being a reduction of the Cash Portion of the Transfer
Consideration pursuant to Section 2.2.
-----------
(vi) Subscription Agreement Joinder. The Transferors shall have
------------------------------
caused each party receiving Acquirer's Shares under this Agreement to execute an
Equity Subscription Agreement in the form of Exhibit D hereto;
---------
(vii) Opinion of Counsel. The Acquirer shall have received from the
------------------
Transferors and SUPERNET opinion of counsel in the form and substance set forth
as Exhibit G hereto.
---------
(E) FINANCIAL CONDITION. Each of the following shall be true and complete
-------------------
as of the Closing Date:
(i) all liens and Security Interests securing debts of SUPERNET which
have been paid in full prior to or at the Closing shall have been fully released
of record to the reasonable satisfaction of the Acquirer and all Uniform
Commercial Code financing statements covering such debts shall have been
terminated;
(ii) no unsatisfied liens for the failure to pay Taxes of any nature
whatsoever shall exist against SUPERNET, or against or in any way affecting any
SUPERNET Share;
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<PAGE>
(iii) the Transferors shall and SUPERNET shall have caused all
of SUPERNET's officers, directors and/or key employees of SUPERNET to, have
repaid in full all debts and other obligations, if any, owed to SUPERNET;
(F) DUE DILIGENCE COMPLETED. The Acquirer shall be satisfied in its
-----------------------
sole discretion with the results of its continuing legal, financial and business
due diligence investigations of SUPERNET, all of which shall be final and
completed to the Acquirer's satisfaction prior to Closing;
(G) MATERIAL ADVERSE CHANGE. No material adverse change shall have
-----------------------
occurred in SUPERNET's Business or its future prospects;
(H) IPO. The Acquirer shall have received from SUPERNET the Financial
---
Statements and such Financial Statements must, in the opinion of the Acquirer's
independent public accountants, be suitable or readily adaptable for
incorporation in the Registration Statement, and any prospectus and annual and
periodic reports to be filed by the Acquirer with the SEC relating to the IPO
and the Registration Statement filed by the Acquirer with the SEC in connection
with the IPO shall have become effective and there shall be no other impediments
to the closing of the IPO; and
(I) TARGET SHARES. The Transferors shall deliver the certificates
-------------
representing the SUPERNET Shares to the Acquirer and the acquisition by the
Acquirer of the SUPERNET Shares shall represent 100% of the issued and
outstanding capital stock of SUPERNET and all of such SUPERNET Shares shall be
free and clear of any Security Interests or other liens, claims or encumbrances
of any nature whatsoever.
The Acquirer may waive any condition specified in this Section 8.1 if
-----------
it executes a writing so stating at or prior to the Closing.
8.2 CONDITIONS TO OBLIGATIONS OF THE TRANSFERORS. The obligations of
--------------------------------------------
the Transferors to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction or waiver of the
following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Acquirer set forth in Article V above shall be true and
---------
correct in all material respects at and as of the Closing Date and the Acquirer
shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing;
(B) CONSENTS. The Acquirer will have procured all third-party
--------
consents needed by the Acquirer and given all notices required in connection
with this Agreement and the transactions contemplated hereby, including without
limitation all action necessary in connection with and/or the receipt of any
notices to, filings with, and authorizations, consents and approvals of
governments, governmental agencies, and third-parties as set forth herein or in
the Disclosure Schedules including any filing required under the Hart-Scott-
Rodino Act;
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<PAGE>
(C) OPTION CANCELLATION FUNDING. The Acquirer, to the extent of the
---------------------------
reduction in the Cash Portion of the Transfer Consideration in Section 2.2 shall
-----------
have provided funding to SUPERNET sufficient to fund the payments required to
the SUPERNET Optionholders to satisfy and secure the cancellation of the
SUPERNET Options.
(D) MINIMUM IPO PRICE. The Registration Statement filed by the
-----------------
Acquirer with the SEC in connection with the IPO shall have become effective and
there shall be no other impediments to the closing of the IPO. The Company
understands that any valuation above $10.00 per share is retained by the
Stockholders as additional value and that it is the goal of Acquirer to have its
underwriter offer the shares at the mid-point range of the valuation (i.e.,
$10.00 per share) at the IPO. If the IPO is priced below $8.00 per share,
Acquirer will increase the number of shares given to the Stockholders such that
the Stockholders will receive the same economic benefit in dollar terms as if
the IPO price had been $10.00 per share. For example, if the IPO price is $8.00
per share, Acquirer will increase the number of shares given to the Stockholders
by 25% to achieve the minimum valuation requirement and the Stockholders would
be bound to participate in the offering. Notwithstanding the foregoing, the
provisions of this Section 8.2(d) may be waived by the Majority Co-Transferors
--------------
in the event that the following conditions have been attained: (i) Acquirer is
able to fund the Cash Portion of the Transfer Consideration through a private
equity investment in the capital stock of the Acquirer or through borrowed
money; (ii) the Transferors receive the Stock Portion of the Transfer
Consideration on a basis reasonably equivalent to what they would have received
in an IPO; (iii) the Transferors will receive the right to obtain liquidity for
the Stock Portion of the Transfer Consideration within a reasonably short period
of time following the Closing; and (iv) following the Closing, the Acquirer will
have access to cash or availability under debt facilities or equity financing
commitments sufficient to enable it to provide a reasonable amount of financing
for working capital, equipment upgrades and future acquisitions for SUPERNET and
the other subsidiaries of the Acquirer.
(E) DOCUMENTS TO BE DELIVERED BY THE ACQUIRER. The following
-----------------------------------------
documents shall be delivered at the Closing by Acquirer.
(i) Certificates. The Acquirer shall have delivered to the
------------
Transferors an Officers Certificate substantially in the form of the Officer's
Certificate attached as Exhibit C-1 hereto (insofar as the text of the
-----------
certifications is concerned, modified to reflect that the certification is by
Acquirer as opposed to SUPERNET and the Transferors).
(ii) Escrow Agreement. The Transferors shall have received from
----------------
the Acquirer an executed Escrow Agreement in the form and substance set forth as
Exhibit A attached hereto.
- ---------
(iii) Subscription Agreement Joinder. The Acquirer shall execute
------------------------------
and deliver an Equity Subscription Agreement in the form of Exhibit D hereto,
---------
with each of the Transferors acquiring Acquirer Shares.
(iv) Employment Agreements. Allon Lefever, Carlton Miller and
---------------------
Rodney Lefever shall have received from SUPERNET an executed employment
Agreement, in the form and substance attached hereto as Exhibit E;
---------
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(v) Registration Agreement and Joinder. Each Transferor shall
----------------------------------
have received from the Acquirer an executed joinder to the Registration
Agreement in the form and substance set forth as Exhibit F-1 attached hereto,
-----------
and the Registration Agreement shall be in form and substance as set forth in
Exhibit F-2 attached hereto;
(vi) Options. The Acquirer shall have issued options for the
-------
purchase of up to 100,000 shares of the Acquirer's Common Stock to non-
stockholder managers of SUPERNET listed on Annex VI hereto that are selected by
--------
Allon Lefever pursuant to their terms and conditions of Acquirer's stock option
program to be established by Acquirer at the time of the IPO;
(vii) Registration Statement. The Acquirer shall have provided
----------------------
Transferors with copies of the Registration Statement and Transferors shall have
had an opportunity to review and provide comments thereto;
(viii) Due Diligence. The Transferors shall be reasonably
-------------
satisfied in their sole discretion with the results of their continuing legal,
financial and business due diligence investigations of Acquirer, excluding
documentation relating to other acquisitions of Acquirer and the impending IPO,
which due diligence shall be completed on or prior to December 23, 1998; and
(x) Opinion of Counsel. The Transferors shall have received
------------------
from the Acquirer an opinion of Counsel in the form and substance set forth as
Exhibit H.
- ---------
The Transferors may waive any condition specified in this Section 8.2
-----------
if they execute a writing so stating at or prior to the Closing.
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 INDEMNIFICATION OF THE ACQUIRER. Except as provided in and subject
-------------------------------
to Section 9.6, the Transferors agree to indemnify and hold harmless the
-----------
Acquirer, each officer and director of the Acquirer and any successor thereof
(collectively, the "INDEMNIFIED PARTIES") from and against any and all Adverse
Consequences, which any of the Indemnified Parties may sustain, or to which any
of the Indemnified Parties may be subjected, arising out of (a) any
misrepresentation, breach or default by the Transferors or SUPERNET of or under
any of the representations, warranties, covenants, agreements or other
provisions of this Agreement or any agreement or document executed in connection
herewith and (b) the Transferors or SUPERNET's tortuous acts or omissions to act
prior to Closing for which SUPERNET did not carry liability insurance for itself
as the insured party sufficient to satisfy such claim or liability, whether or
not such acts or omissions to act result in a breach or violation of any
representation or warranty.
9.2 DEFENSE OF THIRD-PARTY CLAIMS. If any legal proceeding shall be
-----------------------------
instituted, or any claim or demand made, by any third-party against any
Indemnified Parties solely related to this Agreement in respect of which the
Transferors may be liable hereunder (and such determination shall be made
without regard to the limitations set forth in Section 9.6), such
------------
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<PAGE>
Indemnified Party shall give prompt written notice thereof to the Transferors
and, except as otherwise provided in Section 9.4 below, the Transferors shall
-----------
have the right to defend any litigation, action, suit, demand, or claim for
which such Indemnified Party may seek indemnification with counsel satisfactory
to the Transferors; provided, however, that the Transferors may not settle any
such litigation, action, suit, demand, or claim without the prior written
consent of the Acquirer, which shall not be unreasonably withheld.
Notwithstanding the foregoing, if in the reasonable judgment of the Acquirer,
such litigation, action, suit, demand or claim, or the resolution thereof, would
have a (a) Material adverse effect on the Acquirer or SUPERNET or (b) the
Transferors have a conflict of interest in defending such action on Acquirer's
or SUPERNET's behalf, at the Acquirer's election, the Acquirer may defend itself
and in either of such instances the Transferors shall be liable for all expenses
reasonably incurred in connection therewith (including, without limitation,
settlement payments and reasonable attorney's fees); provided, however, that the
Acquirer may not settle any such litigation, action, suit, demand, or claim
without the prior written consent of the Transferors, which shall not be
unreasonably withheld. If neither (a) nor (b) are applicable but the Acquirer
desires to participate in the defense of an action the Transferors are defending
because in the Acquirer's reasonable judgment the outcome of such action could
have an ongoing effect on the Acquirer (or its successors), the Acquirer may
participate but at its own expense. In the event the Transferors fail or refuse
to defend any legal proceeding they are required to defend under this Article IX
----------
within a reasonable length of time, the Indemnified Parties shall be entitled to
assume the defense thereof, and the Transferors shall be liable to repay the
Indemnified Parties for all expenses reasonably incurred in connection with said
defense (including, without limitation, settlement payments and reasonable
attorney's fees). If the Transferors do not or refuse to assume the defense of
any litigation, action, suit, demand, or claim in any legal proceeding they are
required to defend under this Article IX, the Indemnified Parties shall have the
----------
absolute right, at the Transferor's expense, to control the defense of and to
settle, in their sole discretion and without the consent of the Transferors,
such litigation, action, suit, demand, or claim, but the Transferors shall be
entitled, at their own expense, to participate in such litigation, action, suit,
demand, or claim, and if the Transferors elect to participate in such litigation
the Indemnified Parties shall consult with the Transferors prior to settling
such litigation. The Party controlling any defense pursuant to this Section 9.2
-----------
shall deliver, or cause to be delivered to the other Party, copies of all
correspondence, pleadings, motions, briefs appeals or other written statements
relating to or submitted in connection with the defense of any such litigation,
action, suit, demand, or claim, and timely notices of any hearing or other court
proceeding relating to such litigation, action, suit, demand, or claim.
9.3 PROCEDURE FOR CLAIMS.
--------------------
(A) ESCROW CLAIMS. If any claim for indemnification is made by an
-------------
Indemnified Party pursuant to this Article IX prior to the expiration of the
----------
Escrow Period, such Indemnified Party shall first apply to the Escrow Agent for
reimbursement of such claim in accordance with the provisions of the Escrow
Agreement; provided, however, the Escrow Sum is not intended to be an exclusive
remedy in the event the Acquirer has indemnification claims hereunder which
exceed such amount. Once the Cash Escrow Sum has been fully depleted to satisfy
claims pursuant to Section 9.1, any one or more of the Transferors shall have
-----------
the option to
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<PAGE>
satisfy such Transferor's obligation to the Acquirer by surrendering to the
Acquirer that portion of the Stock Portion of the Transfer Consideration
required to fund the indemnification obligation (with such surrendered
Acquirer's Shares valued at the Fair Market Value of such shares).
Notwithstanding the foregoing, and in lieu of receiving a cash payment or
Acquirer's Shares from the Transferors, the Acquirer, in its sole discretion,
may after the first anniversary of the Closing Date, elect to offset against any
Earned Payout Amount payable to the Transferors, after an indemnification claim
has been made therefor, the amount of any Adverse Consequences or any other
payments to which the Acquirer may become entitled to by reason of the
provisions of this Agreement.
(B) OTHER CLAIMS. If pursuant to this Article IX any claim for
------------ ----------
indemnification is made by (i) an Indemnified Party after the expiration of the
Escrow Period, other than claims of third-parties which are governed by Section
-------
9.2 hereof, or (ii) the Indemnified Party or the Transferors, as the case may be
- ---
(in either instance, the "CLAIMANT"), shall send written notice to the other
person (by certified mail, return receipt requested or by personal service as
provided in Section 11.7 hereof) setting forth in reasonable detail a
------------
description of the facts upon which the claim is based and a reasonable estimate
of the amount of the claim (a "CLAIM", with the notice thereof referred to as
the "CLAIM NOTICE"). The person against whom the Claim is brought (the
"RESPONDENT") shall have fifteen (15) calendar days from receipt of the Claim
Notice to respond to such Claim. Such response shall be in writing and shall (i)
set forth in reasonable detail the Respondent's objection to the Claim and the
basis for such objection, or (ii) the efforts undertaken or to be undertaken by
the Respondent to cure the Claim. In the event the Respondent fails to respond
to the Claim Notice in the manner set forth above within such 15-day period, the
Respondent shall be deemed to have conceded the Claim in full. In the event the
Parties are unable to resolve the Claim within thirty (30) calendar days from
the date of receipt of the Claim Notice, the Claim shall be submitted to
arbitration in accordance with Section 11.8 below.
------------
9.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of
---------------
SUPERNET with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article IX, the Acquirer shall have the right
----------
to control any and all such audits which may result in the assessment of
additional Taxes against SUPERNET and any and all subsequent proceedings in
connection therewith, including appeals (subject to the prior written consent of
the Transferors, which shall not unreasonably be withheld and subject to the
right of the Transferors to have their accountants and attorneys consult with
the Acquirer on such audits or procedures at the Transferors' expense);
provided, however, that the Transferors and the Acquirer shall jointly control,
and shall cooperate with each other in connection with, any and all such audits
which may result in the assessment of additional Taxes against both the
Transferors and SUPERNET. The Transferors shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by SUPERNET
as a result of any such audit or other proceeding, the Transferors shall be
responsible for and shall promptly pay all Taxes, interest, and penalties for
which any of the Indemnified Parties shall be entitled to indemnification.
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<PAGE>
9.5 INDEMNIFICATION OF TRANSFEROR. The Acquirer agrees to indemnify and
-----------------------------
hold harmless the Transferors and SUPERNET and each officer, director,
stockholder or affiliate of SUPERNET, from and against any Adverse Consequence
arising out of any misrepresentation, breach or default by the Acquirer of or
under any of the covenants, agreements or other provisions of this Agreement or
any agreement or document executed in connection herewith.
9.6 LIMITS ON INDEMNIFICATION. All Adverse Consequence sought by any
-------------------------
Party hereunder shall be net of any insurance proceeds received by such Party
with respect to such claim (less the present value of any premium increases
occurring as a result of such claim). Except for any claims for breach of the
representations, warranties and covenants of the Transferors under Sections 4.8,
------------
4.19, and 4.21 hereof (for which indemnification claims must be made prior to
- ---- ----
the expiration of the applicable statute of limitations plus sixty (60) days and
if so made, such claims shall continue after such date until finally resolved
and made) and Sections 3.5 and 4.2 hereof (pursuant to which the right to make
------------ ---
claims for indemnification under this Article IX shall survive the Closing Date
----------
indefinitely), the right to make claims for indemnification provided under this
Article IX shall expire on the first anniversary of the Closing Date (except for
- ----------
claims made prior to such date which shall continue after such date until
finally resolved). The Transferor shall not be obligated to pay any amounts for
indemnification under this Article IX until the aggregate indemnification
----------
obligation sought by the Acquirer hereunder exceeds $75,000, whereupon the
Transferors shall be liable for all amounts for which indemnification may be
sought in excess of $75,000 up to a maximum indemnification by Transferors equal
to the Transfer Consideration. The Acquirer shall not be obligated to pay any
amounts for indemnification under this Article IX until the aggregate
----------
indemnification obligation sought by the Transferors hereunder exceeds $75,000,
whereupon the Acquirer shall be liable for all amounts for which indemnification
may be sought in excess of $75,000 up to a maximum indemnification by Acquirer
equal to the Stock Portion of the Transfer Consideration. For purposes of
Section 9.1 or 9.5, any requirement in any representation or warranty that an
- ----------- ---
event or fact be Material or have a Material adverse effect, as appropriate, in
order for such event or fact to constitute a misrepresentation or breach of such
representation or warranty shall be ignored. Notwithstanding the foregoing, in
no event shall the aggregate liability of any individual Transferor to the
Acquirer or the Acquirer to the Transferors exceed the Transfer Consideration
received by such Transferor. However nothing in this Article IX shall limit the
Acquirer or the Transferors in exercising or securing any remedies provided by
applicable statutory or common law with respect to the conduct of the
Transferors or the Acquirer in connection with this Agreement or in the amount
of damages that it can recover from the other in the event that the Acquirer
successfully proves intentional fraud or intentional fraudulent conduct in
connection with this Agreement. The amount of all Adverse Consequences paid by
the Transferors shall be deemed to be a reduction of the Transfer Consideration
paid by Acquirer under this Agreement.
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<PAGE>
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
------------------------
as provided below:
(A) the Acquirer and the Transferors may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(B) the Acquirer may terminate this Agreement by giving written
notice to the Transferors at any time prior to the Closing in the event the
Transferors are in breach of any representation, warranty, or covenant contained
in this Agreement in any Material respect and such breach has not been cured
within ten (10) days of written notice thereof, and the Transferors may
terminate this Agreement by giving written notice to the Acquirer at any time
prior to the Closing in the event the Acquirer is in breach of any
representation, warranty, or covenant contained in this Agreement in any
Material respect and such breach has not been cured within ten (10) days of
written notice thereof; or
(C) this Agreement will terminate if the Closing shall not have
occurred on or before March 31, 1999; provided, however, that in the event the
Acquirer has filed a registration statement with the SEC and either (i) the
Acquirer's lead underwriter informs the Acquirer that a public offering of stock
is not advisable or (ii) the registration statement has not been declared
effective but the Acquirer is using reasonable efforts to have the registration
statement declared effective, this Agreement shall terminate on June 30, 1999;
provided, further, however, that in the event this Agreement is extended to a
date after March 31, 1999, the Cash Portion of the Transfer Consideration, after
accounting for the adjustments described in Section 2.2(b)(i), and the Stock
-----------------
Portion of the Transfer Consideration will each be increased by three percent
(3%).
(D) Nothing contained in this Section 10.1 shall alter, affect,
------------
modify or restrict any Parties' rights to rely on and/or seek indemnification
for a breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
10.2 EFFECT OF TERMINATION. If either the Acquirer or the Transferors
---------------------
terminate this Agreement pursuant to Section 10.1 above, all obligations of the
------------
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
ARTICLE XI
MISCELLANEOUS
11.1 PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
--------------------------------
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or public announcement relating to the subject matter of this
Agreement prior to, at or about the Closing without the prior written approval
of the Acquirer and the Transferors, which written approval will not be
unreasonably withheld by each party; provided, however, that any Party may make
any public disclosure it believes in good faith is required by law or regulation
(in which case the disclosing Party will advise the other Parties prior to
making the disclosure).
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<PAGE>
11.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
11.3 ENTIRE AGREEMENT. This Agreement shall not confer any rights or
----------------
remedies upon any person other than the Parties and their respective successors
and permitted assigns. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof.
11.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
-------------------------
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his, her or its rights, interests, or obligations hereunder without the
prior written approval of the Acquirer and the Transferors; provided, however,
that the Acquirer may assign (i) any or all of its rights and interests
hereunder to a wholly-owned Subsidiary of Acquirer (in any or all of which cases
the Acquirer nonetheless shall remain liable and responsible for the performance
of all of its obligations hereunder) or (ii) any or all of rights of the
Agreement to any lender providing debt financing to the Acquirer or its
Affiliates.
11.5 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
11.6 NOTICES. All notices or other communications hereunder will be in
-------
writing and shall be delivered by hand, facsimile or sent, postage prepaid, by
registered or certified mail or reputable overnight courier service (and shall
be deemed given when so delivered by hand or facsimile, or, if mailed, five days
after mailing (one business day in the case of overnight courier)) addressed to
the intended recipient as set forth below:
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<PAGE>
If to SUPERNET or the Transferors:
D&E Communications, Inc.
4139 Oregon Pike
Ephrata, PA 17522
Attn: Barton D. Whitman
Tel: (717) 733-8314
Fax: (717) 738-7461
and to:
SUPERNET, Inc. and/or the Transferors
c/o D&E SuperNet, Inc.
212 Spottswood Lane
Lancaster, PA 17601
Attn.: Carlton Miller and Allon H. Lefever
Tel: (717) 738-7061
Fax: (717) 738-7030
with a copy to:
Buchanan Ingersoll
301 Grant Street
One Oxford Centre, 20th Floor
Pittsburgh, Pennsylvania 15219
Attn.: Stephen W. Johnson and James O. Perry
Tel: (412) 562-1859
Fax: (412) 562-1041
If to the Acquirer:
U.S. Internet Providers, Inc.
c/o Unison Partners, LP
50 Hawthorne Road
Southampton, NY 11968
Attn.: Steve Smith
Tel: (516) 287-4084
Fax: (516) 287-4767
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<PAGE>
with a copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, NW
Washington, D.C. 20004
Attn.: J. Hovey Kemp and
Christopher J. Hagan
Tel: (202) 637-5623
Fax: (202) 637-5910
Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
11.7 DISPUTE RESOLUTIONS. THE PARTIES AGREE TO SUBMIT TO ARBITRATION,
-------------------
IN ACCORDANCE WITH THESE PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING
FROM OR RELATED TO THE ALLEGED BREACH OF THIS AGREEMENT OR ANY DISPUTED
INDEMNIFICATION CLAIM MADE PURSUANT TO THIS ARTICLE XI. THE PARTIES FURTHER
AGREE THAT THE ARBITRATION PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE
MEANS FOR RESOLVING ALL DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT NO
ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION
PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE CONDUCTED UNDER THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY
MAY INVOKE ARBITRATION PROCEDURES HEREIN BY WRITTEN NOTICE FOR ARBITRATION
CONTAINING A STATEMENT OF THE MATTER TO BE ARBITRATED. THE PARTIES SHALL THEN
HAVE FOURTEEN (14) DAYS IN WHICH THEY MAY IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL
ARBITRATOR. AFTER THE FOURTEEN (14) DAY PERIOD HAS EXPIRED, THE PARTIES SHALL
PREPARE AND SUBMIT TO THE AAA A JOINT SUBMISSION, WITH EACH PARTY TO CONTRIBUTE
HALF OF THE APPROPRIATE ADMINISTRATIVE FEE. IN THE EVENT THE PARTIES CANNOT
AGREE UPON A NEUTRAL ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER WRITTEN NOTICE
FOR ARBITRATION IS RECEIVED, THEIR JOINT SUBMISSION TO THE AAA SHALL REQUEST
ARBITRATORS WHO ARE PRACTICING ATTORNEYS WITH PROFESSIONAL EXPERIENCE IN THE
FIELD OF CORPORATE LAW, AND THE PARTIES SHALL ATTEMPT TO SELECT AN ARBITRATOR
FROM THE PANEL ACCORDING TO AAA PROCEDURES. UNLESS OTHERWISE AGREED BY THE
PARTIES, THE ARBITRATION HEARING SHALL TAKE PLACE IN THE PITTSBURGH,
PENNSYLVANIA METROPOLITAN AREA, AT A PLACE DESIGNATED BY THE AAA. ALL
ARBITRATION PROCEDURES HEREUNDER SHALL BE CONFIDENTIAL. EACH PARTY SHALL BE
RESPONSIBLE FOR ITS COSTS INCURRED IN ANY ARBITRATION, AND THE ARBITRATOR SHALL
NOT HAVE AUTHORITY TO INCLUDE ALL OR ANY PORTION OF SAID COSTS IN AN AWARD
REGARDLESS OF WHICH PARTY PREVAILS. THE ARBITRATOR MAY INCLUDE EQUITABLE RELIEF.
ANY ARBITRATION AWARDED SHALL BE ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A
SUMMARY OF THE ISSUES IN CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN
EXPLANATION OF THE REASONS FOR THE AWARD.
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<PAGE>
11.8 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
-------------
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
11.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Acquirer and the Transferors. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.10 SEVERABILITY. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
11.11 EXPENSES. Each of the Parties and SUPERNET will bear his, her or
--------
its own costs and expenses (including legal fees and expenses and investment
banking fees) incurred in connection with this Agreement and the transactions
contemplated hereby. The Transferors' shall bear all of SUPERNET's expenses
prior to Closing. The Transferors acknowledge and agree that SUPERNET has not
borne or will not bear any of the Transferors' costs and expenses (including any
legal fees and expenses) in connection with this Agreement or any of the
transactions contemplated hereby.
11.12 CONSTRUCTION. The language used in this Agreement will be deemed
------------
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant relating to the same subject
matter as any other representation, warranty or covenant (regardless of the
relative levels of specificity) which the Party has not breached, it shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
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<PAGE>
11.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ACQUIRER:
U.S. INTERNET PROVIDERS, INC.
By: /s/ Stephen E. Smith
--------------------------------------
Name: Stephen E. Smith
-------------------------------
Title: President
-------------------------------
SUPERNET:
D & E SUPERNET, INC.
By: /s/ Rodney A. Lefever
--------------------------------------
Name: Rodney A. Lefever
-------------------------------
Title: Director, President
-------------------------------
TRANSFERORS:
SUPERNET INTERACTIVE SERVICES, INC.
By: /s/ Allon H. Lefever
--------------------------------------
Name: Allon H. Lefever
------------------------------
Title: Director, Treasurer
------------------------------
D&E COMMUNICATIONS, INC.
By: /s/ Anne B. Sweigart
--------------------------------------
Name: Anne B. Sweigart
-------------------------------
Title: Chairman and President
-------------------------------
D&E INVESTMENTS, INC.
By: /s/ Donald R. Kaufmann
--------------------------------------
Name: Donald R. Kaufmann
-------------------------------
Title: Chairman
-------------------------------
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<PAGE>
EXHIBIT 10.10
-------------
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into
as of _______ __, 1999 by and between Michael C. Crabtree ("EXECUTIVE") and
United States Internet, Inc., a Delaware corporation ("EMPLOYER"), but effective
as of the Effective Date.
RECITAL
-------
Executive and Employer desire to enter into an agreement to set forth
the terms and conditions of Executive's employment with Employer.
AGREEMENT
---------
In consideration of the promises and the mutual covenants hereinafter
set forth, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms,
-----------
including both the singular and the plural and whether or not capitalized, shall
have the meanings assigned to them below, as follows:
(A) "AFFILIATE" means with respect to any Person, any other
Person which directly or indirectly controls, is controlled by or is under
common control with such Person.
(B) "BUSINESS" means the business of Employer on the date first
above written, consisting of internet access systems and services, dial-up and
dedicated internet access, web hosting, web consulting, and information
technology consulting services, that are marketed or sold to the public,
government or any business entities.
(C) "COMPANY" means U.S. Internet Providers, Inc., the parent of
Employer.
(D) "COMPETITIVE ACTIVITY" means any business or activity of
Executive or any third party. that is the same as the Business or competitive
with the Business.
<PAGE>
(E) "CONFIDENTIAL INFORMATION" means all confidential
information and trade secrets of the Company as generally understood pursuant to
customary business practices of similarly situated companies, Employer and their
Affiliates including, without limitation, the following: the identity, written
lists, or descriptions of any customers, vendors, referral sources or
Organizations; financial statements, cost reports, or other financial
information; contract proposals or bidding information; business plans; training
and operations methods and manuals; personnel records; fee structures; and
management systems, policies or procedures, including related forms and manuals.
"CONFIDENTIAL INFORMATION" shall not include any information or knowledge which:
(a) is in the public domain other than by Executive's breach of this Agreement;
(b) is disclosed to Executive lawfully by a third party who is not under any
obligation of confidentiality; or (c) is now or hereafter becomes generally
known in the industry of Employer other than by Executive's breach of this
Agreement.
(F) "EFFECTIVE DATE" means the effective date of the merger by
and between the Employer and US Internet, Inc., Tennessee corporation.
(G) "IPO" means the initial public offering of the Company's
common stock pursuant to a registration statement on Form S-1 filed with the
United States Securities and Exchange Commission.
(H) "NONCOMPETE PERIOD" means period beginning on the date
hereof and ending on the second anniversary, except as specifically provided in
Section 7, of the date of the termination of Executive's employment under any
- ---------
provision of Section 7.
---------
(I) "NONSOLICITATION PERIOD" means the period beginning on the
date hereof and ending on the second anniversary, except as specifically
provided in Section 7, of the date of the termination of Executive's employment
---------
under any provision of Section 7.
---------
(J) "ORGANIZATION" means any organization that has contracted
with Employer for the performance of services in connection with the Business.
(K) "PERSON" means any individual, corporation, partnership,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or government body.
(L) "PURCHASER" means any individual or entity that purchases
all or substantially all the shares of capital stock or assets of Employer, or
any entity with which Employer merges.
(M) "TRADE AREA" means the three hundred (300) mile radius
around the Employer's executive offices (located in Knoxville, Tennessee) and
the one hundred (100) mile radius around the Employer's offices located in the
States of Alabama, Georgia, Kentucky and Virginia.
2. EMPLOYMENT. Employer hereby employs Executive and Executive
----------
hereby accepts such employment by Employer on the terms and conditions set forth
in this Agreement.
-2-
<PAGE>
3. TERM. The term of this Agreement (the "TERM") shall commence on
----
the Effective Date and shall continue until the third anniversary thereof,
unless sooner terminated as provided for herein; provided, however, that this
Agreement may be renewed at Employer's option for additional one year periods
(each a "RENEWAL TERM") on the third anniversary of the Effective Date and on
each additional anniversary thereafter by Employer's delivery of written notice
at least sixty (60) days prior to the expiration of the Term or any Renewal
Term. Either Executive or Employer may terminate this Agreement with or without
Cause as provided in Section 7 below. Upon termination of Executive's employment
---------
with Employer pursuant to the terms contained in this Agreement, Employer shall
have no further liability to Executive with respect to this Agreement except for
compensation, fringe benefits and perquisites accrued and unpaid on the date of
such termination and except as otherwise specifically set forth herein. Upon
termination of this Agreement by Executive pursuant to the terms contained in
this Agreement, Executive shall have no further liability to Employer with
respect to this Agreement except for the covenants of the Executive contained in
Sections 8 and 9 herein which survive the term of this Agreement and except as
- ---------- -
specifically set forth herein.
4. POSITION, DUTIES AND PLACE OF PERFORMANCE. Executive agrees to
-----------------------------------------
serve as Chief Executive Officer of the Employer or in such other capacities on
behalf of Employer of reasonably similar levels and duties as designated by
Employer's Board of Directors ("BOARD"). Executive shall perform those duties,
if so requested, which are consistent with such position. Prior to the IPO,
Executive shall be elected as a Director to serve on the Board of Directors of
the Company and, following the IPO, shall serve in such capacity so long as he
is employed as the Chief Executive Officer of the Employer.
5. TIME AND EFFORTS DEVOTED. During the term of this Agreement,
------------------------
Executive shall devote substantially all of his business time, energy, best
efforts and attention to the business and affairs of Employer and shall not
engage, directly or indirectly, in any other business or businesses without the
consent of Employer which would require the expenditure of substantial time or
energy or undermine Executive's focus on his position described herein.
6. COMPENSATION; BENEFITS AND PERQUISITES.
--------------------------------------
(A) COMPENSATION. For all services rendered by Executive during
------------
the Term, Employer shall pay Executive a base salary of $125,000 per annum,
payable in equal installments and regular intervals at least monthly. Executive
shall be eligible for an annual bonus of $50,000 in the event that Employer
achieves a 33% year-over-year increase in gross revenues.
(B) BENEFITS AND PERQUISITES. Executive shall be entitled to the
------------------------
following benefits and perquisites and such other benefits as may be mutually
agreed by Employer and Executive in writing from time to time during the Term:
(i) payment of Executive's reasonable business travel and other business
expenses, provided Executive properly accounts therefor in accordance with such
policies; (ii) paid vacation, holidays and sick leave; and (iii) all other
applicable Executive benefits, including, if applicable, medical, dental and
disability insurance, pension, profit sharing and other benefits plans of
Employer or its Affiliates,
-3-
<PAGE>
each in accordance with Employer's policies as more fully set forth in the
manual attached hereto as Exhibit A and any changes thereto [PLEASE PROVIDE US
WITH THE MANUAL].
(C) OPTIONS. Based upon the performance criteria set forth in
--------
Annex A hereto, the Executive shall be granted the discretion (subject to Board
- -------
approval which shall not be unreasonably withheld) to allocate among certain key
employees of Employer options for the purchase of the Company's common stock
based on the criteria set forth therein ("PERFORMANCE OPTIONS").
7. TERMINATION OF EMPLOYMENT.
-------------------------
(A) TERMINATION EVENTS. Executive's employment under this
------------------
Agreement, and the Term, shall terminate and neither party shall have any
further rights or obligations under this Agreement (except for the rights and
obligations under those sections of this Agreement which are continuing and
shall survive such termination), on the earliest to occur of the following
events:
(I) The sixtieth (60th) day following Employer's receipt
of notice of termination from Executive.
(II) The sixtieth (60th) day following Executive's receipt
of notice of termination without Cause from Employer.
(III) On the expiration date of the Term or any Renewal Term
if prior written notice is received by Employee from Employer sixty
days prior to the expiration of the Term or Renewal Term.
(IV) The death of Executive.
(V) Upon written notice to Executive by Employer,
effective as of the date of such notice, if Executive shall have
become permanently disabled. For purposes of this Agreement, the term
"PERMANENTLY DISABLED" shall mean Executive's incapacity due to
physical or mental illness such that he is or will be unable to
perform the essential functions of his previously assigned duties for
a period of at least six continuous months where such incapacity has
been determined to exist by either (x) Employer's disability insurance
carrier or (y) by the Board in good faith based on competent medical
advice. In the event the Board determines that a permanent disability
exists, Executive shall receive payment equivalent to Executive's
disability insurance coverage until such time as Executive's
disability insurance payments begin, provided, however, that Executive
shall use his best efforts to receive such disability insurance
payments. Any such termination for disability shall be only as
expressly permitted by the Americans with Disabilities Act.
(VI) The termination of Executive by Employer for "Cause"
(as hereinafter defined). For purposes of this Agreement, "CAUSE"
shall mean and
-4-
<PAGE>
include, subject to the limitations described below, any wrongful act
or omission occurring in a repeated, continuous pattern which
constitutes: (A) .Executive's material neglect, refusal or failure to
diligently perform any lawful direction of Employer or comply with any
other material obligation of Executive under this Agreement, as
determined in good faith by the Board or Employer's Chairman and such
direction or obligation has not been cured within 10 days after
written notice to Executive of such neglect, refusal, failure or
noncompliance; (B) Executive's conviction of any crime involving moral
turpitude or any felony; (C) Executive's commission of an act of theft
or fraud in connection with his duties hereunder; (D) Executive
engaging in any discrimination or sexual harassment with respect to
Executives, customers or vendors of the Employer, the Company or their
Affiliates; (E) Executive's gross negligence or willful misconduct in
connection with the performance of his duties hereunder; or (F) any
material violation of Sections 8 or 9 hereof by Executive.
---------- -
(B) PAYMENTS AFTER TERMINATION. In the event Employer terminates
--------------------------
Executive's employment during the Term without Cause pursuant to Section
-------
7(a)(ii) above, Executive shall have no further rights or claims against the
- --------
Employer, the Company, or their Affiliates except for (i) the right to continue
to be entitled to receive the base compensation under Section 6(a) above for a
------------
period of six months following the date of Executive's termination (the
"SEVERANCE PERIOD") payable ratably over the Severance Period in accordance with
the Employer's normal payroll practices; provided, however, that (i) Employer
can elect to continue to pay Executive his base compensation as described in
Section 6(a) for a period longer than the Severance Period, and (ii) the
- ------------
restrictions covering Executive described in Sections 9(a) and 9(b) shall remain
----------------------
in effect only for the period of time Executive continues to receive payment for
his base compensation; (ii) reimbursement of all business expenses incurred by
the Executive prior to the date of termination; and (iii) the right to continue
to receive during the Severance Period all medical, dental or other health and
welfare benefits provided to Executive during the Term; provided, however, that
such benefits shall cease to the extent Executive receives similar benefits from
any business which employs Executive during the Severance Period. In the event
of termination of the Executive's employment for any reason other than by
Employer without Cause pursuant to Section 7(a)(ii) above, neither Executive nor
----------------
his beneficiary or estate will have any further rights or claims against the
Employer, the Company or their Affiliates except for (i) the unpaid portion of
the base compensation through the date of termination, (ii) reimbursement of all
business expenses incurred by the Executive prior to such date; and (iii) in the
event of Executive's death or permanent disability, the right to receive the
base compensation under Section 6(a) above for a period of two months following
------------
the date of Executive's termination pursuant to his subclause (iii), and all
---------------
rights of Executive under the terms of any Executive benefit plans or insurance
policies of Employer applicable to Executive.
(C) RETURN OF EMPLOYER'S PROPERTY. Executive agrees that, upon
-----------------------------
the termination of this Agreement, Executive will immediately surrender to the
Employer all of the Employer's property, including, without limitation,
equipment, funds, lists, manuals, books, records or other Confidential
Information (including all copies of the foregoing) in the possession of, or
provided to, Executive.
-5-
<PAGE>
8. CONFIDENTIAL INFORMATION AND GOODWILL; INVENTIONS. Executive
--------------------------------------------------
acknowledges and agrees as follows:
(A) As a necessary function of Executive's employment hereunder,
Executive may have access to and utilize Confidential Information which
constitutes a valuable and essential asset of Employer's business;
(B) Employer's relationship with its Executives and the
recognition of Employer as a provider of efficient and effective services in the
Business are valuable and essential elements of the goodwill of Employer; and
(C) All inventions, innovations, developments, improvements,
methods, designs, analyses, drawings, software, reports and all similar or
related information (whether or not patented or patentable) developed by
Executive which (i) directly or indirectly relate to the Employer, the Company
or their Affiliates or the Business, or (ii) result from any work performed by
Executive while employed by Employer, the Company or their Affiliates shall
belong to the Employer and its Affiliates. Executive shall promptly disclose all
such inventions to Employer's Chairman and perform all actions reasonably
requested by Employer's Chairman (whether during or after the Term or any
Renewal Term) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
9. NONCOMPETITION, NONSOLICITATION AND PROTECTION OF CONFIDENTIAL
--------------------------------------------------------------
INFORMATION. Executive covenants and agrees as follows:
- -----------
(A) NONCOMPETITION. At any time during the Noncompete Period,
--------------
he will not, as an officer, director, Executive, shareholder, owner, consultant,
principal, agent, trustee or through the agency of any corporation, partnership,
association or agent or agency, except in his capacity as an Executive of
Employer, participate or engage in the Business or any Competitive Activity in
the Trade Area, and shall not be the owner, directly or indirectly, of more than
five percent (5%) of the outstanding capital stock of any corporation,
partnership or other business engaged in any Competitive Activity in the Trade
Area.
(B) NONSOLICITATION.
---------------
(I) At any time during the Nonsolicitation Period,
Executive will not, except in his capacity as an Executive of
Employer,
(A) directly or indirectly knowingly induce any
customer of Employer, the Company or their Affiliates to
patronize any other individual or entity engaged in any
Competitive Activity with respect to such Competitive Activity;
(B) knowingly service, canvass, solicit or accept any
business from any customer of Employer, the Company or their
Affiliates
-6-
<PAGE>
for the purpose of competing with Employer, the Company or their
Affiliates;
(C) knowingly, directly or indirectly request or
advise any customer or supplier of Employer, the Company or their
Affiliates to withdraw, curtail or cancel such customer's or
supplier's business with Employer, the Company or their
Affiliates; or
(D) directly or indirectly disclose to any other
Person the name or address of any customer of Employer, the
Company or their Affiliates for the purpose of competing with
Employer, the Company or their Affiliates.
(II) At any time during the Nonsolicitation Period,
Executive further agrees that he will not, either directly or
indirectly, through any Person with which he is now or may hereafter
become associated, solicit for employment or employ any person who is
or was employed by Employer, the Company or their Affiliates at any
time within the one (1) year period immediately preceding such
solicitation or employment without the written permission of the
Company.
(C) DISCLOSURE. During the Term and for a period of two (2)
----------
years after the termination of Executive's employment hereunder for whatever
reason, Executive will use good faith reasonable efforts to preserve as
confidential and not to, either directly or indirectly, publish, release,
disseminate, disclose or otherwise make available to any third party or use or
otherwise exploit for Executive's own benefit or for the benefit of anyone other
than Employer, any Confidential Information, except as (i) may be expressly
authorized by Employer in its sole discretion, (ii) required during and in the
course of Executive's employment hereunder, or (iii) required by a judicial
order or decree or governmental law or regulation.
(D) REASONABLE RESTRICTIONS. The restrictive covenants and
-----------------------
agreements contained in this Section 9 are reasonable with respect to subject
---------
matter, length of time and geographic area, for the protection of the legitimate
business interests of Employer, including, without limitation, Employer's
Confidential Information, goodwill and expectation of conducting its business
without (i) competition from Executive in the Trade Area during the Noncompete
Period and (ii) solicitation by Executive of Employer's Executives, suppliers,
customers or Business during the Nonsolicitation Period. Executive further
acknowledges and agrees that the restrictive covenants and agreement contained
in this Section 9 constitute a material inducement to Employer to enter into
---------
this Agreement.
10. REMEDIES-COURT ACTION. With respect to each breach or threatened
---------------------
breach of Section 9 of this Agreement and without waiver of any right or remedy
---------
which the Employer may elect to pursue with respect thereto, all remedies
available at law or in equity, including specific performance and injunctive
relief, may be pursued by the Employer at any time. The agreements and
covenants contained in Section 9 shall not be held invalid or unenforceable
---------
because of the scope of the geographic area or actions subject thereto or
restrictions imposed thereby, or the period of time within which such agreement
or covenant is
-7-
<PAGE>
operative, but any judgment of a court of competent jurisdiction may reform or
define the maximum geographic area and actions subject to and restricted by
Section 9 and the period of time during which such agreement or covenant is
- ---------
enforceable.
11. CAPTIONS AND NUMBER. The captions of the sections of this
-------------------
Agreement have been inserted for convenience of reference only and shall not
affect the interpretation of this Agreement. Whenever it appears appropriate
from the context, each term stated in either the singular or plural shall
include both the singular and the plural.
12. ASSIGNMENT. Neither this Agreement nor any rights or obligations
----------
hereunder may be assigned, transferred or delegated by either party without the
prior written consent of the other party in his or its sole discretion, and any
attempt to do so shall be void.
13. SEPARATE AGREEMENTS. This Agreement shall be deemed to consist of
-------------------
a series of separate covenants. Should a determination be made by a court of
competent jurisdiction that the character, duration, or geographical scope of
any provision of this Agreement is unreasonable in light of the circumstances as
they then exist, then it is the intention and the agreement of the Employer and
Executive that this Agreement shall be construed by the court in such a manner
as to impose only those restrictions on the conduct of Executive which are
reasonable in light of the circumstances as they then exist and as are necessary
to assure the Employer of the intended benefit of this Agreement. If, in any
judicial proceeding, a court shall refuse to enforce all of the separate
covenants deemed included herein because, taken together, they are more
extensive than necessary to assure the Employer of the intended benefit of this
Agreement, then it is expressly understood and agreed by the Employer and
Executive that those covenants which, if reformed in accordance with the terms
of Section 10 above or eliminated, would permit the remaining separate covenants
----------
to be enforced in such proceeding, shall, for the purpose of such proceeding, be
deemed reformed or eliminated from the provisions hereof (as applicable).
14. POLICIES, REGULATIONS AND GUIDELINES FOR EXECUTIVES. The Employer
---------------------------------------------------
might issue policies, rules, regulations, guidelines, procedures, or other
informational material, whether in the form of handbooks, memoranda, or
otherwise, relating to Employer's Executives. The parties acknowledge and agree
that such materials are general guidelines for Executive's information and shall
not be construed to alter, modify or amend this Agreement for any purpose
whatsoever.
15. AMENDMENT. No amendment of this Agreement shall be valid unless
---------
made in writing and signed by Employer and Executive.
16. ENTIRE AGREEMENT; AGREEMENT CONFIDENTIAL. This Agreement contains
----------------------------------------
the entire agreement and understanding between Employer and Executive with
respect to Executive's employment and supersedes all prior agreements, whether
written or oral, relating to Executive's employment with Employer. No
representations, inducements, or agreements have been made to induce either
Executive or Employer to enter into this Agreement which are not expressly set
forth herein. This Agreement is the sole source of rights and duties as between
Employer and Executive relating to Executive's employment by Employer. Except as
required
-8-
<PAGE>
by law, Executive and Employer agree to use reasonable commercial efforts to
maintain as confidential the terms of this Agreement.
17. NOTICE. All notices, consents, requests, approvals or other
------
communications in connection with this Agreement shall be in writing and shall
be delivered personally or sent by certified, registered or express mail,
postage prepaid, or by Federal Express or similar overnight courier service, or
by facsimile transmission (with confirmation of transmission), and shall be
deemed delivered on the date received. Unless changed by written notice
pursuant hereto, the address of each party for the purposes hereof is as
follows:
If to Executive:
Micheal C. Crabtree
c/o United States Internet, Inc.
1127 N. Broadway
Knoxville, TN 37919
Telephone: (423) 540-7140
Facsimile: (423) 291-0016
If to Employer:
c/o U.S. Internet Providers, Inc.
50 Hawthorne Road
Southhampton, New York 11968
Telephone: (516) 287-4084
Facsimile: (516) 287-4764
Attention: Stephen E. Smith
With copies to:
Hogan & Hartson L.L.P.
13th Street, NW
Washington, D.C. 20004-1109
Telephone: 202/637-5600
Facsimile: 202/637-5910
Attention: Christopher J. Hagan and
J. Hovey Kemp
18. LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE WITHOUT GIVING EFFECT TO
THAT STATE'S CHOICE OF LAW RULES.
19. COUNTERPARTS; FACSIMILE EXECUTION. This Agreement may be executed
---------------------------------
(i) in several counterparts, each of which shall be deemed an original, but
together they shall constitute one and the same instrument, and (ii) by
facsimile transmission of signature pages
-9-
<PAGE>
executed by each party, which shall be evidence of such party's intention to be
bound hereby, with duly signed originals to be exchanged by the parties in due
course.
20. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES. Executive represents
------------------------------------------
and warrants that he has full right and authority to enter into this Agreement
and fully perform his obligations hereunder, that he is not subject to any non-
competition agreement other than with Employer. Executive further represents and
warrants that he is not obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, which would
conflict with his obligation to use his best efforts to promote the interests of
Employer or which would conflict with Employer's business as conducted or
proposed to be conducted. Neither the execution nor delivery of this Agreement,
nor the carrying on of Employer's business as an officer, director or Executive
by Executive will conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which Executive is now obligated.
IMPORTANT: THIS AGREEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR
EMPLOYMENT WITH EMPLOYER. SECTION 9 CONTAINS PROVISIONS WHICH AFFECT YOUR
---------
ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING THE TERMINATION OF THIS AGREEMENT.
YOU SHOULD FEEL FREE TO SEEK ADVICE FROM YOUR ATTORNEY REGARDING ANY MATTER
RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT, YOU ARE AFFIRMING THAT
YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND TO CONSULT WITH YOUR
ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING AND SIGNIFICANCE OF
ALL OF ITS PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU
REGARDING YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS AGREEMENT, AND THAT
YOU ARE FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH EMPLOYER.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"EXECUTIVE"
___________________________________
Michael C. Crabtree
"EMPLOYER"
UNITED STATES INTERNET, INC.
By:________________________________
Name:___________________________
Title:__________________________
-11-
<PAGE>
ANNEX A
CRABTREE EMPLOYMENT AGREEMENT
-----------------------------
TYPE OF OPTIONS: PERFORMANCE OPTIONS ARE NON-QUALIFIED STOCK OPTIONS.
- ---------------
. Number of options: The total number of Performance
-----------------
Options to be awarded to key members of Employer's
management by Executive shall be 200,000.
Grant date: Performance Options are granted upon the Company's IPO.
- ----------
Term: The term of each Performance Option is 10 years from the
- ----
grant date, as long as the option holder remains an
employee of Employer.
Exercise price: The exercise price of each Performance Option is equal
- --------------
to the price per share of the common stock issued to the
public in the Company's IPO.
Fixed vesting: Performance Options vest on a fixed vesting schedule of
- -------------
1/3 each year on the sixth, seventh and eighth
anniversary of the grant date, as long as the
optionholder remains an employee.
Accelerated vesting: Performance Options have accelerated vesting upon
- -------------------
achievement of "Revenue Increments" on the following
schedule:
20% @ $5 million of Revenue Increment
40% @ $10 million of Revenue Increment
60% @ $15 million of Revenue Increment
80% @ $20 million of Revenue Increment
100% @ $25 million of Revenue Increment
Option plan: The Performance Options will be options issued under the
- -----------
Company's Equity Compensation Plan to be put in place
before the IPO.
<PAGE>
EXHIBIT 21.1
State of Incorporation
Name or Organization
- ---- ----------------------
D&E Supernet, Inc. Delaware
SunLink, Inc. Pennsylvania
LebaNet, Inc. Pennsylvania
SouthWind Internet Access, Inc. Kansas
Horizon Internet Technologies, Inc. Kansas
United States Internet, Inc. Tennessee
Internet Partners of America, LC Arkansas
Netrox, LLC Florida
ZoomNet, Inc. Ohio
Palm.Net, USA, Inc. Florida
Internet Access Group, Inc. Florida
Midwest Internet L.L.C. Illinois
Internet Solutions, LLC Missouri
FGInet, Inc. Illinois
Superhighway, Inc., d/b/a IndyNet Indiana
Lightspeed Net, Inc. California
JPS.Net Corporation California
<PAGE>
EXHIBIT 99.1
RULE 134 EMAIL NOTICE, WIT CAPITAL MEMBERS
SUBJECT: IPO Alert: OneMain.com, Inc. available through Wit Capital
Wit Capital Corporation is pleased to announce that we are able to offer a
participation in the Initial Public Offering of OneMain.com, Inc., lead managed
by BT Alex. Brown, as described below:
ISSUER: OneMain.com, Inc. provides Internet access and related services to
individuals and businesses located predominately in secondary, tertiary and
rural markets throughout the United States.
SECURITY: Common Stock
EXPECTED SIZE OF OFFERING: x shares
EXPECTED PRICE RANGE: $x to $x
NASDAQ SYMBOL: x
MANAGING UNDERWRITERS: BT Alex. Brown, SoundView Technology Group and Wit
Capital Corporation as e-Manager/TM/
If you think you may be interested in this Initial Public Offering available
through Wit Capital, please visit http://www.witcapital.com/stok/x/*/ or call
-----------------------------------
(888) 494-8227 x4427.
You can view, download and print the Preliminary Prospectus from a dedicated
section of Wit Capital's web site at http://www.witcapital.com/stok/x. You
-----------------------------------
may also obtain a prospectus by calling Wit Capital at the above number or
writing Wit Capital at: 826 Broadway, 6th Floor, New York, NY 10003.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS COMMUNICATION SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN AND REVOKED WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND,
AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
AN INDICATION OF INTEREST IN RESPONSE TO THIS ADVERTISEMENT WILL INVOLVE NO
OBLIGATION OR COMMITMENT OF ANY KIND.
Wit Capital is a Member NASD/SIPC
- ---------
* UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR LINK
TO ANOTHER SCREEN.
<PAGE>
EXHIBIT 99.2
RULE 134 EMAIL NOTICE, E-DEALER CUSTOMERS
SUBJECT: IPO Alert: OneMain.com, Inc. available through (e-Dealer name).
(e-Dealer name), in connection with Wit Capital Corporation acting as e-Manager,
is pleased to announce that we are able to offer a participation in the Initial
Public Offering of OneMain.com, Inc., lead managed by BT Alex. Brown, as
described below:
ISSUER: OneMain.com, Inc. provides Internet access and related services to
individuals and businesses located predominately in secondary, tertiary and
rural markets throughout the United States.
SECURITY: Common Stock
EXPECTED SIZE OF OFFERING: x shares
EXPECTED PRICE RANGE: $x to $x
NASDAQ SYMBOL: x
MANAGING UNDERWRITERS: BT Alex. Brown, SoundView Technology Group and Wit
Capital Corporation as e-Manager/TM/
If you think you may be interested in this Initial Public Offering available
through (e-Dealer name), please visit http://www.e-Dealer.com/stok/x/*/ or call
---------------------------------
(e-Dealer telephone number).
You can view, download and print the Preliminary Prospectus from a dedicated
section of (e-Dealer's) web site at http://www.e-Dealer.com/stok/x. You may
-------------------------------
also obtain a prospectus by calling (e-Dealer name) at the above number or
writing (e-Dealer name) at (street and city address).
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS COMMUNICATION SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN AND REVOKED WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND,
AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
AN INDICATION OF INTEREST IN RESPONSE TO THIS ADVERTISEMENT WILL INVOLVE NO
OBLIGATION OR COMMITMENT OF ANY KIND.
(e-Dealer name) is a Member NASD/SIPC
___________
* Underlined text denotes that such text appears as a navigation button or link
to another screen.
<PAGE>
EXHIBIT 99.3
RULE 134 EMAIL NOTICE, OneMain.com, Inc. SUBSCRIBERS/ VISITORS
SUBJECT: OneMain.com Inc. IPO available through Wit Capital
Dear (Subscriber or Visitor):
OneMain.com, Inc.(we will be the parent company for your ISP, [subsidiary
name]), in connection with Wit Capital Corporation, is pleased to announce that
we are able to offer a participation in our Initial Public Offering, lead
managed by BT Alex. Brown, as described below:
ISSUER: We provide Internet access and related services to individuals and
businesses located predominately in secondary, tertiary and rural markets
throughout the United States.
SECURITY: Common Stock
EXPECTED SIZE OF OFFERING: x shares
EXPECTED PRICE RANGE: $x to $x
EXPECTED SYMBOL: x
MANAGING UNDERWRITERS: BT Alex. Brown, SoundView Technology Group and Wit
Capital Corporation as e-Manager/TM/
The Underwriters, at our request, have reserved for sale at the Initial Public
Offering price up to ____ shares of common stock to subscribers and visitors to
one of the websites maintained by the companies we will acquire upon completion
of this offering who express an interest in purchasing such shares. If you think
you may be interested in this Initial Public Offering available through Wit
Capital, please visit http://www.witcapital.com/stok/x/*/ or call (888) 494-8227
-----------------------------------
x4427.
You can view, download and print the Preliminary Prospectus from a dedicated
section of Wit Capital's web site at http://www.witcapital.com/stok/x/*/. You
-----------------------------------
may also obtain a prospectus by calling Wit Capital at the above number or
writing Wit Capital at: 826 Broadway, 6th Floor, New York, NY 10003. To
purchase shares, you must first open an account, which can be done online.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH
JURISDICTION.
NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN AND REVOKED WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND,
AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
AN INDICATION OF INTEREST IN RESPONSE TO THIS ADVERTISEMENT WILL INVOLVE NO
OBLIGATION OR COMMITMENT OF ANY KIND.
Wit Capital Corporation is a Member NASD/SIPC
__________
* Underlined text denotes that such text appears as a navigation button or link
to another screen.
<PAGE>
EXHIBIT 99.4
Text of Wit Capital/ e-Dealer Web site
(a) GATEWAY PAGE SCREEN SHOT - consists of a parent frame and child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
-----------------------------------------------------------------
Contact Us, Mailing List./*/
-------------------------
. CHILD FRAME - the following text appears in the child frame:
. Initial Public Offering for [Issuer]
. Issuer Logo
. Get Preliminary Prospectus, Place Conditional Offer, Open Account
---------------------- ----------------------- ------------
. Expected Size of Offering: X Common Stock Shares
. Expected Price Range: $X - $X
. Managing Underwriters: [W,X,Y,Z]
. Summary:
[Issuer Summary]
. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
COMMUNICATION SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE
PRICE CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE,
AND ANY SUCH OFFER MAY BE WITHDRAWN AND REVOKED WITHOUT OBLIGATION OR
COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE
GIVEN AFTER THE EFFECTIVE DATE. AN INDICATION OF INTEREST IN RESPONSE TO
THIS ADVERTISEMENT WILL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND.
- ----------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-1-
<PAGE>
(b) REGISTRATION - STEP 1 PAGE SCREEN SHOT - consists of a parent frame and
child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
------- -- -------------
. CHILD FRAME - the following text appears in the child frame:
. REGISTRATION - Step One
. (If Client has not yet been required to enter a username and
password)
. To view the [Issuer] preliminary prospectus at no charge, please
enter your username and password below. Remember, to view a
prospectus or to submit a request to buy shares, you must already
have opened an account.
. Interactive dialogue boxes appear requiring the user to enter
his/her "Username" and "Password."
. Two command buttons appear allowing the user to "Submit" or "Reset"
the information entered.
. Rules and Procedures, FAQs, Contact Us, Mailing List
-------------------- ---- ---------- ------------
- ------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-2-
<PAGE>
(c) REGISTRATION - STEP 2 PAGE SCREEN SHOT - consists of a parent frame and
child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ----------------
. CHILD FRAME - the following text appears in the child frame:
. REGISTRATION - Step Two
. In order to keep our records updated, please answer the following
questions: After completing the information below, click the submit
button.
. These securities may not be sold nor may offers to buy be accepted
from anyone other than United States Nationals or Residents.
. 1. Are you a United States National or Resident? Yes [_] No [_]
. In addition, (b/d) will not distribute the prospectus outside of
the United States.
. 2. Are you currently in the United States? Yes [_] No [_]
. 3. Do you hold any NASD licenses? Yes [_] No [_]
. If you (or any member of your immediate family, or any business entity
with which you are affiliated, or any account in which you have a
beneficial interest) are an officer, director, general partner,
employee or agent of a member firm, or a stock exchange or the National
Association of Securities Dealers, or you are associated with, have an
affiliation with or have contributed capital to a broker/dealer, you
must disclose below. Or if you (or a member of your household or
immediate family) are a senior officer of a bank, savings and loan
institution, insurance company, investment company, investment advisor
or other similar institution, or are an employee of the securities
department of such institution, you must disclose below.
<PAGE>
. 4. Stock Exchange [_] NASD [_] Bank [_] Insurance Company [_]
Investment Advisor [_]
. Company Name: followed by interactive dialogue box allowing user to
enter a response.
. In order to participate in new issues of securities, your objectives
must allow for speculation. Speculative investments are risky and are
not appropriate for everyone. You should assess whether such
investments are suitable for you.
. 5. Do your investment objectives allow for speculation? Yes [_] No [_]
- -----------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-3-
<PAGE>
(d) REGISTRATION PAGE SCREEN SHOT - consists of a parent frame and child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ----------------
. CHILD FRAME - the following text appears in the child frame:
. REGISTRATION
. To view any Wit Capital Prospectus at no charge, simply complete the
information below and click Submit Remember, to submit a conditional
offer to purchase shares, first open an account.
. Required:
. Please enter your e-mail address: followed by an interactive dialogue
box allowing the user to enter a response.
. If you are not a member, please answer these optional questions as
well.
. The user is asked to enter his/her first name, last name, daytime
phone, evening phone and state via interactive dialogue boxes.
. Two command buttons appear allowing the user to "submit" or "Reset"
the information entered.
. Rules & Procedures, FAQs, Contact Us, Mailing List
------------------ ---- ---------- ------------
- --------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-4-
<PAGE>
(e) REQUIRED INFORMATION PAGE SCREEN SHOT - consists of a parent frame and
child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ----------------
. CHILD FRAME - the following text appears in the child frame:
. REQUIRED INFORMATION
. You did not provide an answer for all of the required fields. Use your
back button to return to the registration page and complete all
----
required fields. Please contact [email protected] for more information.
-----------
. Rules & Procedures, FAQs, Contact Us, Mailing List
------------------ ---- ---------- ------------
- ------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-5-
<PAGE>
(f) SECURITIES LAW DOES NOT PERMIT PAGE SCREEN SHOT - consists of a parent
frame and child frame
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ----------------
. CHILD FRAME - the following text appears in the child frame:
. Securities Law Does Not Permit
. We're sorry. Due to (Foreign securities laws) we are not permitted to
give you access to the prospectus. Please contact [email protected] for
-----------
more information.
. (OR)
. Affiliation Does Not Permit
. We're sorry. Due to (affiliation requirements) we are not permitted
to give you access to the prospectus. Please contact [email protected] for
-----------
more information.
. (OR)
. Suitability Does Not Permit
. We're sorry. Due to (suitability requirements) we are not permitted
to give you access to the prospectus. Please contact [email protected] for
-----------
more information.
. Rules & Procedures, FAQs, Contact Us, Mailing List
------------------ ---- ---------- ------------
- -------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-6-
<PAGE>
(g) PROSPECTUS LINKS PAGE SCREEN SHOT - consists of a parent frame and child
frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ------------------------ ------------------ -----
Contact Us, Mailing List./*/
---------- ----------------
. CHILD FRAME - the following text appears in the child frame:
. Issuer Logo
. The [Issuer] preliminary prospectus is available in PDF and HTML
formats only. To download simply click the appropriate link below. To
open the PDF version you will need to download Adobe Acrobat Reader.
--------------------
. PDF prospectus - 592K
---------------------
Approx. Time (28.8K): 4 Mins 6 Secs
. HTML prospectus - 1.22Mb
------------------------
Approx. Time (28.8K): 8 Min
. Rules & Procedures, FAQs, Contact Us, Mailing List
------------------ ---- ---------- ------------
- ---------------------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-7-
<PAGE>
(h) PROSPECTUS PAGE SCREEN SHOT - consists of a parent frame and child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
---------------- ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ----------------
. CHILD FRAME - the following text appears in the child frame:
[Issuer prospectus]
- ---------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-8-
<PAGE>
(i) OPEN AN ACCOUNT - STEP 1 PAGE SCREEN SHOT - consists of a parent frame and
child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ---------------
. CHILD FRAME - the following text appears in the child frame:
. Open An Account
. Three Easy Choices:
. Please read the following choices and select the one that best suits
you.
. [graphic of two computers] 1. Apply Online. This is the fastest way
------------
to open your account. If you open an individual account you may
immediately enter a Conditional Offer to buy a new issue. We
recommend this option for those using Netscape 3.0 or higher or
Microsoft 1.E.4.0 or higher and are familiar with their use.
. [graphic of pen and clipboard] 2. Print Application. Use this option
-----------------
if you would prefer to fill out the application by hand. An account
application may be printed from our site and mailed back to Wit
Capital.
. [graphic of telephone] 3. Over the Telephone. You may call a Wit
------------------
Capital representative at 1-888-4WITCAP (888-494-8227) to open your
account over the telephone between the hours of 8:30 a.m.-7:00 p.m.
Monday through Friday.
. Non U.S. Residents:
. Please follow either choice 2, or 3.
. Rules & Procedures, FAQ's, Contact Us, Mailing List
------------------ ----- ---------- ------------
- -------------------------------
*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-9-
<PAGE>
(j) OPEN AN ACCOUNT -STEP 2 PAGE SCREEN SHOT - consists of a parent frame and
child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ------------
. CHILD FRAME - the following text appears in the child frame:
. Open An Account
. If you live in the United States, you should complete a customized
online account application that starts on this screen. The process is
straight forward. Just follow the directions.
. Step 1 - Account Registration.
. Select how you would like your account registered. The most common
registration types are individual, Joint Tenants with Rights of
Survivorship, and IRA's. For descriptions of these and other
registration types visit Types of Account Registrations.
------------------------------
. A drop down dialogue box appears displaying the types of accounts.
. Step 2 - Account Type
. Indicate whether you want to open a cash account or a margin account.
A cash account enables you to buy or sell securities on a cash basis.
A margin account gives you the option to buy or sell on a cash basis
or borrow funds using your marginable securities or cash as
collateral.
. A drop down dialogue box appears displaying the types of accounts.
. Step 3 - State of Residence
<PAGE>
. Specify your state of residence. If you are a non U.S. resident
please indicate so below.
. A drop down dialog box appears allowing the user to enter his/her
state of residency or other.
. Step 4 - Preliminary Data
. Check all of the following that apply:
. [ ] I would like to authorize someone else to trade on my account.
. [ ] I am not a permanent resident or citizen of U.S.A.
. [ ] I would like to fund my account by transferring funds or
securities from another existing brokerage account.
. Command button allowing the user to "continue".
. Step 5 - Primary Data
. Provide all of the following information. Optional data is indicated
as such.
. Account Information
. The user (account owner) is required to enter his/her title, first
name, middle initial, last name, date of birth, social security
number, marital status, number of dependants, daytime phone, evening
phone, e-mail address, gender, legal address, city, state, zip code,
mailing address, city, state, zip code via interactive dialogue boxes.
. Citizenship
. Are you a U.S. Citizen? Yes [ ] No [ ]
. If you are not a U.S. Citizen, answer the following questions.
. Please specify country of citizenship:
. A drop down dialogue box appears allowing the user to enter his/her
country of citizenship.
. And enter passport number:
<PAGE>
. A drop down dialogue box appears allowing the user to enter his/her
passport number.
. Also enter country that issued passport
. A drop down dialogue box appears allowing the user to enter the name
of the country issuing his/her passport.
. Are you a non-resident alien? Yes [ ] No [ ]
. Financial Information
. Annual Income: followed by a drop down dialogue box.
. Liquid Net Worth: followed by a drop down dialogue box
. Net Worth Excluding Home: followed by a drop down dialogue box
. Estimated Tax Bracket: followed by a drop down dialogue box
. Accredited Investor Information
. To participate in private placements you must be an Accredited
Investor. To establish your status as an Accredited Investor complete
the following:
. Do you and your spouse have a combined net worth of $1,000,000 or
. Yes [ ] No [ ]
. For each of the past two years has your annual income been greater
than or equal to $200,000 or has the combined annual income of you and
your spouse been greater than or equal to $300,000?
. Yes [ ] No [ ]
. Do you anticipate your income will continue at that level?
. Yes [ ] No [ ]
. Employment/Occupational Information
<PAGE>
. The user is required to enter his/her employer name, employment
status, position/title, years employed, type of business; employer
street address, city, state and zip code via interactive dialogue
boxes.
. Affiliation Status
. Are you (or a member of your household or if a business entity anyone
affiliated with you) a director, 10% shareholder, or policy-making
officer of a publicly traded company?
. A drop down dialogue box appears allowing the user to enter response.
. If YES, please specify the Company Symbol:
. A drop down dialogue box appears allowing the user to enter response.
. Do you (or a member of your household or if a business entity anyone
affiliated with you) have an affiliation with, or work for, a member
firm of a stock exchange or the National Association of Securities
Dealers, Inc.? Or, are you (or a member of your household or immediate
family) a senior officer of a bank, trust or insurance company, or
other similar institution, or an employee of the securities department
of such institution?
. If YES, please specify the firm or company:
. A drop down dialogue box appears allowing the user to enter response.
. Do you hold any NASD Licenses: Yes [_] No [_]
. Money Fund Instructions
. Designate which Money Market fund you wish to use for your uninvested
cash:
. An Alliance Money Market Prospectus is available for each fund. You
must read this prospectus before investing. We suggest you also
download or print a copy after you complete this application and
retain it for your records. PLEASE READ IT CAREFULLY before you
invest.
. Banking Reference Information
. The user is required to enter his/her bank and branch name, account
number and bank state via interactive dialogue boxes.
<PAGE>
. Investing Experience
. Indicate how many years of prior trading or investing experience you
have with each of the following.
. Certificate of Deposit: followed by an interactive dialogue box
allowing the user to enter a response.
. Mutual Funds: followed by an interactive dialogue box allowing the
user to enter a response.
. Stocks: followed by an interactive dialogue box allowing the user to
enter a response.
. Bonds: followed by an interactive dialogue box allowing the user to
enter a response.
. Options: followed by an interactive dialogue box allowing the user to
enter a response.
. Limited Partnerships: followed by an interactive dialogue box
allowing the user to enter a response.
. Futures: followed by an interactive dialogue box allowing the user to
enter a response.
. Investment Objectives
. What are your Investment Objectives? You may check all that apply.
. Growth: followed by an interactive dialogue box allowing the user to
enter a response.
. Current Income: followed by an interactive dialogue box allowing the
user to enter a response.
. Tax Deferral: followed by an interactive dialogue box allowing the
user to enter a response.
. Liquidity: followed by an interactive dialogue box allowing the user
to enter a response.
<PAGE>
. Credit Preferences: followed by a drop down dialogue box allowing the
user to enter a response.
. In order to participate in new issues of securities, your objectives
must allow for speculation. Speculative investments are risky and are
not appropriate for everyone. You should assess whether such
investments are suitable for you. Do your investment objectives allow
for speculation?
. Yes [_] No [_]
. Duplicate Confirmations/Statements
. Complete this section if you want duplicate confirmations/statements
sent to a third party. If you have any affiliation with, or work for,
a member firm of a stock exchange or the NASD, or a bank, trust, or
insurance company, you must complete this section so that duplicate
confirmations/statements can be sent to your firm. Confirmations to
member NASD firms are free. Duplicate confirmations/statements are
free so long as your recipient's e-mail address has been provided.
. The user is asked to enter the individual name/NASD firm name, mailing
address, city, state, zip code and e-mail via interactive dialogue
boxes.
. Optional Information
. How did you hear about Wit Capital? Followed by a drop down dialogue
box.
. If other please specify. Followed by an interactive dialogue box.
. Which brokerage firm holds the largest portion of your assets?
Followed by an interactive dialogue box.
. Which brokerage firm handles most of your trades? Followed by an
interactive dialogue box.
. Please indicate your modem speed at the location where you most often
conduct your online investing. Followed by an interactive dialogue
box.
. "Continue" command button.
- -------------------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-10-
<PAGE>
(k) CONDITIONAL OFFER PAGE SCREEN SHOT - consists of a parent frame and child
frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
---------------- ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- -------------
. CHILD FRAME - the following text appears in the child frame:
. IPO CONDITIONAL OFFER
. Issuer: [_]
. I'd like to place a Conditional Offer for the following number of
shares: followed by an interactive dialogue box.
. The user may choose from:
. At the offering price [ ]
. or
. Limit Price [ ]: followed by an interactive dialogue box allowing the
user to enter a price
. Two command buttons allowing the user to "Submit Offer" or "Clear
Offer"
. This order is based on my review of the most current version of the
[Issuer Symbol] preliminary prospectus as linked.
----------------------
. No offer to buy the securities can be accepted and no part of the
purchase price can be received until the registration statement has
become effective, and any such offer may be withdrawn or revoked,
without obligation or commitment of any kind, at any time prior to
notice of its acceptance given after the effective date.
- -----------------------------
*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-11-
<PAGE>
(l) GATEWAY PAGE SCREEN SHOT - consists of a parent frame and child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
---------------- ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ------------
. CHILD FRAME - the following text appears in the child frame:
. [_] RULES AND PROCEDURES
. PURCHASING NEW ISSUES
. . Types of new issues
-------------------
. Risks and suitability
---------------------
. Initial Public Offerings
------------------------
. Viewing offering materials
--------------------------
. Entering Conditional Offers
---------------------------
. Changing or canceling Conditional Offers
----------------------------------------
. Blue Sky and foreign securities laws
------------------------------------
. Buying limits
-------------
. Funding deadlines
-----------------
. Re-circulations
---------------
. Allocations
-----------
. Flippers will lose priority
---------------------------
. Affinity groups may gain priority
---------------------------------
. Confirmation of purchase
------------------------
. Final prospectus delivery
-------------------------
. Secondary and Follow-On Offerings
---------------------------------
. Viewing offering materials
--------------------------
. Entering Conditional Offers
---------------------------
. Changing or canceling Conditional Offers
----------------------------------------
. Blue Sky and foreign securities laws
------------------------------------
. Buying limits
-------------
. Funding deadlines
-----------------
. Re-circulations
---------------
. Allocations
-----------
. Flippers will lose priority
---------------------------
. Affinity groups may gain priority
---------------------------------
. Confirmation of purchase
------------------------
. Final prospectus
----------------
. Wit Capital does not provide tax, legal, or accounting advice and
does not recommend the suitability of any investment or investment
strategy. You assume full responsibility for all of your investment
decisions.
. Types of New Issues. Wit Capital offers its Members opportunities
to participate in new issues of securities, including:
. Initial Public Offerings. A new issue in which an issuer sells
shares to an underwriter who, in turn, resells to investors at the
offering price. Typically, the shares begin trading immediately on a
national market such as NASDAQ or the New York Stock Exchange. The
first time a company sells stock that trades publicly is called an
Initial Public Offering or IPO.
. Secondary, Follow-On and Combination Offerings. The public sale by
shareholders of previously issued securities that are already trading
publicly is called a Secondary Offering. The public sale by an issuer
of newly issued securities by a company which already has publicly
traded securities is called a Follow-On Offering. Frequently
<PAGE>
offerings have both a primary (Follow-On) and secondary component.
These offerings are known as Combination Offerings. In underwritten
Secondary, Follow-On and Combination Offerings, a selling
shareholder(s) and/or corporate issuer sells securities to an
underwriter who, in turn, resells the securities to investors at the
offering price.
. Risks and Suitability: Investing in new issues is speculative and
highly risky and is only appropriate for certain investors. Members
assume full responsibility for determining whether any new issue is
appropriate for them.
. Initial Public Offerings.
. Viewing offering materials. Initial Public Offerings are offered
and sold by way of an official offering document called a prospectus.
The prospectus is filed with federal and state securities regulators
as part of the registration statement which must be declared
effective prior to the issue.
. After the prospectus has been filed but before the offering is
declared effective, offers to sell the securities can be made using a
preliminary prospectus or "red herring." The preliminary prospectus
generally indicates a range of prices within which the issue is
expected to be made. Issues typically also prepare roadshow
presentations during the period when the preliminary prospectus is
pending.
<PAGE>
. In each public offering in which Wit Capital participates as an
underwriter, Members may view an online copy of the preliminary
prospectus together with any roadshow material made available by the
issuer. Guest Users may also view this material if they first provide
some basic personal information and an e-mail address.
. Entering Conditional Offers. If you are a Member, during the
period when the preliminary prospectus is pending, you will be able
to enter "Conditional Offers" to purchase securities when and if
issued. Conditional Offers are in effect conditional offers to
purchase securities. These offers cannot be accepted until the
registration statement for the offering has been declared effective
by the Securities and Exchange Commission. Upon the registration
statement being declared effective by the Securities and Exchange
Commission, we will contact you by e-mail or telephone to notify you
of the effectiveness of the registration statement. YOU WILL THEN
NEED TO CONTACT US BY E-MAIL OR TELEPHONE ON THE DATE THAT WE CONTACT
YOU AND REAFFIRM YOUR PREVIOUSLY SUBMITTED CONDITIONAL OFFER. IF YOU
FAIL TO REAFFIRM YOUR PREVIOUS OFFER, WE MAY NOT BE ABLE TO INCLUDE
YOU IN THE OFFERING. Please note that if there are not enough shares
for all customers who have placed conditional offers, you may not
have the opportunity to affirmatively confirm your conditional offer
or, if you do affirmatively confirm your conditional offer, we may
not be able to offer you shares in the offering.
. Conditional Offers may be entered as "limit orders" which means that
you are willing to purchase the securities at up to a particular
price. Alternatively, Conditional Offers may be entered "at the
offering price" which means that you are willing to purchase
securities at the price at which the issue is made (so long as it is
within the range specified in the preliminary prospectus.)
. To enter a Conditional Offer, follow these steps:
. Complete the Conditional Offer form that appears, specifying the
number of shares, the type of order and for limit orders, the price.
. Click on the review button to review your offer. Once you have
reviewed it, click on the submit conditional offer button to
transmit it to Wit Capital.
. Wait until your Conditional Offer has been received. You will be
notified of its receipt by an acknowledgement message on your screen.
Your Conditional Offer will also appear as an open order in your
account.
. Canceling or changing Conditional Offers. To cancel or modify
Conditional Offers, simply go to your Open Orders page, which
appears in the Manage My
<PAGE>
Account section of our main website. Look for the Conditional Offer
and click either of the buttons next to it marked Change or Cancel.
. Blue Sky and foreign securities laws. Conditional Offers will be
accepted only from Members residing in jurisdictions where the
offering has been registered under local securities laws or where
such registration is not required. Not all offerings are registered
in every state or available in every country and therefore not every
Member will be eligible to participate in every public offering.
. Buying limits. For our mutual protection, Wit Capital may set
limits on the amount or proportion of investments you can make in
speculative securities including Initial Public Offerings. Although
Wit Capital reserves the right to reject or cancel your Conditional
Offers at any time and without notice, generally you will receive
notice of any rejection or cancellation.
. Funding deadlines. Conditional Offers may be entered as soon as a
preliminary prospectus has been posted, without available funds in
your account. However if you do not have on deposit $1,000 (which is
the minimum account balance for all trades with Wit Capital) as of
the time immediately after the registration statement has been
declared effective, Wit Capital may cancel your Conditional Offer
and/or your priority. The full amount of the purchase price must be
paid by the settlement date.
. Initial Public Offerings must be purchased in the cash portion of
your account.
. Re-circulations. On occasion, an amended prospectus is prepared
during the public offering process that contains material changes to
the information provided in the preliminary prospectus. In these
cases, a revised preliminary prospectus must be circulated to buyers
in the offering.
. In the event of re-circulations, Members who have entered Conditional
Offers will be sent an e-mail message directing them to a site on the
World Wide Web where a copy of the amended preliminary prospectus is
posted. From the site the amended preliminary prospectus can be read
and printed or downloaded. As agreed by each Member in the customer
agreement governing all Wit Capital accounts, such delivery shall
constitute good and effective delivery of the amended preliminary
prospectus whether or not you follow the instructions and actually
access the new prospectus via the Web.
. Allocations. Wit Capital's general rule of allocation is first-
come first-served, and our proprietary electronic order book has been
designed to record the time and date of each Conditional Offer.
Generally, Members submitting Conditional
<PAGE>
Offers first will have priority over those who submit them later,
subject to minimum and maximum limits that will be set on a deal by
deal basis.
. There are, however, two important exceptions to the first-come
first-served allocation principle:
. Flippers will lose priority. Members who have track records for
buying public offering shares and holding them for at least 60 days
will have priority over Members who do not have such records. Thus,
Wit Capital shall attempt to penalize "flippers" by reducing their
likelihood of obtaining shares in subsequent public offerings.
. To enforce this anti-flipping policy, Wit Capital will maintain for
each Member a rating score that tracks their record for buying and
holding public offering shares. Members will score positive points
based on the number of Initial Public Offering shares purchased and
held. If you sell these shares, or transfer them out of your account,
within 60 days, then you will score negative points.
. Affinity groups may gain priority. In certain offerings, Wit
Capital may agree with an issuer to favor Members who are also
customers or employees of the issuer or who have some other
preexisting relationship with the issuer. In these transactions
general Members will be able to purchase after shares are allocated
to the Members who are also part of the issuer's affinity group.
. Wit Capital reserves the right to allocate shares on any basis or to
change its method of allocating shares at any time and without
notice, and Members should not expect that entering a Conditional
Offer in any way entities them to purchase any securities.
. Confirmation of purchase. On the new issue date, Members whose
Conditional Offers have been accepted and who have reaffirmed their
Conditional Offers by telephone or e-mail will receive by e-mail a
confirmation specifying the number of shares purchased and the issue
price. The shares will automatically be deposited into your account.
. If you did not receive shares in the allocation, then you will
receive by e-mail a message indicating that your Conditional Offer
has been cancelled.
. Final prospectus delivery. Members whose Conditional Offers are
accepted will also receive an e-mail message directing them to a site
on the World Wide Web where a final prospectus is posted. From the
site the final prospectus can be read and printed or downloaded. As
agreed by each Member in the customer agreement governing all Wit
Capital accounts, such delivery shall constitute good
<PAGE>
and effective delivery of the final prospectus whether or not you
follow the instructions and actually access the final prospectus via
the Web. Federal and state securities laws require delivery of the
final prospectus.
. Secondary, Follow-On and Combination Offerings.
. Viewing offering materials. Registered Secondary, Follow-On and
Combination Offerings are offered and sold by way of an official
offering document called a prospectus. The prospectus is filed with
federal and state securities regulators unless exempt from such
requirements as part of the registration statement which must be
declared effective prior to the issue.
. After the prospectus has been filed but before the offering is
declared effective, offers to sell the securities can be made using a
preliminary prospectus or "red herring." The preliminary prospectus
generally indicates the last sale price of the security prior to the
filing of the registration statement. Issuers typically also prepare
roadshow presentations during the period when the preliminary
prospectus is pending.
. In each Secondary, Follow-On and Combination Offering in which Wit
Capital participates as an underwriter, Members may view an online
copy of the preliminary prospectus together with any roadshow
material made available by the issuer. Guest Users may also view this
material if they first provide some basic personal information and an
e-mail address.
. Entering Conditional Offers. If you are a Member, during the
period when the preliminary prospectus is pending, you will be able
to enter "Conditional Offers" to purchase securities when and if
issued. Conditional Offers are in effect conditional offers to
purchase securities. These offers cannot be accepted until the
registration statement for the offering has been declared effective
by the Securities and Exchange Commission. Upon the registration
statement being declared effective by the Securities and Exchange
Commission, we will contact you by e-mail or telephone to notify you
of the effectiveness of the registration statement. YOU WILL THEN
NEED TO CONTACT US BY E-MAIL OR TELEPHONE ON THE DATE THAT WE CONTACT
YOU AND REAFFIRM YOUR PREVIOUSLY SUBMITTED CONDITIONAL OFFER. IF YOU
FAIL TO REAFFIRM YOUR PREVIOUS OFFER, WE MAY NOT BE ABLE TO INCLUDE
YOU IN THE OFFERING. Please note that if there are not enough shares
for all customers who have placed conditional offers, you may not
have the opportunity to affirmatively confirm your conditional offer
or, if you do affirmatively confirm your conditional offer, we may
not be able to offer you shares in the offering.
<PAGE>
. You shall be entitled to cancel any Conditional Offer at any time
prior to such time as you are sent notice that the Time of
Effectiveness has occurred and your offer has been accepted.
. Conditional Offers may be entered as "limit orders" which means
that you are willing to purchase the securities at up to a
particular price. Alternatively, Conditional Offers may be entered
"at the offering price" which means that you are willing to purchase
securities at the price at which the issue is made. For Secondary,
Follow-On and Combination Offerings, typically the offering price is
subject to market conditions and frequently is in close proximity to
the last sale price of the security in its principle trading market
prior to the pricing terms of the offering being set.
. To enter a Conditional Offer, follow these steps:
. Complete the Conditional Offer form that appears, specifying the
number of shares, the type of order and for limit orders, the price.
. Click on the review button to review your offer. Once you have
reviewed it, click on the submit conditional offer button to
transmit it to Wit Capital.
. Wait until your Conditional Offer has been received. You will be
notified of its receipt by an acknowledgement message on your
screen. Your Conditional Offer will also appear as an open order in
your account.
. Canceling or changing Conditional Offers. To cancel or modify
Conditional Offers, simply go to your Open Orders page, which
appears in the Manage My Account section of our main website. Look
for the Conditional Offer and click either of the buttons next to it
marked Change or Cancel.
. Blue Sky and foreign securities laws. Conditional Offers will be
accepted only from Members residing in jurisdictions where the
offering has been registered under local securities laws or where
such registration is not required. Not all offerings are registered
in every state or available in every country and therefore not every
Member will be eligible to participate in every Secondary, Follow-On
and Combination Offering.
. Buying limits. For our mutual protection, Wit Capital may set
limits on the amount or proportion of investments you can make in
speculative securities including Secondary, Follow-On and
Combination Offerings. Although Wit Capital reserves the right to
reject or cancel your Conditional Offers at any time and without
notice, generally you will receive notice of any rejection or
cancellation.
<PAGE>
. Funding deadlines. Conditional Offers may be entered as soon as a
preliminary prospectus has been posted, without available funds in
your account. However if you do not have on deposit $1,000 (which
is the minimum account balance for all trades with Wit Capital) as
of the time immediately after the registration statement has been
declared effective, Wit Capital may cancel your Conditional Offer
and/or your priority. The full amount of the purchase price must be
paid by the settlement date.
. Secondary, Follow-On and Combination Offerings generally must be
purchased in the cash portion of your account.
. Re-circulations. On occasion, an amended prospectus is prepared
during the public offering process that contains material changes to
the information provided in the preliminary prospectus. In these
cases, a revised preliminary prospectus must be circulated to buyers
in the offering.
. In the event of re-circulations, Members who have entered
Conditional Offers will be sent an e-mail message directing them to
a site on the World Wide Web where a copy of the amended preliminary
prospectus is posted. From the site the amended preliminary
prospectus can be read and printed or downloaded. As agreed by each
Member in the customer agreement governing all Wit Capital accounts,
such delivery shall constitute good and effective delivery of the
amended preliminary prospectus whether or not you follow the
instructions and actually access the new prospectus via the Web.
. Allocations. Wit Capital's general rule of allocation is first-
come first-served, and our proprietary electronic order book has
been designed to record the time and date of each Conditional Offer.
Generally, Members submitting Conditional Offers first will have
priority over those who submit them later, subject to minimum and
maximum limits that will be set on a deal by deal basis.
. There are, however, two important exceptions to the first-come
first-served allocation principle:
. Flippers will lose priority. Members who have track records for
buying Secondary, Follow-On and Combination offerings and holding
them for at least 30 days will have priority over Members who do not
have such records. Thus, Wit Capital shall attempt to penalize
"flippers" by reducing their likelihood of obtaining shares in
subsequent public offerings.
. To enforce this anti-flipping policy, Wit Capital will maintain for
each Member a rating score that tracks their record for buying and
holding public offering shares. Members will score positive points
based on the number of public offering shares
<PAGE>
purchased and held. If you sell these shares, or transfer them out
of your account, within 30 days (60 days for Initial Public
Offerings), then you will score negative points.
. Affinity groups may gain priority. In certain offerings, Wit
Capital may agree with an issuer to favor Members who are also
customers or employees of the issuer or who have some other
preexisting relationship with the issuer. In these transactions
general Members will be able to purchase after shares are allocated
to the Members who are also part of the issuer's affinity group.
. Wit Capital reserves the right to allocate shares on any basis or
to change its method of allocating shares at any time and without
notice, and Members should not expect that entering a Conditional
Offer in any way entitles them to purchase any securities.
. Confirmation of purchase. On the new issue date, Members whose
Conditional Offers have been accepted and who have reaffirmed their
Conditional Offers by telephone or e-mail will receive by e-mail a
confirmation specifying the number of shares purchased and the issue
price. The shares will automatically be deposited into your
account.
. Final prospectus delivery. Members whose Conditional Offers are
accepted will also receive an e-mail message directing them to a
site on the World Wide Web where a final prospectus is posted. From
the site the final prospectus can be read and printed or downloaded.
As agreed by each Member in the customer agreement governing all Wit
Capital accounts, such delivery shall constitute good and effective
delivery of the final prospectus whether or not you follow the
instructions and actually access the final prospectus via the Web.
Federal and state securities laws require delivery of the final
prospectus.
. Rules & Procedures, FAQs, Contact Us, Mailing List
------------------ ---- ---------- ------------
--------------------------------
*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR LINK
TO ANOTHER SCREEN.
-12-
<PAGE>
(m) FREQUENTLY ASKED QUESTIONS (FAQS) PAGE SCREEN SHOT - consists of a parent
frame and child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
---------------- ----------------------- ------------------ -----
Contact Us, Mailing List./*/
------------------------
. CHILD FRAME - the following text appears in the child frame:
. FAQs
. Initial Public Offerings
. 1. What is an Initial Public Offering?
----------------------------------
. 2. Why are individual investors often excluded from traditional IPOS?
-----------------------------------------------------------------
. 3. What is the process for subscribing to a Wit Capital IPO?
--------------------------------------------------------
. 4. How can I learn more about the companies being issued?
-----------------------------------------------------
. 5. What happens if there are not enough shares to meet demand?
----------------------------------------------------------
. 6. How long should I hold shares I purchase in an IPO?
--------------------------------------------------
. Secondary, Follow-On and Combination Offerings
. 1. What is a Secondary Offering?
----------------------------
. 2. What is a Follow-On Offering?
----------------------------
. 3. What is a Combination Offering?
------------------------------
. 4. Why are individual investors often excluded from traditional
------------------------------------------------------------
Secondary, Follow-On and Combination Offerings?
----------------------------------------------
. 5. What is the process for subscribing to a Wit Capital Secondary,
--------------------------------------------------------------
Follow-On or Combination Offering?
---------------------------------
. 6. How can I learn more about the companies being issued?
-----------------------------------------------------
. 7. What happens if there are not enough shares to meet demand?
----------------------------------------------------------
. 8. How long should I hold shares I purchase in a Secondary, Follow-On
------------------------------------------------------------------
or Combination Offering?
-----------------------
. Q. What is an Initial Public Offering?
<PAGE>
. A. An IPO is a corporation's first offering of a security
representing shares of the company to the public. Growing companies
typically use IPOs to raise capital for future business expansion.
Generally, an underwriter prepays the issuer for its stock and then goes
----------- ------
to the public market to sell it.
. Q. Why are individual investors often excluded from traditional
IPOs?
. A. Shares sold in a traditional IPO are generally marketed to, and
reserved for, institutional investors and their preferred customers. A
Wit Capital IPO however, gives Members equal opportunity to buy stock in
emerging growth companies at the offering price.
. Q. What is the process for subscribing to a Wit Capital IPO?
. A. When you become a Member, you'll receive an e-mail message
---------------
notifying you whenever a new preliminary prospectus is posted on our web
----------------------
site. After you review the prospectus, you may enter a Conditional Offer
if you want to subscribe. You will need to affirmatively confirm your
conditional offer to buy after the registration statement for the
offering has been declared effective. This is described in more detail
under Rules and Procedures. If you do not have on deposit $1,000 (which
--------------------
is the minimum account balance for all trades with Wit Capital) as of the
time immediately after the registration statement for the offering has
been declared effective, Wit Capital may cancel your Conditional Offer
-----------------
and/or your priority. You will be notified by e-mail on the pricing date
if you have received shares in an offering. Full payment of the purchase
price is due on the settlement date for the initial public offering.
. Q. How can I learn more about the companies being issued?
. A. The first step to learning about a potential investment is to
review the issuing company's preliminary prospectus or "red herring".
----------------------
These documents, which have been submitted to the SEC, are available for
all Wit Capital Public Offerings online at the Wit Capital web site. A
company's prospectus includes company background information, financial
data and specifics about the offering. Prospectuses can either be viewed
online or downloaded.
. Q. What happens if there are not enough shares to meet demand?
. A. Wit Capital's general rule of allocation will be first-come
first-served. That means that no special preferences will be made to
reward special
<PAGE>
customers or big accounts. This is the cornerstone of a fair system, and
Wit Capital is committed above all else to fair treatment of its Members.
News of each offering will be simultaneously e-mailed to all
Members, and Wit Capital's proprietary electronic order book will
record the time and date of each Member's Conditional Offer.
-----------------
Generally, Members submitting Conditional Offers first will have
priority over those who submit later.
. Q. How long should I hold shares I purchase in an IPO?
. A. At least 60 days. By not "flipping" shares before 60 days, our
Members will help make sure that high-quality issuers will continue
to want to work with us. Members who have track records for buying
IPO shares and holding them in their account beyond 60 days will have
priority in future IPO share allocations over Members who do not,
although the general rule of allocation will be first-come first-
----------
served.
To encourage this buy-and-hold approach, Wit Capital will maintain
for each Member a rating score that tracks their record for buying
and holding public offering shares. When you buy an IPO issue, you
score positive points based on the number of shares purchased. If you
then sell the shares within 60 days, or transfer the shares out of
your account, then you score negative points.
. Q. What is a Secondary Offering?
. A. A Secondary Offering is the public sale by shareholders of previously
issued securities that are already trading publicly. In underwritten
Secondary Offerings, a selling shareholder or corporate issuer sells
securities to an underwriter who, in turn, resells the securities to
-----------
investors at the offering price.
Registered Secondary Offerings are priced in negotiations between
the selling shareholder(s), issuer and the representative(s) of
------
the underwriter(s) taking into account the representative(s)
assessment of demand for the securities. Typically these offerings
are priced in close proximity to the last sale price of the security
in its principal trading market prior to the pricing terms of the
offering being set.
Typically, the offering shares begin trading on a stock exchange or
"over-the-counter" through the NASDAQ stock market shortly after the
pricing terms have been set.
<PAGE>
. Q. What is a Follow-On Offering?
. A. A Follow-On Offering is the public sale by an issuer of
------
newly issued securities by a company which already has
publicly traded securities. In underwritten Follow-On
Offerings, a selling shareholder or corporate issuer
sells securities to an underwriter who, in turn, resells
-----------
the securities to investors at the offering price.
Registered Follow-On Offerings are priced in negotiations
between the selling shareholder(s), issuer and the
representative(s) of the underwriter(s) taking into
account the representative(s) assessment of demand for
the securities. Typically these offerings are priced in
close proximity to the last sale price of the security in
its principal trading market prior to the pricing terms
of the offering being set.
Typically, the offering shares begin trading on a stock
exchange or "over-the-counter" through the NASDAQ stock
market shortly after the pricing terms have been set.
. Q. What is a Combination Offering?
. A. Frequently offerings have both a primary (Follow-On) and
secondary component. These offerings are known as
Combination Offerings. In underwritten Combination
Offerings, a selling shareholder or corporate issuer
sells securities to an underwriter who, in turn, resells
-----------
the securities to investors at the offering price.
Registered Combination Offerings are priced in
negotiations between the selling shareholder(s), issuer
------
and the representative(s) of the underwriter(s) taking
into account the representative(s) assessment of demand
for the securities. Typically these offerings are priced
in close proximity to the last sale price of the security
in its principal trading market prior to the pricing
terms of the offering being set.
Typically, the offering shares begin trading on a stock
exchange or "over-the-counter" through the NASDAQ stock
market shortly after the pricing terms have been set.
. Q. Why are individual investors often excluded from traditional
Secondary, Follow-On and Combination Offerings?
<PAGE>
. A. Shares sold in a traditional Secondary, Follow-On and
Combination Offerings are generally marketed to, and
reserved for, institutional investors and their preferred
customers. A Wit Capital Secondary, Follow-On or
Combination Offering however, gives Members equal
opportunity to buy stock in emerging growth and other
companies at the offering price.
. Q. What is the process for subscribing to a Wit Capital
Secondary, Follow-On or Combination Offering?
. A. When you become a Member, you'll receive an e-mail message
---------------
notifying you whenever a new preliminary prospectus is
----------------------
posted on our web site. After you review the prospectus,
you may enter a Conditional Offer if you want to
subscribe. You will need to affirmatively confirm your
conditional offer to buy after the registration statement
for the offering has been declared effective. This is
described in more detail under Rules and Procedures. If
--------------------
you do not have on deposit $1,000 (which is the minimum
account balance for all trades with Wit Capital) as of
the time immediately after the registration statement for
the offering has been declared effective, Wit Capital may
cancel your Conditional Offer and/or your priority. You
-----------------
will be notified by e-mail on the pricing date if you
have received shares in an offering. Full payment of the
purchase price is due on the settlement date for the
Secondary, Follow-On or Combination Offering.
Investing in Secondary, Follow-On or Combination
Offerings is speculative and highly risky and is only
appropriate for certain investors. Members assume full
responsibility for determining whether investing in new
issues is appropriate for them.
. Q. How can I learn more about the companies being issued?
. A. The first step to learning about a potential investment is
to review the issuing company's preliminary prospectus or
----------------------
"red herring". These documents, which have been
submitted to the SEC, are available for all Secondary,
Follow-On and Combination Offerings in which Wit Capital
is participating on the Wit Capital web site. A
company's prospectus includes company background
information, financial data and specifics about the
offering. Prospectuses can either be viewed online or
downloaded.
<PAGE>
. Q. What happens if there are not enough shares to meet demand?
. A. Wit Capital's general rule of allocation will be first-come
first-served. That means that no special preferences will
be made to reward special customers or big accounts.
This is the cornerstone of a fair system, and Wit Capital
is committed above all else to fair treatment of its
Members.
News of each offering will be simultaneously e-mailed to
all Members, and Wit Capital's proprietary electronic
order book will record the time and date of each Member's
Conditional Offer. Generally, Members submitting
-----------------
Conditional Offers first will have priority over those
who submit later.
. Q. How long should I hold shares I purchase in a Secondary,
Follow-On or Combination Offering?
. A. At least 30 days. By not "flipping" shares before 30 days,
our Members will help make sure that high-quality issuers
will continue to want to work with us. Members who have
track records for buying Secondary, Follow-On or
Combination Offering shares and holding them in their
account beyond 30 days will have priority in future new
issue share allocations over Members who do not, although
the general rule of allocation will be first-come first-
----------
served.
To encourage this buy-and-hold approach, Wit Capital will
maintain for each Member a rating score that tracks their
record for buying and holding public offering shares.
When you buy a Secondary, Follow-On or Combination
Offering, you score positive points based on the number
of shares purchased. If you then sell the shares within
30 days, or transfer the shares out of your account, then
you score negative points.
. Rules & Procedures, FAQs, Contact Us, Mailing List
------------------ ---- ---------- ------------
- ------------------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-13-
<PAGE>
(n) CONTACT US PAGE SCREEN SHOT - consists of a parent frame and child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place C/onditional Offer, Rules & Procedures, FAQ's,
------------ ------------------------ ------------------ -----
Contact Us, Mailing List./*/
------------------------
. CHILD FRAME - the following text appears in the child frame:
. Contact Us
. For additional information including trading, account management and
research, please visit our website at (website address) or call us at
(telephone number)
. Mail address: [x]
. E-mail address: [x]
. Rules & Procedures, FAQs, Contact Us, Mailing List
------------------ ---- ---------- ------------
- -------------------------------
/*/ UNDERLINED TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-14-
<PAGE>
(o) JOIN OUR MAILING LIST PAGE SCREEN SHOT - consists of a parent frame and
child frame.
. PARENT FRAME - contains the text "BROKER/DEALER" and navigation buttons
for Open Account, Place Conditional Offer, Rules & Procedures, FAQ's,
------------ ----------------------- ------------------ -----
Contact Us, Mailing List./*/
---------- ------------
. CHILD FRAME - the following text appears in the child frame:
. JOIN OUR MAILING LIST
. To be notified by e-mail whenever Wit Capital has a new development,
complete the following form. If you are a Member, you are already on
our mailing list and need not fill this out.
. Required Data
. E-mail (primary): followed by an interactive dialogue box.
. E-mail (secondary - if applicable): followed by an interactive
dialogue box.
. Optional Data
. The user is asked to enter his/her first name, middle initial, last
name, address, city, state, zip code, country, telephone (day),
telephone (evening), age, sex and modem speed via interactive
dialogue boxes.
- --------------
/*/ UNDERLINES TEXT DENOTES THAT SUCH TEXT APPEARS AS A NAVIGATION BUTTON OR
LINK TO ANOTHER SCREEN.
-15-
