FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ........................ to .....................
Commission file number 0-25957
-----------------------
BIZNESSONLINE.COM, INC.
(Exact name of registrant as specified in its charter)
------------------------------
DELAWARE 06-1519132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1720 ROUTE 34
P.O. BOX 1347
WALL, NEW JERSEY 07719
(732) 280-6408
(732) 280-6409 (FAX)
(Address and telephone number of principal executive offices and
principal place of business including zip code and telephone number)
------------------------
NONE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|.
The number of shares outstanding of the Registrant's Common Stock as of
November 5, 1999 was 7,318,944.
<PAGE>
BiznessOnline.com, Inc.
Form 10-Q For the Quarterly Period Ended September 30, 1999
Index
Part I. - Financial Information
Item 1 Condensed Consolidated Balance Sheets as of.................... 3
September 30, 1999 (unaudited) and December 31, 1998
Condensed Consolidated Statements of Operations................ 4
For the Three Months and Nine Months Ended September 30, 1999
and 1998 (unaudited)
Condensed Consolidated Statement of Cash Flows................. 5
For the Nine Months Ended September 30, 1999 (unaudited)
Condensed Consolidated Statement of Stockholder's
(Deficit) Equity............................................... 6
For the Three Months and Nine Months Ended September 30, 1999
(unaudited)
Notes to Condensed Consolidated Financial Statements........... 7
Item 2 Management's Discussion and Analysis of Financial Condition.... 8
And Results of Operations
Part II. - Other Information............................................... 14
Signatures................................................................. 16
Exhibit Index.............................................................. 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
BiznessOnline.com, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(unaudited)
-----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,609,455 $ 147,736
Accounts receivable, net 744,944 --
Other current assets 186,673 --
------------ ------------
Total current assets 15,541,072 147,736
Property and equipment, net 2,483,705 --
Goodwill and intangibles, net 18,801,430 --
Other assets 58,724 108,478
------------ ------------
Total assets $ 36,884,931 $ 256,214
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $ 148,040 $ --
Current portion of obligations under capital leases 125,445 --
Accounts payable 1,157,792 98,648
Deferred taxes 91,355 --
Income tax payable 80,649 --
Accrued expenses 588,040 --
Deferred revenue 999,897 --
------------ ------------
Total current liabilities 3,191,218 98,648
Long term debt, net of current portion 7,035 --
Capital leases, net of current portion 87,409 --
Preferred stock subscriptions -- 100,000
Stockholders' equity:
Preferred stock -- --
Common stock 73,189 31,472
Additional paid in capital 35,555,572 151,528
Accumulated deficit (2,029,492) (125,434)
------------ ------------
Total stockholders' equity 33,599,269 57,566
------------ ------------
Total liabilities and stockholders' equity $ 36,884,931 $ 256,214
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(unaudited) (unaudited)
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,140,986 $ -- $ 3,801,915 $ --
Costs and expenses:
Connectivity and operations 1,193,073 -- 1,801,207 --
Sales and marketing 514,799 -- 1,146,274 --
General and administrative 680,408 24,873 1,253,902 24,873
Depreciation 173,964 -- 295,936 --
Amortization 825,982 -- 1,338,337 --
----------- ----------- ----------- -----------
Total costs and expenses 3,388,226 24,873 5,835,656 24,873
----------- ----------- ----------- -----------
Loss from operations (1,247,240) (24,873) (2,033,741) (24,873)
Interest income, net 65,662 -- 164,683 --
----------- ----------- ----------- -----------
Loss before income taxes (1,181,578) (24,873) (1,244,765) (24,873)
Income taxes 35,000 -- 35,000 --
----------- ----------- ----------- -----------
Net loss $(1,216,578) $ (24,873) $(1,904,058) $ (24,873)
=========== =========== =========== ===========
Net loss per share, basic and diluted $ (0.17) $ (0.01) $ (0.37) $ (0.01)
Weighted average shares outstanding,
basic and diluted 6,986,419 3,147,186 5,195,247 3,147,186
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999
-------------
(unaudited)
<S> <C>
Net loss $ (1,904,058)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 1,634,273
Changes in net assets and liabilities:
Increase in accounts receivable-trade (63,972)
Increase in other current assets (40,368)
Increase in accounts payable 931,174
Increase in accrued expenses 365,612
Increase in deferred taxes (7,925)
Increase in income taxes payable 35,000
Decrease in deferred revenue (85,000)
------------
Net cash provided by operating activities 864,736
------------
Cash flows from investing activities:
Capital expenditures (1,520,868)
Change in other assets 69,008
Acquisition of businesses, net of cash acquired (9,117,462)
------------
Net cash used in investing activities (10,569,322)
------------
Cash flows from financing activities:
Repayments of capital lease obligations (68,899)
Repayment of long term debt (803,051)
Proceeds from sale of preferred stock 250,000
Issuance of common stock in initial public
offering, net of underwriter discounts and
commissions 24,788,255
------------
Net cash from financing activities 24,166,305
------------
Net increase in cash 14,461,719
Cash at beginning of period 147,736
------------
Cash at end of period $ 14,609,455
============
Cash paid for interest $ 28,633
Non - cash investing and financing
Notes payable $ 580,000
Issuance of common stock for acquisitions $ 10,415,984
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statement of Stockholders' Equity (unaudited)
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Common Stock Preferred Stock Total
------------------------- -------------------------- Additional Accumulated Stockholders'
Shares Amount Shares Amount Paid in Capital Deficit Equity
----------- ----------- ----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 3,147,186 $ 31,472 -- $ -- 151,528 (125,434) 57,566
Issuance of Preferred Stock -- -- 70,000 700 349,300 -- 350,000
Issuance of common stock for
acquisition 272,000 2,720 -- -- 2,581,280 -- 2,584,000
Net loss -- -- -- -- -- (140,356) (140,356)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance March 31, 1999 3,419,186 $ 34,192 70,000 $ 700 3,082,108 (265,790) 2,851,210
Conversion of preferred stock
to common stock 61,250 612 (70,000) (700) 88 -- --
Issuance of common stock in
connection with initial public
offering, net of offering costs
and underwriter discounts 2,900,000 29,000 -- -- 24,650,777 -- 24,679,777
Issuance of common stock for
acquisitions 510,000 5,100 -- -- 4,839,900 -- 4,845,000
Net loss -- -- -- -- -- (547,124) (547,124)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance June 30, 1999 6,890,436 $ 68,904 -- -- 32,572,873 (812,914) 31,828,863
Issuance of common stock for
acquisitions 428,508 4,285 -- -- 2,982,699 -- 2,986,984
Net loss -- -- -- -- -- (1,216,578) (1,216,578)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance September 30, 1999 7,318,944 $ 73,189 -- -- 35,555,572 (2,029,492) 33,599,269
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
BiznessOnline.com, Inc.
Notes to Condensed Consolidated Financial Statements
1) Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of BiznessOnline.com, Inc. and its wholly owned
subsidiaries,(hereinafter collectively referred to as the "Company", "we", "our"
or "us"). We derive Internet access revenues primarily from subscriptions from
individuals and small to medium sized businesses for dial up and dedicated
access to the Internet. We operate in one business segment. Effective January
31, 1999, we acquired in a merger transaction all outstanding capital stock of
Global 2000 Communications, Inc., a New York corporation, for $2,720,000 in
common stock and a promissory note in the amount of $580,000, which was repaid
with proceeds from our initial public offering. Global 2000 Communications, Inc.
is an Internet service provider based in Albany, New York. The condensed
condensed financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for interim financial
information, including the instructions to Form 10-Q and rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally required in complete financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. In the
opinion of management these financial statements include all adjustments
necessary for a fair presentation of the results of operations for the interim
periods presented. Results of operations for interim periods are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
2) Initial Public Offering and Acquisitions
On May 17, 1999, we completed the sale of 2,900,000 shares of common stock in
our initial public offering for gross proceeds of $29,000,000, before
underwriting discounts and offering expenses. The net proceeds after underwriter
discounts and commissions and offering costs were approximately $24,680,000.
Simultaneously with the closing of the public offering, all 70,000 shares of
Series A Preferred Stock outstanding were converted into 61,250 shares of common
stock. Also, on May 17, 1999 we completed the acquisition of four Internet
service providers as described in the final prospectus for the initial public
offering which was filed with the Securities and Exchange Commission on May 12,
1999, for an aggregate purchase price of 510,000 shares of common stock and
$5,730,000 in cash.
On July 30, 1999, we acquired substantially all the assets of a sole
proprietorship including all the capital stock of an affiliate of the
proprietorship, Ascent Internet Holdings, Inc., which together conduct business
as an Internet service provider under the name Ascent Networking in Norwich, New
York, for $1,050,000 in cash. On August 18, 1999, we acquired all the assets of
a limited liability company, WebWay LLC, a web application service provider
located in Albany, New York, for a purchase price of 200,046 shares of common
stock and $830,000 in cash. On September 30, 1999, we acquired in a merger
transaction all outstanding capital stock of Infoboard, Inc., a web hosting
company located in Lynn, Massachusetts, for a purchase price of 228,462 shares
of common stock and $1,380,000 in cash.
In accordance with generally accepted accounting principles, the total purchase
price for these acquisitions, including Global 2000 Communications, Inc. has
been allocated to the fair value of assets purchased and liabilities assumed as
shown in the following table. Pursuant to the purchase method of accounting the
excess of purchase price over fair value of net assets acquired has been
recorded as goodwill and is being amortized over 5 years.
Working capital $ (637,770)
Property and equipment 1,258,773
Other assets 19,254
Goodwill 20,082,447
The acquisitions were each accounted for as purchases. Accordingly, the
accompanying financial statements of BiznessOnline.com, Inc. include the
operating results of Global 2000 Communications, Inc, since February 1, 1999;
the four Internet service providers acquired at the closing of our Initial
Public Offering since May 17, 1999; Ascent Networking since July 30, 1999;
WebWay, LLC, since August 18, 1999 and, Infoboard, Inc. since September 30,
1999. The pro forma results of operations for the acquired companies have been
included with the pro forma results of operations included on Page 10.
3) Property, Equipment and Intangible Assets
Accumulated depreciation and amortization on property and equipment totaled
$295,936 at September 30, 1999. Accumulated amortization on intangible assets
totaled $1,317,562 at September 30, 1999.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This filing contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Act of 1934, as amended. Those statements reflect the intent, belief or current
expectations of BiznessOnline.com, Inc. and members of its management team.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance, and involve uncertainties, and that actual
results may differ materially from those contemplated by the forward-looking
statements as a result of, among other things, reflecting changed assumptions or
the occurrence of unanticipated events or changes to future operating results
over time.
Introduction
The following discussion of results of operations and of the liquidity and
capital resources of BiznessOnline.com, Inc. should be read in conjunction with
our unaudited condensed consolidated financial statements and the related notes
thereto and the unaudited pro forma consolidated financial information appearing
in this filing on Form 10-Q.
Overview
We derive Internet access revenues primarily from subscriptions from individuals
and small to medium sized businesses for dial-up and dedicated access to the
Internet. Dial-up subscription fees vary between $9.95 and $24.95 per month
among our Internet service providers and by the billing plans for a particular
Internet service provider. The subscription rates vary among Internet service
providers due to competitive and economic factors. Most of our subscribers pay
us by credit card automatically on a monthly basis. In addition, we host
commercial and individual web sites and provide commercial web site design
services, as well as e-commerce, advertising and interactive web site support.
These services are predominantly utilized by small to medium sized businesses
looking to establish a presence on the world wide web. We also earn revenue by
providing dedicated access services via telephone lines. Our revenue composition
may change as we develop our strategy to provide additional e-commerce and
telecommunications services to our business clientele.
Results of Operations
Three Months Ended September 30, 1999
We were formed in July 1998, and conducted no significant operations between
then and January 31, 1999, the date we acquired Global 2000 Communications,
Inc., an Internet service provider located in Albany, New York. We acquired four
additional Internet service providers on May 17, 1999, one Internet service
provider on July 30, 1999, a web application service provider on August 18,
1999, and a web hosting company on September 30, 1999.
We recorded revenue of $2,140,986 during the quarter. We also incurred
$1,193,073 of connectivity and operations expenses, $514,799 of sales and
marketing expenses, $680,408 of general and administrative expenses, $173,964 of
depreciation, $825,982 of amortization costs, and earned $65,662 of interest
income, net. Income tax expense for the quarter was $35,000. We had a net loss
of $1,216,578, or $0.17 per share for the three months ended September 30, 1999.
The acquisitions of the six Internet service providers and two web hosting and
application providers have been accounted for using the purchase method of
accounting.
Nine Months Ended September 30, 1999
We recorded revenue of $3,801,915 during the nine month period ended September
30, 1999. We also incurred $1,801,207 of connectivity and operations expenses,
$1,146,274 of sales and marketing expenses, $1,253,902 of general and
administrative expenses, $295,936 of depreciation, $1,338,337 of amortization
costs, and earned $164,683 of interest income, net. Income tax expense for the
nine months ended September 30, 1999 was $35,000. We had a net loss of
$1,904,058, or $0.37 per share for the nine months ended September 30, 1999.
Liquidity and Capital Resources
At September 30, 1999, we had $14,609,455 of cash and cash equivalents, an
increase of $14,461,719 from December 31, 1998. Net cash provided by operating
activities was $864,736. Net cash used for investing activities was $10,569,322,
primarily as a result of the acquisition of the six Internet service providers
and two web hosting and application service providers during the nine months
ended September 30, 1999. Net cash provided by financing activities was
$24,166,305, primarily as a result of the initial public offering of common
stock, which closed on May 17, 1999.
8
<PAGE>
We expect our capital expenditures to increase as our operations continue to
expand. It is anticipated that financial resources will be utilized in acquiring
additional communications equipment and improvements to technology at our new
data center in Albany, NY which is expected to be operational the first week of
December 1999. These investments will allow us to better support our current
subscribers and newly acquired subscribers and we plan to integrate the billing
and financial reporting systems of each acquired company into one system
maintained at our data center.
We believe that our cash flow from operations and proceeds from our initial
public stock offering which was completed on May 17, 1999 will provide the cash
required to fund existing operations through the remainder of the fiscal year.
However, we intend to pursue our strategy of acquiring additional Internet
service providers, web hosts and e-commerce service companies through the use of
cash on hand, and the issuance of additional common stock, notes payable and
cash flow from operations. In addition, as we continue to expand the range of
our e-commerce products and services to small to medium sized businesses, we may
broaden our acquisition strategy to more comprehensively address the needs of
such customers, including but not limited to providing long distance and local
telecommunication services. Any significant acquisitions or increases in our
growth rate could materially affect our operating and financial expectations and
results, liquidity and capital resources.
Year 2000 Disclosure
With the new millennium approaching, many businesses and institutions are
reviewing and modifying their computer systems to ensure they accurately process
transactions relating to the Year 2000 and beyond. This effort is necessary
because many existing computer systems and microprocessors with data functions,
including those in non-information technology equipment and systems, use only
two digits to identify a year in the date field and assume that the first two
digits of the year are always "19." Consequently, on January 1, 2000, computers
that are not Year 2000 compliant may read that year as 1900. Computer systems
that calculate, compare or sort using the incorrect date may malfunction causing
disruptions in operation, including a temporary inability to process
transactions, send invoices or engage in other normal business activities. Our
failure to address potential Year 2000 malfunctions in our computer and
non-information technology equipment and systems could result in our suffering
business interruption, financial loss, reputational harm and legal liability.
We do not have any significant non-information technology equipment or systems.
As a result, our Year 2000 readiness efforts have primarily addressed computer
hardware and software performance.
The former owners of the Internet service providers (ISPs) that we acquired in
1999 have represented to us that they have taken all necessary action to assess,
evaluate, test and correct all of the hardware, software, microchips and other
processing capabilities of the computer and telecommunications systems used in
their ISP operations to be sure that such systems are Year 2000 compliant.
However, since acquiring such ISPs, we have not conducted our own internal audit
of their operations to confirm that these representations are true. To the
extent these representations are breached and we suffer damages relating to Year
2000 malfunctions, our reputation, operating results and financial conditions
may be adversely affected.
Some of our ISPs have contacted their major vendors, including their
telecommunication suppliers, to evaluate their Year 2000 readiness, and we
intend to continue to assess our Year 2000 risks relating to our external
vendors and third-party network service providers. To the extent that we rely on
external vendors or third-party network service providers with Year 2000
exposures, any failure by these vendors or third-party network service providers
to resolve any Year 2000 issues on a timely basis or in a manner that is
compatible with our systems could also have a material adverse effect on our
financial condition.
Based upon the information currently available to us, we do not anticipate costs
associated with the Year 2000 issue to have a material financial impact on us.
However, we may experience interruptions or other limitations of the functioning
of our financial and operating systems, and we may incur additional costs to
avoid these interruptions or limitations should they occur. Our expectations
about future costs associated with the Year 2000 issue are limited by
uncertainties that could cause actual results to have a greater financial impact
than currently anticipated. Factors that could influence the amount and timing
of future costs include:
o the rate and magnitude of related labor and consulting costs; and
o our success in addressing Year 2000 issues with third-parties with
which we do business.
As part of our integration strategy we have purchased and are presently
implementing a new billing and accounting system. These systems have been
represented to us by the suppliers to be Year 2000 compliant. We are also
replacing the servers and routers at our ISPs with new equipment, which has been
represented to us by the manufacturers to be Year 2000 compliant.
We have not developed a contingency plan to address situations that may result
if we are unable to achieve Year 2000 compliance. If we believe it becomes
necessary, we will develop a contingency plan. The costs of developing and
implementing a contingency plan, if necessary, could be material.
9
<PAGE>
Unaudited Pro Forma Consolidated Financial Information
The following unaudited pro forma consolidated financial information does not
purport to represent what our financial position or results of operations would
actually have been if such transactions and events had in fact occurred on those
dates or to project our results of operations for any future period.
Results of Operations - Pro Forma
The following unaudited pro forma consolidated financial information for the
three and nine months ended September 30, 1999 and September 30, 1998 includes
the results of BiznessOnline.com, Inc. combined with the results of the Internet
service provider acquired in January 1999, and the additional four Internet
service providers acquired in May 1999, as if the acquisitions had occurred on
January 1, 1998. These results also include the results of the additional
Internet service provider acquired in July 1999, and the results of the web host
and application providers acquired in August 1999 and September 1999, as if
these acquisitions had occurred on January 1, 1999. This unaudited pro forma
consolidated financial information includes the effects of (a) the acquisitions,
(b) our initial public stock offering, and (c) the amortization of goodwill and
other intangibles resulting from the acquisitions.
The unaudited pro forma combined financial information does not purport to
represent what our financial position or results of operations would actually
have been if such transactions and events had actually occurred on those dates
or to project our results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 2,604,190 $ 1,566,199 $ 7,574,294 $ 4,401,418
Costs and expenses:
Connectivity and operations 1,526,706 1,108,090 4,390,350 2,847,734
Sales and marketing 562,947 161,565 1,507,599 563,403
General and administrative 697,536 166,432 1,479,905 471,525
Depreciation 201,789 98,866 529,377 305,577
Amortization 1,045,207 675,967 3,073,712 2,027,899
------------ ------------ ------------ ------------
Total costs and expenses 4,034,185 2,210,920 10,980,943 6,216,138
------------ ------------ ------------ ------------
Loss from operations (1,429,995) (644,721) (3,406,649) (1,814,720)
Interest income, (expense), net 58,892 (19,150) 136,613 (37,985)
------------ ------------ ------------ ------------
Loss before income taxes (1,371,103) (663,871) (3,269,666) (1,852,705)
Income taxes 65,000 -- 65,000 --
------------ ------------ ------------ ------------
Net loss $ (1,436,103) $ (663,871) $ (3,334,666) $ (1,852,705)
============ ============ ============ ============
Pro forma net loss per share, basic and diluted $ (0.20) $ (0.10) $ (0.46) $ (0.27)
Weighted average shares outstanding,
basic and diluted 7,318,944 6,890,436 7,318,944 6,890,436
</TABLE>
10
<PAGE>
Three Months Ended September 30, 1999
Revenues:
Pro forma revenues increased $1,037,991, or 66.3% from $1,566,199 to $2,604,190.
The increase in revenues was a result of the three acquisitions which occurred
during the third quarter of 1999 ( approximately 67% of the growth) combined
with internal growth (approximately 33% of the growth).
The following table provides a comparison of pro forma connectivity and
operations, sales and marketing and general and administrative expenses as a
percentage of pro forma total revenues:
Three Months Ended September 30,
1999 1998
---- ----
Connectivity and Operations 58.6% 70.8%
Sales and Marketing 21.6% 10.3%
General and Administrative 26.8% 10.6%
Connectivity and Operations:
Connectivity and operations expenses increased $418,616, or 37.8%, from
$1,108,090 to $1,526,706, primarily as a result of the increase in revenue from
subsriber usage. As a percentage of revenue, Connectivity and Operations
expenses decreased from 70.8% in the third quarter of 1998 to 58.6% in the third
quarter of 1999.
Connectivity and operations expenses consist of the cost of non-capital
equipment and the recurring telecommunication costs associated with providing
services to subscribers, including the cost of local telephone lines and the
cost of leased lines connecting the Internet and our operations centers. We
expect these expenses to increase over time to support our growing subscriber
base, however, as a percentage of sales, we expect these costs will decrease as
the customer base expands. Connectivity and operations expenses also include the
salaries and employee benefits of our personnel providing installation, web
development and technical services, the cost of the equipment to provide these
services, rent and utilities for our Internet service providers' offices, and
customer service and technical support personnel costs. We expect customer
service and support expenses to increase over time to support new and existing
subscribers. New subscribers tend to be particularly heavy users of customer
service and technical support.
Sales and Marketing:
Sales and Marketing expenses increased $401,382, or 248.4%, from $161,565 to
$562,947. The increase was primarily the result of increased advertising
expenses and additional sales and marketing personnel as a result of the
subsequent acquisitions. Approximately $85,000 of the costs in 1999 is related
to advertising the BiznessOnline.com, Inc. brand name.
Sales and marketing expenses include the costs associated with acquiring
subscribers, including bonuses, sales commissions and advertising. Sales and
marketing expenses are expected to increase with the expected growth of the
subscriber base. We plan to increase advertising in new markets we enter as we
acquire new Internet service providers. We also plan to hire additional sales
and marketing personnel in each market we enter.
General and Administrative:
General and administrative expenses increased $531,104, or 319.1%, from $98,866
to $697,536, primarily as a result of the increased corporate personnel costs
and costs associated with combining the acquired companies.
General and administrative expenses consist primarily of administrative staff
and related benefits, as well as the cost of travel and entertainment. General
and administrative costs are expected to increase to support our growth,
primarily the implementation of a common billing and financial reporting system.
Depreciation:
Depreciation expense increased $102,923, or 104.1%, from $98,866 to $201,789,
primarily as a result of capital equipment purchases during 1999. These
purchases were related to the integration of the billing and accounting system
and the building of the centralized data center.
11
<PAGE>
Depreciation expense relates primarily to our equipment and is based on the
estimated useful lives of the assets ranging from three to five years using the
straight-line and accelerated methods for the equipment. Depreciation expense is
expected to increase as our Internet service providers increase their networks
to support new and existing subscribers and as we finish our centralized data
center and billing and financial reporting system
Amortization:
Amortization expense increased $369,240, or 54.6%, from $675,967 to $1,045,207.
This increase was a result of the acquisitions completed during the third
quarter of 1999.
Amortization expense primarily relates to the amortization of goodwill acquired
in the acquisitions, and on a pro forma basis, is based upon the useful lives of
these intangibles. Amortization expense is expected to increase as additional
acquisitions are made and will vary according to purchase prices and intangible
assets. Our policy in future acquisitions will be to amortize the portion of the
purchase price attributable to goodwill and other intangibles over the
appropriate period.
Interest Income, (expense), net
Interest income, net was $58,892 for the quarter ended September 30, 1999, as
compared to interest expense, net of $19,150 for the quarter ended September 30,
1998. The difference was a result of the investment of the proceeds from the
Company's initial public offering of common stock completed on May 17, 1999.
Income Taxes:
Pro forma income tax expense for the quarter ended September 30, 1999 was
$65,000. The Company had no income tax expense for the quarter ended September
30, 1998. The Company has not recorded any income tax benefit from
non-deductible amortization of goodwill.
Nine Months Ended September 30, 1999
Revenues:
Pro forma revenues increased $3,172,876, or 72.1% from $4,401,418 to $7,574,294,
as a result of the three acquisitions which occurred during the third quarter of
1999 ( approximately 60% of the growth), combined with internal growth
(approximately 40% of the growth).
The following table provides a comparison of pro forma connectivity and
operations, sales and marketing and general and administrative expenses as a
percentage of pro forma total revenues:
Nine Months Ended September 30,
1999 1998
---- ----
Connectivity and Operations 58.0% 64.7%
Sales and Marketing 19.9% 12.8%
General and Administrative 19.5% 10.7%
Connectivity and Operations:
Connectivity and operations expenses increased $1,542,616, or 54.2%, from
$2,847,734 to $4,390,350, primarily as a result of the increase in the number of
subscribers. As a percentage of revenue, connectivity and operations expenses
decreased from 64.7% in 1998 to 58.0% in 1999.
Sales and Marketing:
Sales and Marketing expenses increased $944,196, or 167.6%, from $563,403 to
$1,507,599. The increase was primarily the result of increased advertising
expenses and increased personnel costs. Approximately $85,000 of the costs in
1999 is related to advertising the BiznessOnline.com, Inc. brand name.
12
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General and Administrative:
General and administrative expenses increased $1,008,380, or 213.9%, from
$471,525 to $1,479,905, primarily as a result of the increased corporate
personnel costs and costs associated with combining the acquired companies.
Depreciation:
Depreciation expense increased $223,800, or 73.2%, from $305,577 to $529,377,
primarily as a result of the capital equipment purchased during 1999, which
includes the billing and financial reporting systems, along with costs
associated with the data center being built in Albany, NY.
Amortization:
Amortization expense increased $1,045,813, or 51.6%, from $2,027,899 to
$3,073,712, primarily as a result of the three additional companies acquired
during the third quarter of 1999.
Interest Income, (expense), net
Interest income, net was $136,613 for the nine months ended September 30, 1999,
as compared to interest expense, net of $37,985 for the nine months ended
September 30, 1998. The difference was a result of the investment of the
proceeds from the Company's initial public offering of common stock completed on
May 17, 1999.
Income Taxes:
We recorded pro forma income tax expense of $65,000 for the period ended
September 30, 1999. No income tax expense or benefit was recorded for the period
ended September 30, 1998.
Effects of Inflation
We do not believe that inflation has had a material impact on our results of
operations during the nine months ended September 30, 1999.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement 133 changes the previous accounting
definition of "derivative" which focused on freestanding contracts like options
and forwards, including futures and swaps, expanding it to include embedded
derivatives and many commodity contracts. Under Statement 133, every derivative
is recorded in the balance sheet as either an asset or liability measured at its
fair value. Statement 133 requires that changes in the derivative fair value be
recognized currently in earnings unless specified hedge accounting criteria are
met. This Statement, as amended by Statement 137, is effective for fiscal years
beginning after June 15, 2000. Earlier application is allowed as of the
beginning of any quarter beginning after issuance. We do not anticipate that
Statement 133 will have a material impact on our financial position or results
of operations.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
We provide internet access and related services to individuals and small to
medium sized businesses in northeastern New York state, Massachusetts and
Connecticut. We are not subject to changes in foreign currency exchange rates or
weak economic conditions in foreign markets. Our interest income is subject to
changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the nature of
our short-term investments, we have concluded that there is no material market
risk exposure. Therefore, no quantitative tabular disclosures are required.
Our investment policy requires us to invest funds in excess of current operating
requirements in obligations of the U.S. government and its agencies and
investment grade obligations of state and local governments and U.S.
corporations.
13
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Pursuant to Item 701(a)-(e) of Regulation S-K, the following information
is provided as to all equity securities of BiznessOnline.com, Inc. sold by
the Company during the period covered by this report that were not
registered under the Securities Act:
1. On August 18, 1999 the Company issued 200,046 shares of its common
stock to WebWay, LLC, a New York limited liability company, comprising a
portion of the purchase price paid to such entity by the Company pursuant
to an Asset Purchase Agreement under which the Company acquired
substantially all of the assets and assumed certain of the liabilities of
WebWay. These sales were effected without registration under the
Securities Act in reliance upon the exemption for registration set forth
in Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder.
2. On September 30, 1999 the Company issued 228,462 shares of its common
stock to the sole stockholder of Infoboard, Inc., a Massachusetts
corporation, comprising a portion of the merger consideration paid to such
person pursuant to an Agreement and Plan of Merger and Reorganization by
which Infoboard was merged into a wholly-owned subsidiary of the Company.
This sale was effected without registration under the Securities Act in
reliance upon the exemption for registration set forth in Section 4(2) of
the Securities Act Rule 506 of Regulation D thereunder.
3. The sales of common stock described in paragraphs 1 and 2 above were
made in connection with acquisition transactions not involving a public
offering. The four owners of WebWay and the sole owner of Infoboard,
either directly or by way of a purchaser representative, each represented
that they were accredited and/or sophisticated investors. All such
individuals received a copy of a currently dated Information Statement
regarding the Company. Each individual acknowledged and represented to the
Company in writing that he or she understands and agrees that the shares
of common stock to be issued in such transactions: have not been
registered under the Securities Act of 1933; are being acquired solely for
their own account without any present intention of resale or distribution;
and will not be resold without registration under the Securities Act of
1933 or in compliance with an available exemption from registration. Each
individual also acknowledged that such individual was able to bear the
economic risk of an investment in the common stock and afford a complete
loss of such investment, and that such individual had the opportunity to
ask questions of and receive answers from the Company's management
concerning any and all matters relating to the acquisition of the common
stock of the Company.
(d) Pursuant to Item 701 (f) of Regulation S-K, the following information is
being furnished to disclose certain information regarding the uses of proceeds
by BiznessOnline.com, Inc. in its initial public offering of common stock:
1. The Registration Statement for the initial public offering (File Number
333-73067) was declared effective on May 11, 1999.
2. From the effective date of the initial public offering registration
through September 30, 1999, the amount of net offering proceeds used for
any purpose for which at least 5% of the offering proceeds or $100,000
(whichever is less) was used is as follows:
<TABLE>
<S> <C>
Repayment of promissory notes to the stockholders of Global 2000 Communications, Inc. $ 580,000
Payment of the cash portion of the purchase price due to the four Internet service providers
we acquired in May 1999 5,730,000
Acquisition of Ascent Networking 1,050,000
Repayment of indebtedness of Internet service providers 276,000
Acquisition of WebWay, LLC 830,000
Acquisition of Infoboard, Inc. 1,580,000
Purchases of capital equipment, primarily data center 1,520,000
-----------
Total $11,566,000
===========
</TABLE>
The payments referred to above were not made directly or indirectly to any
officers or directors of BiznessOnline.com, Inc. or their associates, or to any
person owning 10% or more of any class of securities of BiznessOnline.com, Inc.
except for $435,000 of the $580,000 listed above which was paid to a director of
the Company and his spouse who were the former majority stockholders of Global
2000 Communications, Inc. in satisfaction of promissory notes constituting a
portion of the purchase price therefore.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.14 Asset Purchase Agreement among Insite Internet III Acquisition
Co., Inc., Ascent Internet Holdings, Inc. and the stockholder
of Ascent
10.15 Asset Purchase Agreement among Insite Internet VI Acquisition
Co., Inc., WebWay LLC and the members of WebWay.
10.16 Merger Agreement among the Company, BOL Acquisition Co. I,
Inc., Infoboard, Inc. and the Stockholder of Infoboard.
11 Calculation of Earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
15
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: November 12, 1999 BiznessOnline.com, Inc.
By /s/Daniel J. Sullivan
-----------------------------------
Daniel J. Sullivan
Vice President and Chief Financial
Officer (Authorized Officer on
behalf of Registrant and Principal
Financial and Accounting Officer)
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Exhibit Index
10.17 Asset Purchase Agreement among Insite Internet III Acquisition Co., Inc.,
Ascent Internet Holdings, Inc. and the stockholder of Ascent
10.18 Asset Purchase Agreement among Insite Internet VI Acquisition Co., Inc.,
WebWay LLC and the members of WebWay.
10.19 Merger Agreement among the Company, BOL Acquisition Co. I, Inc.,
Infoboard, Inc. and the Stockholder of Infoboard.
11 Calculation of Earnings per share
27 Financial Data Schedule
17
ASSET PURCHASE AGREEMENT
Introduction
THIS ASSET PURCHASE AGREEMENT is made as of this 30th day of July, 1999 by
and among Robert W. Nassar, an individual with a mailing address of 26 Conkey
Avenue, Norwich, New York 13815 (the "Seller"), Ascent Internet Holdings, Inc.,
a New York corporation (the "Company"), and Insite Internet III Acquisition Co.,
Inc., a New York corporation (the "Buyer") and wholly-owned subsidiary of
BiznessOnline.com, Inc., a Delaware corporation.
Background
The Seller is the owner of certain assets described herein used in
connection with the Seller's sole proprietorship business d/b/a Ascent
Networking (the "Proprietorship") and is the record and beneficial owner of all
the issued and outstanding shares of the Company's capital stock (the "Company
Shares").
The Seller desires to sell to the Buyer, and the Buyer desires to purchase
all of the issued and outstanding shares of the Company Shares and substantially
all of assets of the Proprietorship, for the consideration and upon the terms
and conditions set forth in this Agreement.
The Company is party to this Agreement in order to undertake certain
obligations set forth herein and to join, jointly and severally, with the Seller
in the Seller's representations and warranties hereunder.
Agreements
THE PARTIES HERETO, intending to be legally bound, agree as follows:
1. Definitions and Construction.
1.1 In addition to the other definitions set forth herein, when used in
this Agreement, the following terms have the meanings set forth below:
"Agreement" means this asset purchase agreement.
"Balance Sheet" means the balance sheet as of the Balance Sheet Date,
which is included in the Financial Statements.
"Balance Sheet Date" means December 31, 1998.
"Business" means the businesses of the Proprietorship and the Company as
conducted up to the Closing.
<PAGE>
"Closing" means the taking of the actions required to consummate the sale
and purchase of the Assets by the Seller to the Buyer pursuant to this
Agreement.
"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
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Environmental, Health and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" means those certain financial statements of the
Business compiled by Cwynar & Company, PLLC, the independent public accountant
of the Seller, as well as certain other unaudited financial statements prepared
by the Seller for his own use, all of which are more particularly described in
Schedule 5.6.
"GAAP" means generally accepted accounting principles.
"Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended.
"Liability" means any liability whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
2
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means those certain liens and security interests solely
to the extent such liens and security interests secure liabilities which are to
be assumed by the Buyer pursuant to Section 3.1(c) below.
1.2 In this Agreement, unless the context otherwise requires:
(a) The words "hereby", "hereof", "hereto", "herein", "hereunder", and any
similar words refer to this Agreement; the word "hereafter" means after, and the
word "heretofore" means before, the date of this Agreement.
(b) The word "person" refers to partnerships (including limited
partnerships), corporations, governmental entities, trusts and other legal
entities as well as to natural persons.
(c) References to the "knowledge" or the "best knowledge" of the Seller
means the understanding of the Seller and of the Company after reasonable
investigation.
1.3 Section and subsection titles are for convenience of reference only
and are not to be considered in the interpretation or construction of any of the
provisions hereof.
1.4 Representations, warranties, covenants, obligations and agreements of
the Company and the Seller set forth in this Agreement will be deemed to be the
joint and several warranties, covenants, obligations and agreements of the
Company and the Seller.
2. Purchase and Sale of Assets.
2.1 Assets. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign, and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller, at the Closing, (i)
the assets and property of the Proprietorship described on Schedule 2.1 attached
hereto and (ii) the Company Shares (collectively, the "Assets"), free and clear
of all liens, pledges, security interests, charges, claims, restrictions and
encumbrances of any nature whatsoever except for Permitted Liens. For purposes
of this Agreement, the Assets will also mean and include all assets and property
acquired hereafter by the Seller relating to Proprietorship before the Closing
Date but will not include the assets and property of the Seller disposed of as
permitted by this Agreement or the "Excluded Assets" as defined in Section 2.2
hereof.
2.2 Excluded Assets. "Excluded Assets" shall mean (a) income and other tax
records of the Business (copies of which have been made available to the Buyer),
provided, however, the Seller will retain these records for a period of not less
than five (5) years after the Closing and make them available to the Buyer upon
the Buyer's request; (b) any contract, executory agreement or lease of the
Business which is not expressly assumed by the Buyer hereunder; and
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<PAGE>
(c) any other assets listed on Schedule 2.2 hereof or which the Buyer notifies
the Seller in writing that the Buyer is not purchasing.
3. Purchase Price
3.1 Payment. The total consideration to be paid to the Seller by the Buyer
for the Assets (the "Purchase Price") is as follows:
(a) Cash Payment: The Buyer shall pay the Seller at the Closing, as full
payment for the Assets a total of One Million Twenty Five Thousand Four Hundred
Dollars ($1,025,400). The Buyer shall simultaneously place One Hundred Fifty
Thousand Dollars ($150,000) of such amount into escrow at the Closing (the
"Escrow Deposit") for a period of one (1) year (the "Escrow Period") pursuant to
the Escrow Agreement in the form attached hereto as Exhibit 3.1(a).
(b) Escrow of Deposit. The Buyer shall have the right to setoff from and
against the Escrow Deposit the amount of the adjustments, if any, described in
Section 3.3, as well as the amount of any claims of the Buyer for
indemnification for breach of any warranty or representation by the Seller, and
such right of setoff shall be in addition to the Buyer's right to seek damages
or obtain any other remedy at law or in equity to which the Buyer shall be
entitled by virtue of such breach.
(c) Assumption of Liabilities. At the Closing, the Buyer will assume (i)
that certain promissory note of the Company dated December 31, 1998 and those
certain trade debts, liabilities, obligations and contracts of the
Proprietorship, specifically described on Schedule 3.1(c) (the "Assumed
Liabilities"). The Buyer will not be liable for any of the obligations or
liabilities of the Seller of any kind and nature other than those specifically
listed or described on Schedule 3.1(c). Without limiting the foregoing, the
Buyer shall not assume any Liability for (i) any tax including, but not limited
to, income, sales or use tax, imposed on the Seller because of the sale of the
assets and/or the Business; (ii) any liabilities or expenses of the Seller or
the Company incurred in negotiating and carrying out their obligations under
this Agreement; (iii) any obligations incurred by the Seller after the Closing;
(iv) any liabilities or obligations incurred by the Seller in violation of, or
as a result of the Seller's or the Company's breach of, this Agreement; (v) any
intercompany payables or outstanding loans or lines of credit of the Seller or
the Company; (vi) any liability for any litigation involving the Seller or the
Company, including but not limited to matters listed on Schedule 5.15; and (vii)
liabilities for any severance, accrued vacation/sick day or other employee
benefits of the Seller or the Company whether or not resulting from the
transactions contemplated hereby.
(d) Transition Services. For six (6) months after the Closing Date, the
Seller shall be available, by teleconference and, if requested, on-site for one
to two days per week, to assist the Buyer with transitional business matters
relating to the Business as may be reasonably requested from time-to-time by the
Buyer.
4
<PAGE>
(e) Stock Options. On the Closing date, the Buyer shall cause its parent
to issue the number of common stock options from the parent's stock incentive
plan equal to the lesser of (i) ten thousand (10,000) shares with an exercise
price equal to the average NASDAQ National Market price of such common stock for
the twenty (20) business days ending on the second business day immediately
preceding the Closing Date; or (ii) $100,000 divided by the closing price of the
Company's common stock on the Closing Date (with an exercise price equal to such
closing price). For purposes herein, the "average NASDAQ National Market price"
shall mean the average of the closing sales prices or, in case no such reported
sale takes place on any given day, the average of the reported closing bid and
asked prices for such day. In either case, the prices would be as reported by
The Nasdaq Stock Market, Inc. However, in no event would the exercise price be
less than 100% (for an ISO) or 85% (for a non-qualified option) of the NASDAQ
National Market price of the common stock on the Closing Date. The options would
vest over three (3) years (i.e. one third of the options per year) at the end of
each of the initial anniversary dates of the Closing Date.
3.2 Allocation. The total purchase price will be allocated among the items
of the Assets in proportion to their fair market value and in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The allocation (or the method by which the allocation
will be determined) is set forth in this Section and Schedule 3.2. In connection
with their filing of Federal income tax returns, the parties will file Treasury
Forms 8594 consistent with this allocation.
3.3 Adjustments.
(a) Adjustment for Deficiency in 1999 Revenues. The Buyer's accountants
shall prepare an income statement in accordance with GAAP on or before April 30,
2000 showing the actual audited revenues for the year ended December 31, 1999 of
the Business determined on an accrual method basis. To the extent that the
aggregate audited revenues of the Business for the fiscal year ended December
31, 1999 are less than Five Hundred Thousand Dollars ($500,000) on an accrual
method basis, the Seller shall pay the Buyer, as a reduction of the Purchase
Price paid to Seller hereunder, an amount equal to Two Dollars ($2.00) for each
One Dollar ($1.00) in revenue less than $500,000. For example, in the event the
aggregate audited accrued revenues of the Business for the fiscal year ended
December 31, 1999 are Four Hundred Fifty Thousand Dollars ($450,000), the
purchase price would be reduced by One Hundred Thousand Dollars ($100,000) (i.e.
the $50,000 shortfall multiplied by 2). To the extent payment by the Seller to
the Buyer is required under this Section 3.3, the Buyer shall be entitled to
receive payment from the Escrow Deposit or to receive payment directly from the
Seller within ten (10) days of the delivery of the final income statement for
1999 as audited by the Buyer's accountants. In the event the Buyer's accountants
and the Seller's accountants disagree as to the audited 1999 revenues of the
Business, the Buyer and the Seller shall employ, within ten (10) days of the
date of delivery of such audited revenues, an accounting firm acceptable to both
parties for purposes of settling this dispute promptly. Such firm shall (i)
determine the audited revenues and final adjustment using such methods as
contemplated herein in accordance with GAAP on an accrual basis as such firm
deems appropriate, and (ii) apportion 100% of the fees and expenses of such firm
to the party who is "negligent" or "at fault" in pursuing such dispute. Such
determinations
5
<PAGE>
would be conclusive and binding upon the Buyer and the Seller and either or both
of them would have the right to so notify the Escrow Agent and to take such
further action as to which they may be entitled at law or equity. The Buyer
shall provide Seller with a statement of the aggregate revenues accrued on a
monthly basis.
(b) Payables and Liabilities. The Seller shall pay in full all payables
and liabilities relating to the Business, other than the Assumed Liabilities,
within thirty (30) days after the Closing. If such liabilities remain unpaid
after such date absent a bona fide dispute, the Buyer may, in addition to any
other legal or equitable remedy, pay such liabilities and deduct the same from
the Escrow Deposit.
(c) Sprint Credit. In the event the Seller does not receive a
credit/rebate from Sprint in the amount of $2,400 within sixty (60) days from
the date hereof, (i) the Seller shall immediately pay such amount to Buyer by
certified or bank check and (ii) the Buyer shall assign all rights in such
credit to Seller.
4. Closing. The sale and transfer of the Assets by the Seller to the Buyer
(the "Closing") will take place via correspondence and facsimile on July 30,
1999 or at such other time and place as the parties may agree to in writing (the
"Closing Date") subject to the satisfaction of all of the conditions to Closing
described in Sections 8 and 9 hereof.
5. Representations and Warranties of the Seller and the Company. As a
material inducement to the Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, the Seller and the Company, jointly and
severally, make to the Buyer the representations and warranties contained in
this Section 5, which shall be true and correct as of the date hereof and as of
the Closing Date.
5.1 Organization and Qualification of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Certificate of
Incorporation of the Company as amended to date, certified by the Secretary of
State of New York and the bylaws certified by the Secretary of the Company and
heretofore delivered to the Buyer's counsel, are complete and correct, and no
amendments thereto are pending. The stock records and minute books of the
Company which have heretofore been delivered to the Buyer's counsel are correct
and complete. The Company is duly qualified to do business as a foreign
corporation in each jurisdiction in which it owns, operates or leases real
property and in each other jurisdiction in which the failure to be so qualified
or registered would have a material adverse effect on the properties, assets,
business, financial condition and prospects of the Company.
5.2 Subsidiaries; Investments. The Company has no direct or indirect
subsidiaries and owns no securities issued by any other business organization or
governmental authority, except U.S. Government securities, bank certificates of
deposit and money market accounts acquired as short-term investments in the
ordinary course of its business. Neither the Company
6
<PAGE>
nor the Seller owns nor has any direct or indirect interest in or control over
any corporation, partnership, joint venture, proprietorship or entity of any
kind except as disclosed on Schedule 5.2. For purposes of this Agreement, the
term "subsidiary" means, with respect to any person, any corporation 5% or more
of the outstanding voting securities of which, or any partnership, joint venture
or other entity 5% or more of the total equity interest of which, is directly or
indirectly owned by such person.
5.3 Capital Stock. The total authorized capital stock of the Company
consists solely of the Company Shares listed on Schedule 5.3. All of the issued
and outstanding Company Shares are duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by the Seller, and
all such Company Shares were offered, issued, sold and delivered by the Company
in compliance with all applicable state and federal laws concerning the issuance
of securities. Further, none of such Company Shares were issued in violation of
the preemptive rights of any past or present stockholder. No shares of capital
stock of the Company are held in the treasury of the Company. The Seller holds
of record and owns beneficially all of the Company Shares, free and clear of any
restrictions on transfer taxes, security interests, mortgages, pledges, liens,
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the Seller to
sell, transfer, or otherwise dispose of any Company Shares (other than this
Agreement). The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any Company Shares.
There are no outstanding subscriptions, options, warrants, commitments,
preemptive rights, agreements, arrangements or commitments of any kind for or
relating to the issuance, sale, registration or voting of, or outstanding
securities convertible into or exchangeable for, any shares of capital stock of
any class or other equity interests of the Company.
5.4 Authority of the Seller.
(a) The Seller has full right, authority and power to enter into this
Agreement and each agreement, document and instrument to be executed and
delivered by or on behalf of the Seller pursuant to or as contemplated by this
Agreement and to carry out the transactions contemplated hereby and thereby.
This Agreement and each agreement, document and instrument to be executed and
delivered by the Seller or by the Company pursuant to or as contemplated by this
Agreement (to the extent it contains obligations to be performed by the Seller
and/or the Company) constitutes, or when executed and delivered will constitute,
valid and binding obligations of the Seller or the Company enforceable in
accordance with their respective terms, subject to the terms hereof. The
execution, delivery and performance by the Seller of this Agreement and each
such agreement, document and instrument:
(i) do not and will not violate any provision of the Certificate of
Incorporation or bylaws of the Company;
(ii) do not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to the Seller or require the Seller
to obtain any approval, consent or
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waiver of, or make any filing with, any federal, state, local or foreign
governmental body, agency or official that has not been obtained or made; and
(iii) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to a right of
termination of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award to which the
Seller or the Company is a party or by which the property of the Seller or the
Company is bound or to which the property of the Seller or the Company is
subject or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets or
properties of the Seller or the Company.
5.5 Status of Property Owned or Leased.
(a) Real Property. Neither the Company nor the Proprietorship own any real
property. The real property identified as being leased by the Business on
Schedule 5.5(a) is collectively referred to herein as the "Real Property". The
Real Property constitutes all the real property leased by the Company.
(i) Title. Except as set forth on Schedule 5.5(a), to the best
knowledge of the Seller or the Company, there are no unrecorded mortgages, deeds
of trust, ground leases, security interests or similar encumbrances, liens,
assessments, licenses, claims, rights of first offer or refusal, options, or
options to purchase, or any covenants, conditions, restrictions, rights of way,
easements, judgments or other encumbrances or matters affecting title to the
Real Property.
(ii) Security Interests. To the best knowledge of the Seller and the
Company, there is not now, nor, as a result of the consummation of the
transactions contemplated hereby, will there be, any mortgages, deeds of trust,
ground leases, security interests or similar encumbrances on the Real Property,
except as set forth on Schedule 5.5(a) (collectively, the "Encumbrances"). To
the best knowledge of the Seller and the Company, there is no outstanding
principal balance or accrued unpaid interest or other amount due as of the date
hereof under any instrument secured by any of the Encumbrances and all payments
required under each Encumbrance to the date hereof have been made in full. To
the best knowledge of the Seller and the Company, no condition or fact does or
will exist, as a result of the consummation of the transactions contemplated
hereby, which, with the lapse of time or the giving of notice or both, would
constitute a material default thereunder or result in any acceleration of the
indebtedness secured thereby or any increase in the amount of interest, premiums
or penalties payable on such indebtedness.
(iii) Commissions. To the best knowledge of the Seller and the
Company, there are no brokerage or leasing fees or commissions or other
compensation due or payable on an absolute or contingent basis to any person,
firm, corporation, or other entity with respect to or on account of any of the
Encumbrances or the Real Property, and no such fees, commissions or other
compensation shall, by reason of any existing agreement, become due after the
date hereof.
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(iv) Physical Condition. Except as set forth on Schedule 5.5(a), to
the best knowledge of the Seller and the Company, there is no material defect in
the physical condition of any of the Real Property. Except as set forth on
Schedule 5.5(a), to the best knowledge of the Seller and the Company, there is
no material defect in any material improvements located on or constituting a
part of any of the Real Property, including, without limitation, the structural
elements thereof, the mechanical systems (including without limitation all
heating, ventilating, air conditioning, plumbing, electrical, elevator,
security, telecommunication, utility, and sprinkler systems) therein, the roofs
or the parking and loading areas (collectively, the "Improvements"). To the best
knowledge of the Seller or the Company, all of the Improvements located on or
constituting a part of any of the Real Property, including, without limitation,
the structural elements thereof, the mechanical systems therein, the roofs and
the parking and loading areas are in generally good operating condition and
repair.
(v) Utilities. Neither the Company nor the Seller has received any
written notice of any termination or impairment of the furnishing of, or any
material increase in rates for, services to any of the Real Property of water,
sewer, gas, electric, telecommunication, drainage or other utility services,
except ordinary and usual rate increases applicable to all customers (or all
customers of a certain class) of a utility provider. Neither the Company nor the
Seller has entered into any agreement requiring it to pay to any utility
provider rates which are less favorable than rates generally applicable to
customers of the same class as the Business.
(vi) Compliance. Neither the Company nor the Seller has received any
written notice from any municipal, state, federal or other governmental
authority with respect to any violation of any zoning, building, fire, water,
use, health, environmental or other statute, ordinance, code or regulation
issued in respect of any of the Real Property that has not been heretofore
corrected.
(vii) Government Approvals. Neither the Company nor the Seller has
receive any notice of any plan, study or effort by any Governmental Entity which
would adversely affect the present use, zoning or value to the Business of any
of the Real Property or which would modify or realign any adjacent street or
highway in a manner materially adverse to the Business.
(viii) Zoning. Neither the Company nor the Seller has received any
notice of any zoning violations.
(ix) Real Property Taxes. To the best knowledge of the Company and
the Seller, except as set forth in said Schedule 5.5(a), no special assessments
any kind (special, bond or otherwise) are or have been levied against any Real
Property, or any portion thereof, which are outstanding or unpaid.
(x) Service Contracts. A complete list of all material existing
service, management, supply or maintenance or equipment lease contracts and
other contractual agreements affecting the Real Property or any portion thereof
(the "Service Contracts") to which the Company or the Seller is a party is set
forth on Schedule 5.5(a). All such Service Contracts
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are terminable upon no more than thirty (30) days written notice, at no cost,
except as specified in Schedule 5.5(a).
(b) Personal Property. A list of each item of the machinery, equipment and
other fixed assets owned or leased by the Business having a fair market value of
at least One Thousand Dollars ($1,000), is contained in Schedule 5.5(b) hereto.
All of such equipment and other machinery, equipment and personal property of
the Business is located on the Real Property or used in the operation of the
Business. Except as specifically disclosed in Schedule 5.5(b) or in the
Financial Statements, the Seller and the Company have good and marketable title
to all of the personal property owned by each of them in connection with the
Business. None of such personal property or assets is subject to any mortgage,
pledge, lien, conditional sale agreement, security title, encumbrance or other
charge except as specifically disclosed in any Schedule hereto and in the
Financial Statements. The Financial Statements reflect all personal property of
the Business, subject to dispositions and additions in the ordinary course of
business consistent with this Agreement. Except as otherwise specified in
Schedule 5.5(b) hereto, all leasehold improvements, furnishings, machinery and
equipment of the Business are in generally good repair, normal wear and tear
excepted, have been well maintained, and conform in all material respects with
all applicable ordinances, regulations and other laws.
5.6 Financial Statements; Undisclosed Liabilities.
(a) The Seller has delivered to the Buyer the following financial
statements of the Business, copies of which are attached hereto as Schedule 5.6:
(i) Balance Sheet prepared by Cwynar & Company CPC, PLLC, dated December 31,
1998; and (ii) Management prepared monthly profit and loss statements dated
January 1999 through June 30, 1999.
The Financial Statements have been prepared in accordance with accounting
principles applied consistently during the periods covered thereby (except that
the interim Company financial statements are subject to normal year-end audit
adjustments and do not include footnotes), and present fairly in all respects
the financial condition of the Business at the dates of said statements and the
results of their operations for the periods covered thereby.
(b) As of the Balance Sheet Date, the Business had no Liabilities of any
nature, whether accrued, absolute, contingent or otherwise, (including without
limitation liabilities as guarantor or otherwise with respect to obligations of
others or contingent liabilities arising prior to the Balance Sheet Date) except
liabilities stated or adequately reserved for on the Financial Statements or
reflected in Schedules furnished to Buyer hereunder as of the date hereof.
(c) As of the date hereof, the Business has no Liabilities of any nature,
whether accrued, absolute, contingent or otherwise, (including without
limitation liabilities as guarantor or otherwise with respect to obligations of
others, or liabilities for taxes due or then accrued or to become due or
contingent liabilities arising prior to the date hereof or the Closing, as the
case may be) except liabilities (i) stated or adequately reserved for on the
appropriate Financial Statement or the notes thereto, (ii) reflected in
Schedules furnished to the Buyer hereunder on the
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date hereof or (iii) incurred in the ordinary course of business of the Business
consistent with prior practices.
(d) All financial information delivered to KPMG, LLP and the Buyer in
connection with their audit of the Business's financial statements as of the
date hereof are true and correct in all material respects and reflect all
liabilities of the Business as of the date(s) of such information, and have been
prepared in accordance with accounting principles applied consistently during
the periods covered thereby.
5.7 Taxes.
(a) The Company and the Seller have paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), in the amounts indicated
on tax returns filed by the Company and the Seller through the date hereof or in
correspondence received from any federal, state, local or foreign government
taxing authority, whether disputed or not (other than current taxes the
liability for which is adequately reserved for on the financial statements
provided to the Buyer pursuant to Section 5.6 hereof).
(b) The Company and the Seller have in accordance with applicable law
filed all federal, state, local and foreign tax returns required to be filed by
them through the date hereof and all such returns correctly and accurately set
forth the amount of any Taxes relating to the applicable period. For every
taxable period of the Company and the Seller, the Company and the Seller have
delivered or made available to the Buyer complete and correct copies of all
federal, state, local and foreign income tax returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company or the
Seller. Schedule 5.7 attached hereto sets forth all federal tax elections under
the Internal Revenue Code, that are in effect with respect to the Company or for
which an application by the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company or the Seller any deficiency or claim for additional Taxes
or a claim that the Company or the Seller is or may be subject to taxation by
that jurisdiction. There are no security interests on any of the assets of the
Company or the Seller that arose in connection with any failure (or alleged
failure) to pay any Tax. Neither the Company nor the Seller have entered into a
closing agreement pursuant to Section 7121 of the Internal Revenue Code.
(d) Except as set forth in Schedule 5.7 attached hereto, there has not
been any audit of any tax return filed by the Company or the Seller, no audit of
any tax return of the Company or the Seller is in progress, and neither the
Company nor the Seller has been notified by any tax authority that any such
audit is contemplated or pending. Except as set forth in Schedule 5.7, no
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extension of time with respect to any date on which a tax return was or is to be
filed by the Company or the Seller is in force, and no waiver or agreement by
the Company or the Seller is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions of Section
341(f)(2) of the Internal Revenue Code applied to it, (ii) the Company has not
agreed to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Internal Revenue Code by reason of a
change in accounting method or otherwise and (iii) the Company has never made
any payments, is obligated to make any payments, or is a party to any agreement
that under certain circumstances would obligate it to make any payments, that
will not be deductible under Section 280G of the Internal Revenue Code. The
Company has disclosed on its federal income tax returns all positions taken
therein that could give rise to a penalty for underpayment of federal Tax under
Section 6662 of the Internal Revenue Code. The Company has never had any
liability for unpaid Taxes because it is a member of an "affiliated group" (as
defined in Section 1504(a) of the Internal Revenue Code). The Company has never
filed, nor has it ever been required to file, a consolidated, combined or
unitary tax return with any entity. The Company is not a party to any tax
sharing agreement.
(f) The Business computes its federal taxable income on a cash basis of
accounting.
5.8 Accounts Receivable. All accounts receivable of the Business as of the
respective Balance Sheet Dates and all accounts receivable arising thereafter or
hereafter to the Closing Date, arose or will arise from valid sales in the
ordinary course of business and are not subject to setoff or counterclaim.
Except as set forth in Schedule 5.8, the Business has no accounts or loans
receivable from any person, firm or corporation which is affiliated with the
Company or the Seller.
5.9 Inventories. The Business maintains less than $10,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
5.10 Absence of Certain Changes.
Since December 31, 1998, the Company and the Seller have conducted the
Business only in the ordinary course and consistent with past practices and
except as disclosed in Schedule 5.10 there has not been:
(a) Any change in the properties, assets, liabilities, business,
operations, financial condition or prospects of the Business which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been materially adverse with respect to the
Business;
(b) Except for the endorsement of checks in the ordinary course of
business any material contingent liability incurred by the Business as guarantor
or otherwise with respect to the obligations of others or any cancellation of
any material debt or claim owing to, or waiver of any material right of, the
Business;
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(c) Any mortgage, encumbrance or lien placed on any of the properties of
the Business which remains in existence on the date hereof or will remain on the
Closing Date except for liens permitted by any current agreement of the Business
with respect to borrowed money;
(d) Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any capital assets
of the Business costing more than Five Thousand Dollars ($5,000);
(e) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting any of the properties, assets or business of
the Business;
(f) Any declaration, setting aside or payment of any dividend by the
Company, or the making of any other distribution in respect of the capital stock
of the Company, any direct or indirect redemption, purchase or other acquisition
by the Company of its own capital stock, any issuance or sale of any securities
convertible into or exchangeable for debt or equity securities of the Company or
any grant, issuance or exercise of options, warrants, subscriptions, preemptive
rights, agreements, arrangements or commitments of any kind for or relating to
the issuance, sale, registration or voting of any shares of capital stock of any
class or other equity interests of the Company;
(g) Any claim of unfair labor practices asserted against the Business; any
change in the compensation (in the form of salaries, wages, incentive
arrangements or otherwise) payable or to become payable by the Business to any
of its officers, employees, agents or independent contractors other than
customary merit or cost of living increases in accordance with its usual
practices, or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors; any entering into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any officer, director, manager or employee
of the Company or the Business as applicable except for employment arrangements
providing for salary or wages of less than Eighteen Thousand Dollars ($18,000)
per annum and any oral agreement terminable at will by the Business;
(h) Any change with respect to the officers or management of the Business,
any grant of any severance or termination pay to any officer or employee of the
Company or the Seller;
(i) Any payment or discharge of a material lien or liability of the
Business which was not shown on the Financial Statements or incurred in the
ordinary course of business thereafter;
(j) Any obligation or liability incurred by the Business to any of its
officers, directors, managers or stockholders, or any loans or advances made by
the Business to any of its officers, directors, managers, stockholders, except
normal compensation and expense allowances payable to such parties;
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(k) Any change in accounting methods or practices, credit practices or
collection policies used by the Business other than to comply with new
accounting pronouncements;
(l) Any other transaction entered into by the Business other than
transactions in the ordinary course of business; or
(m) Any agreement or understanding whether in writing or otherwise, that
would result in any of the transactions or events or require the Business to
take any of the actions specified in paragraphs (a) through (l) above.
5.11 Banking Relations. All of the arrangements which the Company or the
Seller has with any banking institution are described in Schedule 5.11 attached
hereto, indicating with respect to each of such arrangements the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.), the names in which the accounts are held, the account
number, and the name of each person, corporation, firm or other entity
authorized in respect thereof.
5.12 Patents, Trade Names, Trademarks, Copyrights and Proprietary Rights.
All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or the Seller or
otherwise used in connection with the Business (the "Proprietary Rights") are
listed in Schedule 5.12 attached hereto. All of the material patents, registered
trademarks and copyrights of the Business and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Business have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in Schedule 5.12: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company and the Seller have sufficient title or adequate
rights or licenses to use all material patents, trade names, trademarks,
copyrights, or other proprietary rights used by it in its business as presently
conducted free and clear of any attachments, liens, encumbrances or adverse
claims. Neither the Company nor the Seller has received written notice that its
present or contemplated activities or products infringe any such patents, trade
names, trademarks or other proprietary rights of others. Except as set forth in
Schedule 5.12: (i) no other person has an interest in or right or license to
use, or the right to license others to use, any of said patents, patent
applications, trade names, trademarks, copyrights or other proprietary rights;
(ii) there are no written claims or demands of any other person pertaining
thereto and no proceedings have been instituted, or are pending or threatened,
which challenge the rights of the Company or the Seller in respect thereof;
(iii) none of the patents, trade names, trademarks, copyrights or other
proprietary rights listed in said schedule is subject to any outstanding order,
decree, judgment or stipulation, or is being infringed by others; and (iv) no
proceeding charging the Company or the Seller with infringement of any adversely
held patent, trade name, trademark or copyright has been filed or is threatened
to be filed.
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5.13 Trade Secrets and Customer Lists. The Business has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products and services presently sold, manufactured, licensed, under
development or produced by it, including products licensed from others. Any
payments required to be made by the Company or the Seller for the use of such
trade secrets, inventions, customer lists and secret processes are described in
Schedule 5.13. Neither the Company nor the Seller are using or in any way making
use of any confidential information or trade secrets of any third party,
including without limitation, a former employer of any present or past employee
of the Company or the Seller.
5.14 Contracts.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 5.14 (complete and accurate copies of which have been
delivered to the Buyer), the Business is not a party to or subject to:
(i) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
severance or termination pay, collective bargaining or the like, or any contract
or agreement with any labor union;
(ii) any employment contract or contract for services which requires
the payment of Eighteen Thousand Dollars ($18,000) or more annually or which is
not terminable at will by the Business without liability for any penalty or
severance payment;
(iii) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than Five Thousand Dollars ($5,000 each);
(iv) any other contracts or agreements creating any obligation of
Five Thousand Dollars ($5,000) or more with respect to any such contract;
(v) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(vi) any contract or agreement which by its terms does not terminate
or is not terminable by the Business or any successor or assign within six
months after the date hereof without payment of a penalty;
(vii) any contract or agreement for the sale or lease of its
products or services not made in the ordinary course of business;
(viii) any contract with any sales agent or distributor of products
of the Company or the Seller;
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(ix) any contract containing covenants limiting the freedom of the
Company or the Seller to compete in any line of business or with any person or
entity;
(x) any contract or agreement for the purchase of any fixed asset
for a price in excess of Five Thousand Dollars ($5,000) whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee); provided that
a complete list of all software currently owned, licensed or used by the Company
or the Seller and set forth in Schedule 5.14 shall satisfy the disclosure
obligation of the Company or the Seller for purposes hereof;
(xii) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money and any
related security agreement;
(xiii) any contract or agreement with any officer, employee,
director or stockholder of the Company or the Seller or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other similar contract,
arrangement or agreement; or
(xv) any registration rights agreements, warrants, warrant
agreements or other rights to subscribe for securities, any voting agreements,
voting trusts, shareholder agreements or other similar arrangements or any stock
purchase or repurchase agreements or stock restriction agreements.
(b) All material contracts, agreements, leases and instruments to which
the Company or the Seller is a party or by which the Business is obligated are
valid and are in full force and effect and constitute legal, valid and binding
obligations of the Business and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor the Seller nor
any other party to any contract, agreement, lease or instrument of the Company
or the Seller is in default in complying with any provisions thereof, and no
condition or event or facts exists which, with notice, lapse of time or both
would constitute a default thereof on the part of either of the Company, the
Seller, or on the part of any other party thereto in any such case that could
have a material adverse effect on the properties, assets, financial condition or
prospects of the Business. Schedule 5.14 indicates whether any of the
agreements, contracts, commitments or other instruments and documents described
therein requires consent or approval to be transferred to the Buyer as a result
of the transactions contemplated herein.
5.15 Litigation. Schedule 5.15 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company or the Seller is a party. Except for matters
described in Schedule 5.15, there is no
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litigation or governmental or administrative proceeding or investigation pending
or threatened against the Company or the Seller which may have an adverse effect
on the properties, assets, business, financial condition or prospects of the
Business or which would prevent or hinder the consummation of the transactions
contemplated by this Agreement.
5.16 Compliance with Laws. Neither the Company nor the Seller has received
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would have a
material adverse effect on the Business, and except as set forth in Schedule
5.16 hereto, the Company and the Seller are currently in compliance in all
material respects with all such statutes, ordinances, orders, rules or
regulations, and there is no valid basis for any claim that such parties are not
in compliance with any such statute, ordinance, order, rule or regulation.
5.17 Insurance. Schedule 5.17 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 the Business has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and (e) a description of any retroactive
premium adjustments or other loss-sharing arrangements. With respect to each
such insurance policy: (i) the policy is legal, valid, binding, enforceable, and
in full force and effect; (ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby, (iii) neither the
Company, the Seller, nor any other party to the policy is 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) no party to the policy has repudiated
any provision thereof. Since the commencement of the Business, the Company and
the Seller have been covered by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period.
5.18 Warranty and Related Matters. There are no existing or threatened in
writing, product liability, warranty or other similar claims against the Company
or the Seller alleging that any of its products or services are defective or
fail to meet any product or service warranties except as disclosed in Schedule
5.18 hereto. Neither the Company nor the Seller have received notice of any
statements, citations, correspondence or decisions by any Governmental Entity
stating that any product manufactured, marketed or distributed at any time by
the Business (the "Products") is defective or unsafe or fails to meet any
product warranty or any standards promulgated by any such Governmental Entity.
There have been no recalls ordered by any such Governmental Entity with respect
to any Product. There is no (i) fact relating to any Product that may impose
upon the Business a duty to recall any Product or a duty to warn customers of a
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defect in any Product, (ii) latent or overt design, manufacturing or other
defect in any Product, or (iii) liability for warranty or other claim or return
with respect to any Product except in the ordinary course of business consistent
with the past experience of the Business for such kind of claims and
liabilities.
5.19 Finder's Fees. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Seller.
5.20 Permits; Burdensome Agreements. Schedule 5.20 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Business to conduct its business. The Company and the Seller have obtained
all the Approvals, which are valid and in full force and effect. Except as
disclosed on Schedule 5.20, none of the Approvals is subject to termination by
their express terms as a result of the execution of this Agreement by the Seller
and the Company, and no further Approvals will be required in order to continue
to conduct the business currently conducted by the Business subsequent to the
Closing. Except as disclosed in Schedule 5.20, neither the Company nor the
Seller is subject to nor bound by any agreement, judgment, decree or order which
may materially and adversely affect the properties, assets, business, financial
condition or prospects of the Business.
5.21 Transactions with Interested Persons. Except as set forth in Schedule
5.21 hereto, no stockholder, officer, employee or director of the Company, nor
the Seller, nor employees of the Business and none of their respective parents,
grandparents, spouses, children, siblings or grandchildren owns directly or
indirectly on an individual or joint basis any material interest in, or serves
as an officer or director or in another similar capacity of, any competitor,
supplier or customer of the Business or any organization, person or entity with
whom the Business is doing business.
5.22 Lists of Certain Employees and Suppliers.
(a) Schedule 5.22 hereto contains a list of all current directors and
officers of the Company and a list of all managers, employees and consultants of
the Business who, individually, have received or are scheduled to receive base
salary from the Business during the current fiscal year of Eighteen Thousand
Dollars ($18,000) or more. In each case such schedule includes the current job
title and current base salary of each such individual.
(b) Schedule 5.22 sets forth a true and complete list of all suppliers of
the Business to whom the Business made payments aggregating Ten Thousand Dollars
($10,000) or more during the most recent complete fiscal year, showing, with
respect to each, the name, address and dollar volume involved.
5.23 Employees; Labor Matters. As of the date hereof, the Business
employed the number of full-time employees and part-time employees described on
Schedule
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5.23. Neither the Company nor the Seller are delinquent in payments to any of
its employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Except as set forth in Schedule
5.23, upon termination of the employment of any of said employees, the Business
will not be liable to any of said employees for so-called "severance pay" or any
other payments. Except as set forth in Schedule 5.23 attached hereto, neither
the Company nor the Seller have policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment. The Business is in compliance with all applicable
laws and regulations respecting labor, employment, fair employment practices,
terms and conditions of employment, and wages and hours. No charges of
employment discrimination or unfair labor practices have been brought against
the Company or the Seller, nor are there any strikes, slowdowns, stoppages of
work, or any other concerted interference with normal operations existing,
pending or threatened against or involving the Company or the Seller. There are
no grievances, complaints or charges that have been filed against the Company or
the Seller under any dispute resolution procedure (including, but not limited
to, any proceedings under any dispute resolution procedure under any collective
bargaining agreement). No collective bargaining agreements are in effect or are
currently being or are about to be negotiated by the Company or the Seller.
Neither the Company nor the Seller have received written notice of pending or
threatened changes with respect to the management or key supervisory personnel
of the Business.
5.24 Customers. Schedule 5.24 sets forth any customer who accounted for
more than 5% of the sales of the Business for the most recent complete fiscal
year of the Business (collectively, the "Customers"). No Customer has given
notice to the Company or the Seller of its intention to terminate, to cancel or
otherwise materially and adversely modify its relationship with the Business or
to decrease materially or limit its usage or purchase of the services or
products of the Business.
5.25 Y2K. The Company and the Seller have taken all commercially
reasonable action known to date to assess, evaluate, test and correct all of the
hardware, software, embedded microchips and other processing capabilities of
computer and telecommunication systems it uses, either directly or indirectly,
including but not limited to computerized services provided by third parties
such as billing and payroll services, to ensure that such systems will be able
to function accurately and without interruption or ambiguity using date
information before, during and after January 1, 2000.
5.26 Disclosure. This Agreement, including the Schedules hereto prepared
by the Seller and the Company, together with the other information furnished to
the Buyer by the Company and the Seller in connection herewith, does not contain
an untrue statement of material fact or omit to state a material fact necessary
to make the statements herein and therein, in light of the circumstances under
which they were made, not misleading.
5.27 Employee Benefits.
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(a) Schedule 5.27 lists each Employee Benefit Plan that the Business
maintains or to which either the Company or the Seller is a party.
(i) Each such Employee Benefit Plan (and each related trust,
insurance, contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Internal Revenue Code, and other
applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title 1 of ERISA and
of Internal Revenue Code ss.4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Business. All premiums or
other payments for all periods ending on or before the Closing Date have been
paid with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Internal Revenue
Code ss.401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer Plan)
equals or exceeds the present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating on the date for
determination.
(vi) The Seller has delivered and has caused the Company to deliver
to the Buyer correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which implement
each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that the Business maintains
or ever has maintained or to which either contributes, ever has contributed, or
ever has been required to contribute:
(i) No such Employee Benefit Plan which is in Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC.
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No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or is threatened.
(ii) There have been no Prohibited Transactions with respect to any
such Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan. No
action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than routine claims for benefits) is pending or threatened. None of the
Seller nor the directors and officers of the Company has any knowledge of any
basis for any such action, suit, proceeding, hearing, or investigation.
(iii) Neither Seller nor the Company has incurred, and none of the
Seller, the Company and the directors and officers of the Company has any reason
to expect that the Seller or the Company will incur, any liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Internal Revenue Code with
respect to any such Employee Benefit Plan which is an Employee Pension Benefit
Plan.
(c) Neither Seller nor the Company has ever contributed to, or ever has
been required to contribute to any Multiemployer Plan or has any liability
(including withdrawal liability) under any Multiemployer Plan.
(d) Neither Seller nor the Company maintains or contributes to, has ever
maintained or contributed to, or has ever been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Internal Revenue Code ss.4980B).
5.28 Environment, Health, and Safety.
(a) To the best of the Seller and the Company's knowledge, the Business
has complied with all Environmental, Health and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against them alleging any failure so to
comply. Without limiting the generality of the preceding sentence, the Seller
and the Company have obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are required
under, and have complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which are contained in, all Environmental, Health, and Safety Laws.
(b) To the best of the Seller and the Company's knowledge, neither Seller
nor the Company has liability (and the Seller and the Company have not handled
or disposed of any substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or condition, or owned
or operated any property or facility in any manner that
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could form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Seller
or the Company giving rise to any liability) for damage to any site, location,
or body of water (surface or subsurface), for any illness of or personal injury
to any employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(c) To the knowledge of the Seller, all properties and equipment used in
the Business have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2-trans-dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
6. Covenants of the Seller and the Company. The Seller and the Company
jointly and severally covenant and agree as set forth in this Section 6.
6.1 Conduct of Business. Between the date of this Agreement and the
Closing Date, the Seller will cause the Company and the Proprietorship to do and
the Company and the Proprietorship will do the following, unless the Buyer shall
otherwise consent in writing:
(a) conduct its business only in the ordinary course consistent with past
practices, refrain from changing or introducing any method of management or
operations except in the ordinary course of business and in a manner consistent
with past practices and will not use any cash generated by the Business other
than to pay ordinary course business expenses consistent with past practices
except for the payment to Norwich Tire described in Schedule 5.10;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing or
selling any capital asset of the Business and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets;
(c) refrain from incurring or modifying any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring or modifying any other contingent or fixed obligations or liabilities
except in the ordinary course of business and in a manner consistent with past
practices;
(d) refrain from making any change in the Company's incorporation
documents, by-laws or authorized or issued capital stock or from acquiring any
securities issued by any other business organization other than short-term
investments in the ordinary course of business;
(e) refrain from declaring, setting aside or paying any dividend, making
any other distribution in respect of the Company's capital stock, making any
direct or indirect redemption, purchase or other acquisition of the Company's
capital stock, issuing, granting, awarding, selling, pledging, disposing of or
encumbering or authorizing the issuance, grant, award, sale, pledge, disposition
or encumbrance of any shares of, or securities convertible or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or entering into any
agreement or commitment with respect to any of the foregoing;
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(f) refrain from making any change in the compensation payable or to
become payable to any of its officers, employees or agents, except for scheduled
increases in salary or wages in the ordinary course of business that are
consistent with past practices, or granting any severance or termination pay to,
or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or the Seller or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing arrangements or
modifying, amending or terminating any of its contracts except in the ordinary
course of business, or waiving, releasing or assigning any material rights or
claims;
(h) use reasonable efforts to prevent any change with respect to its
management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business organization and to
preserve the goodwill of and business relationships with all suppliers,
customers and others having business relations with it, and to maintain its
properties and facilities, including those held under leases, in as good a
working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) Maintain at all times all insurance of the kind, in the amount and
with the insurers set forth in Schedule 5.17 or equivalent insurance with any
substitute insurers approved by Buyer;
(k) refrain from changing accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable) or from making any tax election or
settling or compromising any federal, state, local or foreign income tax
liability;
(l) refrain from entering into any executory agreement, commitment or
undertaking to do any of the activities prohibited by the foregoing provisions;
and
(m) maintain a minimum of $27,000 cash on hand on the Closing Date; and
(n) permit the Buyer and its authorized representatives (including without
limitation the Buyer's attorneys, accountants, and pension consultants) to have
full access to all of its properties, assets, books, records, business files,
executive personnel, tax returns, contracts and documents and furnish to the
Buyer and its authorized representatives such financial and other information
with respect to its business or properties as Buyer may from time to time
reasonably request.
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6.2 Consents and Approvals. The Seller and the Company shall use their
best efforts to obtain or cause to be obtained prior to the Closing Date all
necessary consents and approvals to the performance of the obligations of the
Seller and the Company under this Agreement unless waived by the Buyer,
including, without limitation, the consents and authorizations described in
Schedule 5.14, and such other authorizations, waivers, approvals, consents and
permits as set forth in Schedule 6.2 as may be necessary to transfer to the
Buyer and/or to retain in full force and effect without penalty subsequent to
the Closing Date all contracts, permits, licenses and franchises of or
applicable to the Business.
6.3 Exclusive Dealing. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to Section 10 neither
the Company nor the Seller shall, nor shall any of them permit any director,
officer, employee or agent of either of the Company or the Seller to, directly
or indirectly, (i) take any action to solicit, initiate submission of or
encourage, proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a portion of
the assets of the Business, or any equity interest in the Company or any merger
or business combination with the Company or the Proprietorship (an "Acquisition
Proposal"), (ii) participate in any discussions or negotiations regarding an
Acquisition Proposal with any person or entity other than Buyer and its
representatives, or (iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do any of the foregoing.
6.4 No Sales of Capital Stock. Between the date of this Agreement and the
Closing Date, the Seller shall not sell, exchange, deliver, assign, pledge,
encumber or otherwise transfer or dispose of any Company Shares owned
beneficially or of record by the Seller, nor grant any right of any kind to
acquire, dispose of, vote or otherwise control in any manner such Company
Shares; provided, however, that notwithstanding anything to the contrary stated
herein, any transferee, executor, heir, legal representative, successor or
assign of the Seller shall be bound by this Agreement.
6.5 Notification of Certain Matters. The Seller and the Company shall give
prompt notice to the Buyer of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Seller and the Company contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (ii)
any material failure of the Seller or the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. The delivery of any notice pursuant to this Section 6.5 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, (ii) modify the conditions set forth in Section 8 or
elsewhere or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
6.6 Amendment of Schedules. The Seller and the Company agree that, with
respect to the representations and warranties contained in this Agreement, the
Seller and the Company shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described on the
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Schedules. The Seller and the Company understand and agree that, as of the
Closing Date, they will be required to execute a "bring-down" certificate which
shall state that all representations and warranties in this Agreement are true
and correct as of the Closing Date. To the extent that any such representation
and warranty is qualified by disclosure on a schedule which changes after the
date hereof and prior to Closing, the Seller and the Company agree to notify the
Buyer of such changes in writing and to summarize all such changes via the
bring-down certificate on the Closing Date. Notwithstanding the foregoing
sentence, the truth and accuracy of any and all representations and warranties
of the Seller and the Company as of the date of this Agreement and as of the
Closing Date shall be a precondition to the consummation of this transaction by
the Buyer, and Buyer shall not be deemed to have consented to any amendment or
supplement to a Schedule prepared by the Seller and the Company after the date
hereof or to have waived any of its rights or remedies for breach hereof,
particularly with respect to any matter hereafter arising or discovered that
constitutes or reflects an event or occurrence that would be reasonably likely
to have a material adverse effect on the business of the Company or the Seller,
unless the Buyer acknowledges and consents in writing to such amendment or
supplement.
6.7 Further Assurances. The Seller and the Company hereto agree to execute
and deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
6.8 Employees. As of the Closing Date, the Seller shall have terminated
all of its employees of the Business and the Buyer shall have hired certain of
such former employees as it may, in its sole discretion, need to operate the
Business, provided, however, that the Buyer shall have no obligation to hire any
such employees (other than pursuant to the Employment Agreement).
7. Representations and Warranties of the Buyer. As of the date hereof, the
Buyer hereby represents and warrants to the Seller and the Company as set forth
in this Section 7.
7.1 Organization of the Buyer. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of State of New York with
full corporate power and authority to conduct its businesses in the manner as
now conducted.
7.2 Authority. All necessary corporate action has been taken by the Buyer
to authorize the execution, delivery and performance of this Agreement and each
agreement, document and instrument to be executed and delivered by the Buyer
pursuant to this Agreement. This Agreement and each agreement, document and
instrument to be executed and delivered by the Buyer pursuant to this Agreement
constitutes, or when executed and delivered by the Buyer will constitute, valid
and binding obligations of the Buyer enforceable in accordance with their
respective terms.
7.3 No Conflicts. The execution, delivery and performance by the Buyer of
this Agreement and each such other agreement, document and instrument: (i) does
not and will not violate any provision of the Certificate of Incorporation or
bylaws of the Buyer ; and (ii) will not
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result in a breach of, constitute a default under, accelerate any obligation
under, or give rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Buyer is a party or
by which the property of the Buyer is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets of the Buyer, except where such
breach, default, acceleration or right of termination would not have a material
adverse effect on the properties, assets, business, financial condition or
prospects of the Buyer, and would not result in the creation or imposition of
any mortgage, pledge, lien, security interest or other charge or encumbrance on
any of the assets of the Buyer.
7.4 Litigation. There is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Buyer which may
have an adverse effect on the properties, assets, business, financial condition
or prospects of the Buyer or which would prevent or hinder the consummation of
the transactions contemplated by this Agreement.
7.5 Compliance with Laws. The Buyer has not received any notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Buyer.
8. Conditions Precedent to the Obligations of the Buyer. The obligations
of the Buyer to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing, of the
conditions set forth in this Section 8.
8.1 Examination of Financial Statements. Prior to the Closing Date, the
Buyer shall have had sufficient time to review the management-prepared balance
sheets of the Business as of the last day of the month ended immediately prior
to the Closing Date and the management-prepared statements of income, cash flow
and stockholders' equity for the period then ended, disclosing no material
change in the financial condition of the Business or the results of its
operations from the Balance Sheet Date, and the Buyer shall be satisfied in all
respects with such financial information.
8.2 No Material Adverse Change. No material adverse change in the results
of operations, financial position or business of the Business shall have
occurred and the Company and the Seller shall not have suffered any material
loss or damages to any of its properties or assets, whether or not covered by
insurance, since the Balance Sheet Date, which change, loss or damage materially
affects or impairs the ability of the Company and the Seller to conduct its
business; and the Buyer shall have received on the Closing Date a certificate
signed by the President of the Company and the Seller to such effect.
8.3 Due Diligence and Regulatory Review. The Buyer and KPMG LLP shall have
completed to its satisfaction a due diligence investigation of the Seller and
the Company and the Business's prospects, business, assets, contracts, rights,
liabilities and obligations, including a
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review of the practices and procedures of the Company and the Seller with
respect to compliance with contracts and federal, state and local laws and
regulations governing the operations of the Company and the Seller. Such review
shall be satisfactory in all respects to the Buyer, in its sole discretion.
8.4 Opinion of Counsel. The Buyer shall have received an opinion from
counsel to the Company and the Seller, dated the Closing Date, in form and
substance satisfactory to the Buyer, to the effect that:
(a) the Company has been duly organized and is validly subsisting in good
standing under the laws of the State of New York.
(b) the authorized and outstanding capital stock of the Company is as
represented by the Seller in this Agreement and each share of such stock has
been duly and validly authorized and issued, is fully paid and nonassessable and
was not issued in violation of the preemptive rights of any stockholder;
(c) to the knowledge of such counsel, the Company does not have any
outstanding options, warrants, calls, conversion rights or other commitments of
any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and delivered by the
Seller and constitutes a valid and binding agreement of the Seller and the
Company enforceable against them in accordance with its terms except as such
enforceability may be subject to bankruptcy, moratorium, insolvency,
reorganization, arrangement and other similar laws relating to or affecting the
rights of creditors.
(e) except to the extent set forth on Schedule 5.15, there are no claims,
actions, suits or proceedings pending, or to the knowledge of such counsel
threatened against or affecting the Company or the Seller, at law or in equity,
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality wherever located;
(f) no notice to, consent, authorization, approval or order of any court
or governmental agency or body or of any other third party (excluding any
software licensed to the Business) is required in connection with the execution,
delivery or consummation of this Agreement by the Seller or for the transfer to
the Buyer of the Company Shares or the Assets;
(g) the execution of this Agreement and the performance of the obligations
hereunder will not violate or result in a breach or constitute a default under
any of the terms or provisions of the Company's Certificate of Incorporation or
the bylaws of the Company or of any lease, instrument, license, permit or any
other agreement to which the Seller is a party or by which the Company or the
Seller is bound; and
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(h) any other matters incident to the matters set forth herein as
reasonably required by the Buyer.
8.5 Additional Liabilities and Obligations. The Seller shall have
delivered to the Buyer a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Business arising since the Balance Sheet
Date; (ii) showing all material contracts and agreements, together with copies
thereof, entered into by the Company and the Seller since the Balance Sheet Date
and (iii) all outstanding payables of the Business which the Seller shall
satisfy in accordance with Section 3.3(b).
8.6 Good Standing Certificates; Certified Copy of the Certificate of
Incorporation. The Seller shall have delivered to the Buyer certificates, dated
as of a date no earlier than twenty days prior to the Closing Date, duly issued
by the Secretary of State and the Department of Revenue of the State of New York
and of any other state in which the Business is authorized to do business,
showing that the Company and the Proprietorship are in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for the Business for all periods prior to the dates of such
certificates have been filed and paid. The Seller shall also have delivered to
the Buyer prior to the Closing a recent copy of the Company's Certificate of
Incorporation and all amendments thereto duly certified by the Secretary of
State of New York.
8.7 Representations; Warranties; Covenants. Each of the representations
and warranties of the Seller and the Company contained in Section 5 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Seller and the Company shall, on or before the Closing Date, have performed and
satisfied all agreements and conditions hereunder which by the terms hereof are
to be performed and satisfied by the Seller and the Company on or before the
Closing Date; and the Seller and the Company shall have delivered to the Buyer a
certificate dated the Closing Date signed by the Seller and the Company to the
foregoing effect.
8.8 Approvals and Consents. The Company and the Seller shall have made all
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by them in connection with the execution
and delivery of this Agreement, the performance of the transactions contemplated
hereby and the continued operation of the Business subsequent to the Closing
Date, and the Company, the Seller and the Buyer shall have received all required
authorizations, waivers, consents and permits to permit the consummation of the
transactions contemplated by this Agreement, in form and substance reasonably
satisfactory to the Buyer, from all third parties, including, without
limitation, approvals required under federal and state securities laws and/or
the securities and Exchange Commission, state "Blue Sky" laws, other applicable
governmental authorities and regulatory agencies, lessors, lenders and contract
parties, required in connection with this Agreement or the Company's or the
Seller's permits, leases, licenses and franchises, to avoid a breach, default,
termination, acceleration or modification of any material agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a
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result of the execution or performance of this Agreement, or otherwise in
connection with the execution and performance of this Agreement.
8.9 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Buyer make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
8.10 Proceedings Satisfactory to the Buyer. All proceedings to be taken by
the Company and the Seller in connection with the consummation of the Closing on
the Closing Date and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transaction contemplated hereby reasonably requested by the Buyer shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.
9. Conditions Precedent to the Obligations of the Seller. The obligations
of the Seller to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing Date, of the
following conditions (any one or more of which may be waived in whole or in part
by the Seller):
9.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Buyer contained in Section 7 shall be true and correct in
all material respects on and as of the Closing Date, with the same effect as
though made on and as of the Closing Date; the Buyer shall, on or before the
Closing Date, have performed and satisfied all agreements and conditions
hereunder which by the terms hereof are to be performed and satisfied by the
Buyer on or before the Closing Date; and the Buyer shall have delivered to the
Company a certificate signed by the President of the Buyer and dated as of the
Closing Date certifying to the foregoing effect.
9.2 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company or the Seller make it inadvisable to
consummate such transactions, and no law or regulation shall be in effect and no
court order shall have been entered in any action or proceeding instituted by
any party which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
10. Termination of Agreement; Effect of Termination.
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10.1 Termination. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the Seller and the board of directors of the Buyer;
(b) either by the Seller on the one hand, or by the Buyer on the other
hand, if
(i) the transactions contemplated by this Agreement to take place at
the Closing shall not have been consummated by September 30, 1999, unless the
failure of such transactions to be consummated is due to the willful failure of
the party seeking to terminate this Agreement to perform any of its obligations
under this Agreement to the extent required to be performed by it prior to or on
the Closing Date; or
(ii) if a material breach or default shall be made by the other
party in the observance of or in the due and timely performance of any of the
covenants or agreements contained herein, and the curing of such default shall
not have been made on or before the Closing Date
10.2 Liabilities in the Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
10.3 Time is of the Essence. Time is of the essence with respect to the
termination provisions of this Section 10.
11. Non-competition. For a period of three (3) years from and after the
Closing Date, the Seller will not (i) engage directly or indirectly in any
internet access service, web design or other business that the Buyer, or its
affiliates may from time to time engage, or actively plan to engage in during
the term of this covenant (except that ownership of less than 2% of the
outstanding stock of any competing publicly traded corporation shall not
constitute a violation of this covenant not to compete) or (ii) solicit,
directly or indirectly, any customers, clients, accounts, officers, employees,
agents or representatives of the Company or the Buyer. Notwithstanding the
foregoing, the Seller shall be permitted to design a web site for a full time
employer provided that such employment would not otherwise violate this Section
11. If the final judgment of a court of competent jurisdiction declares that any
term or provision of this Section is invalid or unenforceable, the parties
hereto 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.
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12. Nondisclosure of Confidential Information.
12.1 The Seller and the Company. The Seller and the Company recognize and
acknowledge that they have had in the past, currently have and in the future may
have access to certain confidential information relating to the Business and the
Buyer and its affiliates, including, but not limited to, operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Company and the Buyer and its affiliates. The Seller and
the Company agrees that they will not use or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Buyer and its affiliates who need to know such information in connection
with the transactions contemplated hereby, who have been informed of the
confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) following the Closing, such
information may be disclosed by the Seller as is required in the course of
performing his or her duties for the Buyer or the Company unless (i) such
information becomes known to the public generally through no breach by the
Seller of this covenant, (ii) disclosure is required by law or the order of any
governmental authority under color of law or is necessary in order to secure a
consent or approval to consummate the transactions contemplated hereby,
provided, that prior to disclosing any information pursuant to this clause (ii),
the Seller shall give prior written notice thereof to the Buyer and provide the
Buyer with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party and the same prior
disclosure set forth immediately above is given. In the event of a breach or
threatened breach by the Seller of the provisions of this section, the Buyer
shall be entitled to an injunction restraining the Seller from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the Buyer from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. In the
event that the transactions contemplated herein are not consummated, the Seller
shall return to the Buyer within a reasonable time all documents containing
confidential information about the Buyer.
12.2 The Buyer. The Buyer recognizes and acknowledges that it had in the
past and currently has access to certain confidential information relating to
the Business, such as operational policies, customer lists, and pricing and cost
policies, that are valuable, special and unique assets of the Business. The
Buyer agrees that, prior to the Closing, or if the transactions contemplated by
this Agreement are not consummated, it will not use or disclose such
confidential information to its own benefit except in furtherance of the
transactions contemplated by this Agreement or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to the Seller and to authorized
representatives of the Seller or the Buyer who need to know such information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, unless (i) such information becomes
known to the public generally through no breach by the Buyer of this covenant,
(ii) disclosure is required by law or the order of any governmental authority
under color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
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disclosing any information pursuant to this clause (ii), the Buyer shall give
prior written notice thereof to the Seller and provide the Seller with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party and the same prior disclosure set forth
immediately above is given. In the event of a breach or threatened breach by the
Buyer of the provisions of this Section, the Seller shall be entitled to an
injunction restraining the Buyer from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Seller from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, the Buyer shall return to the Seller
within a reasonable time all documents containing confidential information
relating to the Business.
12.3 Survival. The obligations of the parties under this Section 12 shall
survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
13. Indemnification.
13.1 Indemnification by the Seller. The Seller, on behalf of himself and
his successors, executors, administrators, estates, heirs and permitted assigns,
agrees subsequent to the Closing Date to indemnify and hold harmless the Buyer,
the Company and their respective officers, directors, employees and agents
(individually, a "Buyer Indemnified Party" and collectively, the "Buyer
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Buyer Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the Seller in
this Agreement or in any schedule, exhibit, certificate, agreement or other
instrument delivered under or in connection with this Agreement, or by reason of
any claim, action or proceeding asserted or instituted arising out of any matter
or thing covered by any such representations or warranties (collectively, "Buyer
Representation and Warranty Claims");
(b) any breach of any covenant or agreement made by the Seller in this
Agreement or in any schedule, exhibit, certificate, agreement or other
instrument delivered under or in connection with this Agreement, or by reason of
any claim, action or proceeding asserted or instituted arising out of any matter
or thing covered by any such covenant or agreement; or
(c) with respect to taxes of the Business incurred with respect to any
Pre-Closing Tax Period (as defined below). The term "Pre-Closing Tax Period"
shall mean all taxable periods ending on or before the Closing Date and the
portion (ending on the Closing Date) of any taxable period that includes (but
does not end on) the Closing Date.
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Claims under clauses (a) through (c) of this Section 13 are hereinafter
collectively referred to as "Buyer Indemnifiable Claims". The rights of Buyer
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this Section 13 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this Section 13.
13.2 Notice; Defense of Claims.
Promptly after receipt by a Buyer Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Buyer Indemnified Party shall give notice thereof in writing to
the Seller, but the omission to so notify the Seller promptly will not relieve
the Seller from any liability except to the extent that the Seller shall have
been prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within twenty (20) days after receiving such notice the Seller give
written notice to the Buyer Indemnified Party stating that (i) it would be
liable under the provisions hereof for indemnity in the amount of such claim if
such claim were successful and (ii) that it disputes and intends to defend
against such claim, liability or expense at its own cost and expense, then
counsel for the defense shall be selected by the Seller (subject to the consent
of the Buyer Indemnified Party which consent may not be unreasonably withheld)
and the Buyer Indemnified Party shall not be required to make any payment with
respect to such claim, liability or expense as long as the Seller is conducting
a good faith and diligent defense at its own expense; provided, however, that
the assumption of defense of any such matters by the Seller shall relate solely
to the claim, liability or expense that is subject or potentially subject to
indemnification. The Seller shall have the right, with the consent of the Buyer
Indemnified Party, which consent shall not be unreasonably withheld, to settle
any Buyer Indemnified Claims by third parties which are susceptible to being
settled provided its obligation to indemnify the Buyer Indemnified Party
therefor will be fully satisfied. The Seller shall keep the Buyer Indemnified
Party apprised of the status of the claim, liability or expense and any
resulting suit, proceeding or enforcement action, shall furnish the Buyer
Indemnified Party with all documents and information that the Buyer Indemnified
Party shall reasonably request and shall consult with the Buyer Indemnified
Party prior to acting on major matters, including settlement discussions.
Notwithstanding anything herein stated, the Buyer Indemnified Party shall at all
times have the right to fully participate in such defense at its own expense
directly or through counsel; provided, however, if the named parties to the
action or proceeding include both the Seller and the Buyer Indemnified Party and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for the Buyer Indemnified Party shall be paid by the Seller. If no such notice
of intent to dispute and defend is given by the Seller, or if such diligent good
faith defense is not being or ceases to be conducted, the Buyer Indemnified
Party shall, at the expense of the Seller, undertake the defense of (with
counsel selected by the Buyer Indemnified Party), and shall have the right to
compromise or settle (exercising reasonable business judgment), such claim,
liability or expense. If such claim, liability or expense is one that by its
nature cannot be defended solely by the Seller, then the
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Buyer Indemnified Party shall make available all information and assistance that
the Seller may reasonably request and shall cooperate with the Seller in such
defense.
14. Publicity; Securities Laws. The Seller acknowledges that the Buyer is
a subsidiary of a publicly held company that is therefore subject to certain
disclosure requirements under federal securities laws. The Seller and his
representatives shall not directly or indirectly, make any public comment,
statement or communication with respect to, or otherwise disclose or permit the
disclosure of the existence of discussions regarding, the Agreement between the
parties or any of the terms, conditions or other aspects of the Agreement. The
Seller further understands that this Agreement represents information concerning
the Buyer which has not been previously disclosed to the public and which may be
material, all as determined in accordance with applicable laws, rules and
regulations of the United States and the several states concerning securities
(collectively, the "Securities Laws"). The Seller agrees not to take any action
in connection with this Agreement in violation of the Securities Laws, including
but not limited to trading in the common stock of the Buyer's parent while in
possession of material non-public information.
15. Expenses. Each party shall be responsible for its own
transaction-related fees and expenses incurred in connection with this Agreement
(including without limitation legal, accounting, and consulting fees and
expenses); provided, however, that in the event of a breach of the Agreement by
any party hereunder, the non-breaching party shall be entitled to recover all of
its reasonable costs incurred in pursuing the transactions contemplated by this
Agreement, including without limitation, legal and accounting fees and expenses.
16. Entire Agreement; Amendment; Waiver. This Agreement and the schedules
and exhibits attached hereto constitute the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreement, representations and understandings of the parties. No
supplement, modification, or amendment of this Agreement will be binding unless
executed in writing by all of the parties. No waiver of any of the provisions of
this Agreement will be effective unless in writing; no waiver will constitute a
waiver of any other provision; and no waiver of a breach of any provision of
this Agreement will operate to waive any subsequent breach.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
18. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or Liability of any third persons to any party to this
Agreement, nor will any provision give any third persons any right of
subrogation or action against any party to this Agreement.
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19. Successors and Assigns. This Agreement will be binding on, and will
inure to the benefit of, the parties to it and their respective heirs,
executors, administrators, successors and assigns.
20. Further Assurances. The Seller from time to time will execute and
deliver and cause the Company to execute and deliver such additional documents
and instruments and take such additional actions as may be necessary to carry
out the transactions contemplated by this Agreement. If requested by the Buyer,
the Seller will prosecute or otherwise enforce in its own name for the benefit
of the Buyer any claims, rights or benefits that are transferred to the Buyer
under this Agreement and that require prosecution or enforcement in the Seller's
name. Any prosecution or enforcement of claims, rights or benefits under this
Section 20 will be solely at the Buyer's expense unless the prosecution or
enforcement is made necessary by a breach of this Agreement by the Seller.
21. Survival. All representations, warranties, covenants and agreements of
the parties contained in this Agreement, or in any instrument, certificate, or
opinion provided for in it, shall survive the Closing (even if the damaged party
knew or had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect forever thereafter
(subject to any applicable statutes of limitation or repose).
22. Notices. Any notice, consent, approval or other communication required
or permitted hereunder will be in writing and will be given (i) by delivery in
person, (ii) by certified mail, return receipt requested, postage prepaid, (iii)
by commercial overnight courier, fees prepaid, or (iv) by facsimile transmission
(with telephone confirmation of receipt), as follows:
(a) If to the Seller and/or the Company:
Robert W. Nassar
c/o Norwich Tire Company, Inc.
34 Hale Street
Norwich, NY 13815
Phone: (607) 334-4531 or 334-3779
Fax: (607) 334-8304
With a copy to:
Lee, Emerson & Dean, LLP
35 West Main Street
P.O. Box 711
Norwich, NY 13815
Attention: Thomas C. Emerson, Esq.
Phone: (607) 334-2247
Fax: (607) 334-5999
(b) If to the Buyer:
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Insite Internet III Acquisition Co., Inc.
P.O. Box 1347
Wall, NJ 07719
Attention: Mark E. Munro, President
Phone: (732) 280-6407
Fax: (732) 280-6409
With a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, Rhode Island 02903
Attention: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
or to such other address for any of the above as may be designated by notice to
the others. Any such notice or other communication will be considered to have
been given (i) on the date of delivery in person, (ii) on the fifth day after
mailing by certified mail, provided that receipt of delivery is confirmed in
writing, or (iii) on the first Business Day following delivery to a commercial
overnight courier, or (iv) on the day of facsimile transmission provided that
the giver of the notice obtains telephone confirmation of receipt promptly.
23. Arbitration; Jurisdiction; Venue; Attorney's Fees. Each party hereto
agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held in Albany
and the arbitrator(s) shall apply New York law. Judgment upon any award rendered
by the arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Buyer shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of New York or in any United States District Court in the State of
New York. Each party irrevocably submits to and accepts the exclusive
jurisdiction of each of such courts and waives any objection (including any
objection to venue or any objection based upon the grounds of forum non
conveniens) which might be asserted against the bringing of any such action,
suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party and/or parties in any litigation or arbitration.
24. Governing Law. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and construed
in accordance with the laws of the State of New York without reference to its
laws governing conflicts of law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SELLER:
/s/Robert W. Nassar
----------------------------------------
Robert W. Nassar
ASCENT INTERNET HOLDINGS, INC.
By: /s/ Robert W. Nassar
------------------------------------
Robert W. Nassar, President
BUYER:
INSITE INTERNET III ACQUISITION CO., INC.
By: /s/ Mark E. Munro
------------------------------------
Mark E. Munro, Chief Executive Officer
[Signature page to Asset Purchase Agreement]
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SCHEDULE 2.1
Assets
All assets and all properties and rights of the Business including but not
limited to (a) office equipment, machinery, apparatus, and furniture; (b) all
permits, licenses and other rights under federal, state or local laws relating
to the Assets and the Business to the extent such permits, licenses and rights
may be assigned to the Buyer under applicable law or under the contractual terms
of the permit, license or right, provided that the Seller will use best efforts
to facilitate such assignments as necessary and possible; (c) all intangible
assets including, trademarks, trade names, technology, know-how, data,
copyrights, assumed names, service marks, telephone numbers, post office box
addresses, licenses, covenants by others not to compete, rights and privileges
used in the conduct of the Business and rights to recover from infringement
thereon, whether express or implied; (d) goodwill and going concern value of the
Business; (e) all rights in, to and under contracts and agreements, including
privileges, deposits, claims, causes of actions and options pertaining thereto;
(f) all computers, programs and office supplies; (g) all orders; (h) all
accounts receivable and other rights of the Seller to payment for goods sold or
for services rendered, together with all documents representing the foregoing;
(i) all of the books, records, papers and documents, including diagrams,
accounting and financial records, advertising materials, mailing lists, credit
reports, sales records and customer lists and other customer data and supplier;
(j) prepaid expenses and all other current assets on hand as of the Closing
Date; (k) all of the Seller's rights to the Company's name, the name "Ascent
Networking" and any variations or similar names used in the Business; (l) all
rights, privileges, claims, causes of action and options relating or pertaining
to the Business or the Assets; and (m) all other and additional privileges,
rights, interest, properties and assets of the Business of every kind and
description and wherever located that are used or intended for use in connection
with, or that are necessary to the continued conduct of the Business as
presently being conducted, by the Seller and the Company.
The assets specifically do not include the "Excluded Assets" as defined in
Section 2.2 of this Agreement.
38
ASSET PURCHASE AGREEMENT
Introduction
THIS ASSET PURCHASE AGREEMENT is made as of this 17th day of August, 1999
by and among Insite Internet VI Acquisition Co., Inc., a New York corporation
(the "Buyer"); BiznessOnline.com, Inc., a Delaware corporation (the "Parent");
WebWay, LLC, a New York limited liability company (the "Seller"); and Peter
Nicolosi, Lori L. Nicolosi, Hugo Walpurgis and Fred Dickinson, the owners of all
the outstanding membership interests of the Seller (collectively, the
"Members").
Background
The Seller is the owner of certain assets described herein and desires to
sell to the Buyer, and the Buyer desires to purchase substantially all of assets
of the Seller, for the consideration and upon the terms and conditions set forth
in this Agreement.
The Members are joining this Agreement to guarantee the Seller's
performance of its obligations under this Agreement and to join, jointly and
severally, with the Seller in the Seller's representations and warranties
hereunder and to undertake certain other obligations set forth in this
Agreement.
Agreements
THE PARTIES HERETO, intending to be legally bound, agree as follows:
1. Definitions and Construction.
1.1 In addition to the other definitions set forth herein, when used in
this Agreement, the following terms have the meanings set forth below:
"Agreement" means this asset purchase agreement.
"Balance Sheet" means the balance sheet of the Seller as of the Balance
Sheet Date, which is included in the Financial Statements.
"Balance Sheet Date" means May 28, 1999.
"Business" means the business of the Seller as conducted up to the
Closing.
"Closing" means the taking of the actions required to consummate the sale
and purchase of the Assets by the Seller to the Buyer pursuant to this
Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined
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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
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Environmental, Health and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financial Statements" means those certain financial statements of the
Seller compiled by Bernardi M. Gabriele, CPA, the independent public accountant
of the Seller, as well as certain other unaudited financial statements prepared
by the Seller for his own use, all of which are more particularly described in
Schedule 5.6.
"GAAP" means generally accepted accounting principles.
"Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended.
"Liability" means any liability whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means those certain liens and security interests solely
to the extent such liens and security interests secure liabilities which are to
be assumed by the Buyer pursuant to Section 3.1(d) below.
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1.2 In this Agreement, unless the context otherwise requires:
(a) The words "hereby", "hereof", "hereto", "herein", "hereunder", and any
similar words refer to this Agreement; the word "hereafter" means after, and the
word "heretofore" means before, the date of this Agreement.
(b) The word "person" refers to partnerships (including limited
partnerships), corporations, governmental entities, trusts and other legal
entities as well as to natural persons.
(c) References to the "knowledge" or the "best knowledge" (or other
similar variation of "knowledge") of the Seller means the understanding of the
Seller and of the Members after reasonable investigation of the files, documents
and internal records of the Seller.
1.3 Section and subsection titles are for convenience of reference only
and are not to be considered in the interpretation or construction of any of the
provisions hereof.
1.4 Representations, warranties, covenants, obligations and agreements of
the Seller and/or the Members set forth in this Agreement will be deemed to be
the joint and several warranties, covenants, obligations and agreements of each
of the Members and the Seller.
2. Purchase and Sale of Assets.
2.1 Assets. Subject to the terms and conditions set forth in this
Agreement, the Seller agrees to sell, convey, transfer, assign, and deliver to
the Buyer, and the Buyer agrees to purchase from the Seller, at the Closing, the
assets and property of the Seller described on Schedule 2.1 attached hereto (the
"Assets"), free and clear of all liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature whatsoever except for
Permitted Liens. For purposes of this Agreement, the Assets will also mean and
include all assets and property acquired hereafter by the Seller before the
Closing Date but will not include the assets and property of the Seller disposed
of as permitted by this Agreement or the "Excluded Assets" as defined in Section
2.2 hereof.
2.2 Excluded Assets. "Excluded Assets" shall mean (a) income and other tax
records of the Seller (copies of which have been made available to the Buyer),
provided, however, the Seller will retain these records for a period of not less
than five (5) years after the Closing and make them available to the Buyer upon
the Buyer's request; (b) any contract, executory agreement or lease of the
Seller which is not expressly assumed by the Buyer hereunder; and (c) any other
assets listed on Schedule 2.2 hereof or which the Buyer notifies the Seller in
writing that the Buyer is not purchasing.
3. Purchase Price
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3.1 Payment. Subject to adjustment as set forth in Section 3.3, the total
consideration to be paid to the Seller by the Buyer as full payment for the
Assets (the "Purchase Price") is as follows:
(a) Cash Payment: The Buyer shall pay the Seller at the Closing, a total
of Eight Hundred Thirty Thousand Dollars ($830,000) payable by good bank check,
wire transfer or other readily available funds;
(b) Parent Stock. The Buyer shall deliver to the Seller One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000) in unregistered common stock of the
Parent (the "Parent Stock"). The number of shares of Parent Stock to be
delivered shall be based on the average Nasdaq National Market value of the
Parent Stock for the thirty (30) business day period ending on the second
business day immediately preceding the Closing date. The "average Nasdaq
National Market value" for such thirty (30) business day period shall mean the
average of the closing sales prices, or, in case no such reported sale takes
place on any given day, the average of the reported closing bid and asked prices
for such day, in either case as reported by The Nasdaq Stock Market, Inc. The
Parent Stock shall be subject to the provisions of Section 14 hereof.
(c) Escrow. The Buyer shall, simultaneously with the Closing, place that
number of shares of Parent Stock with a value of $875,000 (the "Escrow Deposit')
into escrow with the Buyer's counsel (the "Escrow Agent") for a period of one
year from the Closing date pursuant to the escrow agreement attached hereto as
Exhibit 3.1(c). For illustrative purposes only (and without giving effect to the
purchase price adjustments and escrow conditions described below, if the average
Nasdaq National Market value for such thirty (30) business day period is $10 per
share, the Buyer would cause the Parent to deliver 87,500 shares of the Parent
Stock to Seller pursuant to this Section 3.1(c). The Buyer shall have the right
to setoff from and against the Escrow Deposit the amount of the adjustments, if
any, described in Section 3.3, as well as the amount of any claims of the Buyer
for indemnification for breach of any warranty or representation herein by the
Seller or the Members respectively, and such right of setoff shall be in
addition to the Buyer's right to seek damages or obtain any other remedy at law
or in equity to which the Buyer shall be entitled by virtue of such breach. The
shares used to satisfy such claims shall be valued at the average NASDAQ
National Market Value for the thirty (30) business day period ending on the
earlier of the first anniversary of the Closing or the date the Buyer's setoff
amount is finally determined.
(d) Assumption of Liabilities. At the Closing, the Buyer will assume those
certain trade debts, liabilities, obligations and contracts of the Seller,
specifically described on Schedule 3.1(d) (the "Assumed Liabilities"). The Buyer
will not be liable for any of the obligations or Liabilities of the Seller of
any kind and nature other than those specifically listed or described on
Schedule 3.1(d). Without limiting the foregoing, the Buyer shall not assume any
Liability for (i) any tax including, but not limited to, income tax, imposed on
the Seller or the Members because of the sale of the Assets; (ii) any
liabilities or expenses of the Seller or the Members incurred in negotiating and
carrying out their obligations under this Agreement; (iii) any obligations
incurred by the Seller or the Members after the Closing; (iv) any liabilities or
obligations incurred by the Seller in violation of, or as a result of the
Seller's or Members' breach
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of, this Agreement; (v) any intercompany payables or outstanding loans or lines
of credit of the Seller; (vi) any Liability for any litigation involving the
Seller, including but not limited to matters listed on Schedule 5.20 (excluding,
however, any litigation for which Buyer would be required to indemnify Seller
pursuant to Section 13.2; and (vii) liabilities for any severance, accrued
vacation/sick day or other employee benefits of the Seller whether or not
resulting from the transactions contemplated hereby.
(e) Employment Agreements. At the Closing, the Buyer will simultaneously
enter into employment agreements with (i) Peter Nicolosi, (ii) Hugo Walpurgis
and (iii) Fred Dickinson in the forms attached as Exhibit 3.1(e)(i), Exhibit
3.1(e)(ii) and Exhibit 3.1(e)(iii) respectively (the "Employment Agreements").
3.2 Allocation. The total purchase price will be allocated among the items
of the Assets in proportion to their fair market value and in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder. The allocation (or the method by which the allocation
will be determined) is set forth in this Section 3.2 and Schedule 3.2. In
connection with their filing of Federal income tax returns, the parties will
file Treasury Forms 8594 consistent with this allocation.
3.3 Adjustments.
(a) Post Closing Adjustment for Deficiency in 1999 Revenues. On or before
April 30, 2000, the Buyer's accountants shall prepare an income statement in
accordance with GAAP showing the actual audited revenues for the year ended
December 31, 1999 of the Seller determined on an accrual method basis. To the
extent that (i) the aggregate audited revenues (accrual basis) of the Seller for
the calendar year ended December 31, 1999 are less than $1,100,000, the Seller
shall pay the Buyer as a reduction of the Purchase Price paid to the Seller
hereunder an amount equal to Two Dollars and 15/100 ($2.15) for each One Dollar
($1.00) in revenue less than $1,100,000, and (ii) the aggregate audited revenues
of the Seller for the fiscal year ended December 31, 1999 are greater than
$1,300,000, the Purchase Price would be increased by an amount equal to Two
Dollars and 15/100 ($2.15) for each One Dollar ($1.00) in revenue greater than
$1,100,000. For example, in the event the aggregate revenues of the Seller for
the fiscal year ended December 31, 1999 are $1,050,000, the Purchase Price would
be reduced by $107,500 (i.e. the $50,000 shortfall multiplied by 2.15). For
purposes of this adjustment, the annual revenues of Seller shall include revenue
of the Seller generated by the Seller's business (i) before the Closing and (ii)
after the Closing until December 31, 1999 from accounts of the Seller's business
as well as accounts of the Buyer, the Parent and their respective subsidiaries.
To the extent payment by the Seller or the Members to the Buyer are required
under this Section 3.3, the Buyer shall be entitled to receive payment from the
Escrow Deposit or to receive payment directly from the Seller or the Members
within ten (10) days of the delivery of the final income statement for 1999 as
audited by the Buyer's accountants. In the event the Buyer's accountants and the
Seller's accountants disagree as to the audited 1999 revenues of the Seller, the
Buyer and the Seller shall employ, within ten (10) days of the date of delivery
of such audited revenues, an accounting firm acceptable to both parties for
purposes of settling this dispute promptly. Such firm shall (i) determine the
audited revenues and final adjustment using
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such methods as contemplated herein in accordance with GAAP on an accrual basis
as such firm deems appropriate, and (ii) apportion 100% of the fees and expenses
of such firm to the Buyer, if the independent third party accounting firm
determines that the audited revenues were more than the amount determined by
Buyer's accountant, otherwise such fees and expenses shall be paid by the
Seller. Such determinations shall be final and binding upon the Buyer, the
Seller and the Members, absent manifest error which error may only be corrected
by such firm. Any increase in the Purchase Price shall be payable to the Seller
in shares of Parent Stock, which shares shall be valued at the same price per
share as determined under Section 3.1(b). The Buyer shall make such payment, if
any, on or before May 10, 2000.
(b) Payables and Liabilities; TV Data Receivable. The Seller shall pay in
full all payables and Liabilities relating to the Assets and the Business, other
than the Assumed Liabilities, within thirty (30) days after the Closing. If the
TV Data Technologies, Inc. receivable of the Seller (Invoice #2102) (the "TV
Data Receivable") in the amount of $67,667.00 is collected by the Seller prior
to the Closing Date, the Seller shall use the proceeds to payoff the Seller's
outstanding balance on its line of credit loan from HSBC and Sellers' other
payables other than the Assumed Liabilities. Notwithstanding, the preceding
sentence, the Seller shall maintain its minimum cash covenants set forth in this
Agreement. If such Liabilities remain unpaid after such date absent a bona fide
dispute, the Buyer may, in addition to any other legal or equitable remedy, pay
such liabilities and deduct the same from the Escrow Deposit. In the event the
TV Data Receivable is not paid prior to the Closing Date, (i) such receivable
shall be included in the Assets purchased hereunder and (ii) Buyer shall payoff
the HSBC line of credit at the Closing, the outstanding balance of which does
not exceed $67,667. In the event the TV Data Receivable is not paid in full with
in thirty (30) days of the Closing, the Seller shall purchase the TV Data
Receivable from Buyer at a cash price equal to the then outstanding balance of
such receivable.
(c) Cash of the Seller. To the extent the cash on hand of the Seller to be
purchased by the Buyer at Closing is less than $20,000, the Purchase Price shall
be reduced, dollar for dollar, by such deficient amount.
4. Closing. The sale and transfer of the Assets by the Seller to the Buyer
(the "Closing") will take place at the offices of Duffy & Sweeney, LLP, 300
Turks Head Building, Providence, Rhode Island beginning at 10:00 a.m. on August
18, 1999 or at such other time and place as the parties may agree to in writing
(the "Closing Date") subject to the satisfaction of all of the conditions to
Closing described in Sections 8 and 9.
5. Representations and Warranties of the Seller and the Members. As a
material inducement to the Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, the Seller and the Members, jointly and
severally, make to the Buyer the representations and warranties contained in
this Section 5, which shall be true and correct as of the date hereof and as of
the Closing Date.
5.1 Organization and Qualification of the Seller. The Seller is a limited
liability company duly organized, validly existing and in good standing under
the laws of New York with
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full power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased and where such business is currently conducted. The copies of the
Articles of Organization of the Seller as amended to date, certified by the
Secretary of State of New York and the operating agreement certified by the
Manager of the Seller (the "Operating Agreement") and heretofore delivered to
the Buyer's counsel, are complete and correct, and no amendments thereto are
pending. The records and minute books of the Seller which have heretofore been
delivered to the Buyer's counsel are correct and complete. The Seller is duly
qualified to do business as a foreign company i in which the failure to be so
qualified or registered would have a material adverse effect on the properties,
assets, business, financial condition and results of operations of the Seller.
5.2 Subsidiaries; Investments. The Seller has no direct or indirect
subsidiaries and owns no securities issued by any other business organization or
governmental authority, except U.S. Government securities, bank certificates of
deposit and money market accounts acquired as short-term investments in the
ordinary course of its business. Except as disclosed on Schedule 5.2, the Seller
does not own or have any direct or indirect interest in or control over any
corporation, partnership, joint venture, proprietorship or entity of any kind.
For purposes of this Agreement, the term "subsidiary" means, with respect to any
person, any corporation 5% or more of the outstanding voting securities of
which, or any partnership, joint venture or other entity 5% or more of the total
equity interest of which, is directly or indirectly owned by such person.
5.3 Membership Interests. The total membership interests of the Seller
consist solely of the interests listed on Schedule 5.3. All of the issued and
outstanding membership interests are duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Members as set forth on Schedule 5.3, and all such membership interests of the
Seller were offered, issued, sold and delivered by the Seller in compliance with
all applicable state and federal laws concerning the issuance of securities.
Further, none of such membership interests of the Seller were issued in
violation of the preemptive rights of any past or present member. The Members
hold of record and own beneficially all of the membership interests of the
Seller, free and clear of any restrictions on transfer taxes, security
interests, mortgages, pledges, liens, encumbrances, options, warrants, purchase
rights, contracts, commitments, equities, known claims, and known demands.
Except as set forth in the Operating Agreement or as disclosed on Schedule 5.3,
none of the Members are a party to any option, warrant, purchase right, or other
contract or commitment that could require any Member to sell, transfer, or
otherwise dispose of any membership interest of the Seller. None of the Members
are a party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any membership interests of the Seller. Except as
disclosed on Schedule 5.3, there are no outstanding subscriptions, options,
warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
membership or other equity interests of the Seller.
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5.4 Authority of the Members.
(a) Each of the Members has full right, authority and power to enter into
this Agreement and each agreement, document and instrument to be executed and
delivered by or on behalf of the Seller pursuant to or as contemplated by this
Agreement and to carry out the transactions contemplated hereby and thereby.
This Agreement and each agreement, document and instrument to be executed and
delivered by the Seller pursuant to or as contemplated by this Agreement (to the
extent it contains obligations to be performed by the Seller and/or the Members)
constitutes, or when executed and delivered will constitute, valid and binding
obligations of the Seller and the Members enforceable in accordance with their
respective terms, subject to the terms hereof, subject however to the extent
enforceability may be limited by the effect of bankruptcy, insolvency or similar
laws affecting creditors' rights generally or by general principles of equity..
The execution, delivery and performance by each of the Members and the Seller of
this Agreement and each such agreement, document and instrument:
(i) do not and will not violate any provision of the Articles of
Organization or Operating Agreement ;
(ii) do not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to such Member or require such Member
to obtain any approval, consent or waiver of, or make any filing with, any
federal, state, local or foreign governmental body, agency or official that has
not been obtained or made; and
(iii) to the extent any violation will have a material adverse
affect on the Assets or the Business, do not and will not result in a breach by
the Seller or the Members of, constitute a default by the Seller or the Members
under, accelerate any obligation under or give rise to a right of termination of
any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which such Member or
the Seller is a party or by which the property of such Member or the Seller is
bound or to which the property of such Member or the Seller is subject or result
in the creation or imposition of any mortgage, pledge, lien, security interest
or other charge or encumbrance on any of the assets or properties of such Member
or the Seller.
5.5 Status of Property Owned or Leased.
(a) Real Property. The Seller does not own any real property. The real
property identified as being leased by the Seller on Schedule 5.5(a) is
collectively referred to herein as the "Real Property". The Real Property
constitutes all the real property leased by the Seller. Seller is not in default
and to Seller's knowledge, no default is threatened under the lease for the Real
Property.
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(i) Physical Condition. Except as set forth on Schedule 5.5(a), to
the knowledge of the Seller, there is no material defect in the physical
condition or improvements of any of the Real Property.
(ii) Compliance. The Seller has not received any written notice from
any municipal, state, federal or other governmental authority with respect to
any violation of any zoning, building, fire, water, use, health, environmental
or other statute, ordinance, code or regulation issued in respect of any of the
Real Property that has not been heretofore corrected.
(iii) Zoning. The Seller has not received any written notice of any
zoning violations.
(b) Personal Property. Except for leased personal property previously
disclosed on Schedule 3.1(d), a list of each item of the machinery, equipment
and other fixed assets owned or leased by the Seller having a fair market value
of at least Five Hundred Dollars ($500), is contained in Schedule 5.5(b) hereto.
All of such equipment and other machinery, equipment and personal property of
the Seller is located on the Real Property and is used in the operation of the
Business. Except as specifically disclosed in Schedule 5.5(b) or in the
Financial Statements, the Seller has good title to all of such personal
property. None of such personal property or assets is subject to any mortgage,
pledge, lien, conditional sale agreement, security title, encumbrance or other
charge except as specifically disclosed in any Schedule hereto and in the
Financial Statements and except for those imperfections of title, if any, which
individually or in the aggregate do not materially detract from the value of the
property or interfere with the present or continued use of the property in the
conduct of Seller's normal operations. The Financial Statements reflect all
personal property of the Seller, subject to dispositions and additions in the
ordinary course of business consistent with this Agreement. Except as otherwise
specified in Schedule 5.5(b) hereto, all leasehold improvements, furnishings,
machinery and equipment of the Seller are in generally good repair, normal wear
and tear excepted, have been maintained in accordance with industry standards,
and conform in all material respects with all applicable ordinances, regulations
and other laws.
5.6 Financial Statements; Undisclosed Liabilities.
(a) The Seller has delivered to the Buyer the following financial
statements of the Seller, copies of which are attached hereto as Schedule 5.6:
(i) Balance Sheet prepared by management dated December 31, 1998 and May 28,
1999; and (ii) Management prepared monthly profit and loss statements dated May
1999 through [July,] 1999.
The Financial Statements have been prepared in accordance with accounting
principles applied consistently during the periods covered thereby (except that
the interim financial statements are subject to normal year-end audit
adjustments and do not include footnotes), and present fairly in all material
respects the financial condition of the Seller at the dates of said statements
and the results of their operations for the periods covered thereby.
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(b) As of the Balance Sheet Date, the Seller had no known Liabilities of
any nature, whether accrued, absolute, contingent or otherwise, (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others or contingent liabilities arising prior to the Balance
Sheet Date) except liabilities stated or adequately reserved for on the
Financial Statements or reflected in Schedules furnished to Buyer hereunder as
of the date hereof.
(c) As of the date hereof, the Seller has no known Liabilities of any
nature, whether accrued, absolute, contingent or otherwise, (including without
limitation liabilities as guarantor or otherwise with respect to obligations of
others, or liabilities for taxes due or then accrued or to become due or
contingent liabilities arising prior to the date hereof or the Closing, as the
case may be) except liabilities (i) stated or adequately reserved for on the
appropriate Financial Statement or the notes thereto, (ii) reflected in
Schedules furnished to the Buyer hereunder on the date hereof or (iii) incurred
in the ordinary course of business of the Seller consistent with prior
practices.
(d) All financial information delivered to KPMG, LLP and the Buyer in
connection with their audit of the Seller's financial statements as of the date
hereof are true and correct in all material respects and reflect all known
Liabilities of the Seller as of the date(s) of such information to the extent
the Seller would otherwise be required to indemnify the Buyer for such liability
in accordance with the provisions of Section 13 and to the extent such
indemnification survives the Closing pursuant to Section 22.
Notwithstanding the knowledge qualification set forth herein, the Seller
shall remain fully responsible for all unknown and/or undisclosed liabilities
and shall indemnify and hold Buyer and Parent harmless therefrom in accordance
with Section 13 hereof.
5.7 Taxes.
(a) The Seller has paid or caused to be paid all federal, state, local,
foreign and other taxes, including without limitation income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes,
value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes,
employment and payroll-related taxes, withholding taxes, stamp taxes, transfer
taxes and property taxes, whether or not measured in whole or in part by net
income, and all deficiencies, or other additions to tax, interest, fines and
penalties owed by it (collectively, "Taxes"), in the amounts indicated on tax
returns filed by the Seller through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing authority,
whether disputed or not (other than current taxes due and payable, the liability
for which is adequately reserved for on the financial statements provided to the
Buyer pursuant to Section 5.6 hereof).
(b) The Seller has in accordance with applicable law filed all federal,
state, local and foreign tax returns required to be filed by them through the
date hereof and all such returns correctly and accurately set forth the amount
of any Taxes relating to the applicable period. For every taxable period of the
Seller, the Seller has delivered or made available to the Buyer complete and
correct copies of all federal, state, local and foreign income tax returns,
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examination reports and statements of deficiencies assessed against or agreed to
by the Seller. Schedule 5.7 attached hereto sets forth all federal tax elections
under the Internal Revenue Code, that are in effect with respect to the Seller
or for which an application by the Seller is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or to the actual knowledge of
the Seller threatening to assert against the Seller any deficiency or claim for
additional taxes or a claim that the Seller has or may be subject to taxation by
that jurisdiction. There are no security interests on any of the assets of the
Seller that arose in connection with any failure (or alleged failure) to pay any
Tax. The Seller has not entered into a closing agreement pursuant to Section
7121 of the Internal Revenue Code.
(d) Except as set forth in Schedule 5.7 attached hereto, there has not
been any audit of any tax return filed by the Seller, no audit of any tax return
of the Seller is in progress, and the Seller has not been notified by any tax
authority that any such audit is contemplated or pending. Except as set forth in
Schedule 5.7, no extension of time with respect to any date on which a tax
return was or is to be filed by the Seller is in force, and no waiver or
agreement by the Seller is in force for the extension of time for the assessment
or payment of any Taxes.
(e) (i) The Seller has not consented to have the provisions of Section
341(f)(2) of the Internal Revenue Code applied to it, (ii) the Seller has not
agreed to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Internal Revenue Code by reason of a
change in accounting method or otherwise and (iii) the Seller has never made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances would obligate it to make any payments, that will
not be deductible under Section 280G of the Internal Revenue Code. The Seller
has disclosed on its federal income tax returns all positions taken therein that
could give rise to a penalty for underpayment of federal Tax under Section 6662
of the Internal Revenue Code. The Seller has never had any liability for unpaid
Taxes because it is a member of an "affiliated group" (as defined in Section
1504(a) of the Internal Revenue Code). The Seller has never filed, nor has it
ever been required to file, a consolidated, combined or unitary tax return with
any entity. The Seller is not a party to any tax sharing agreement.
(f) The Seller computes its federal taxable income under the cash method
of accounting.
5.8 Accounts Receivable. All accounts receivable of the Seller as of the
respective Balance Sheet Dates and all accounts receivable arising thereafter or
hereafter to the Closing Date, arose or will arise from valid sales in the
ordinary course of business and to the Seller's knowledge are not subject to
setoff or counterclaim except to the extent of the normal allowance for doubtful
accounts consistent with the Seller's past practices. Except as set forth in
Schedule 5.8, the Seller has no accounts or loans receivable from any person,
firm or corporation which is affiliated with the Seller.
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5.9 Inventories. The Seller maintains less than Five Thousand Dollars
($5,000) of inventory, all saleable in the ordinary course and stated in
accordance with GAAP.
5.10 Absence of Certain Changes.
Since May 28, 1999, the Seller has conducted business only in the ordinary
course and consistent with past practices and except as disclosed in Schedule
5.10 there has not been:
(a) Any change in the properties, assets, liabilities, business,
operations, financial condition or results of operations of the Seller which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, has been materially adverse with
respect to the Seller;
(b) Except for the endorsement of checks in the ordinary course of
business any material contingent liability incurred by the Seller as guarantor
or otherwise with respect to the obligations of others or any cancellation of
any material debt or claim owing to, or waiver of any material right of, the
Seller;
(c) Any mortgage, encumbrance or lien placed on any of the Assets which
remains in existence on the date hereof or will remain on the Closing Date
except for liens permitted by any current agreement of the Seller with respect
to borrowed money;
(d) Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any capital assets
of the Seller costing more than Five Thousand Dollars ($5,000);
(e) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting any of the properties, assets or business of
the Seller;
(f) Any declaration, setting aside or payment or making of any other
distribution in respect of the membership interest of the Seller, any direct or
indirect redemption, purchase or other acquisition by the Seller of its own
membership interests, any issuance or sale of any securities convertible into or
exchangeable for debt or equity securities of the Seller or any grant, issuance
or exercise of options, warrants, subscriptions, preemptive rights, agreements,
arrangements or commitments of any kind for or relating to the issuance, sale,
registration or voting of any membership interest of any class or other equity
interests of the Seller;
(g) Any claim of unfair labor practices asserted against the Seller;
except as disclosed on Schedule 5.22 any change in the compensation (in the form
of salaries, wages, incentive arrangements or otherwise) payable or to become
payable by the Seller to any of its officers, members, managers, employees,
agents or independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment or
arrangement made to or with any of such officers, employees, agents or
independent contractors; any entering into any employment, deferred compensation
or other similar agreement (or any amendment to any such existing agreement)
with any officer, member, manager, employee agent
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or independent contractor of the Seller except for employment arrangements
providing for salary or wages of less than Eighteen Thousand Dollars ($18,000)
per annum and any oral agreement terminable at will by the Seller;
(h) Any change with respect to the officers or management of the Seller,
any grant of any severance or termination pay to any officer or employee of the
Seller;
(i) Any payment or discharge of a material lien or liability of the Seller
which was not shown on the Financial Statements or incurred in the ordinary
course of business thereafter;
(j) Any obligation or liability incurred by the Seller to any of its
officers, members, managers or employees, or any loans or advances made by the
Seller to any of its officers, members, managers, or employees, except normal
compensation and expense allowances payable to such parties and the accrued but
unpaid salary owed to Peter Nicolosi in the aggregate amount of $7,400 for June
1999 and July 1999;
(k) Any change in accounting methods or practices, credit practices or
collection policies used by the Seller other than to comply with new accounting
pronouncements;
(l) Any other transaction entered into by the Seller other than
transactions in the ordinary course of business; or
(m) Any agreement or understanding whether in writing or otherwise, that
would result in any of the transactions or events or require the Seller to take
any of the actions specified in paragraphs (a) through (l) above.
5.11 Banking Relations. All of the arrangements which the Seller has with
any banking institution are described in Schedule 5.11 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
5.12 Patents, Trade Names, Trademarks, Copyrights and Proprietary Rights.
All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Seller (the "Proprietary
Rights") are listed in Schedule 5.12 attached hereto. Except as set forth in
Schedule 5.12: (a) to the Seller's knowledge, use of said patents, trade names,
trademarks, copyrights or other proprietary rights in the ordinary course of
business as presently conducted does not require the consent of any other person
and (b) to Seller's knowledge, the Seller has sufficient title or adequate
rights or licenses to use all material patents, trade names, trademarks,
copyrights, or other proprietary rights used by it in its business as presently
conducted free and clear of any attachments, liens, encumbrances or to Seller's
knowledge, adverse claims. The Seller has not received written notice that its
present or contemplated activities or products
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infringe any such patents, trade names, trademarks or other proprietary rights
of others. Except as set forth in Schedule 5.12: (i) to the Seller's knowledge,
no other person has an interest in or right or license to use, or the right to
license others to use, any of said patents, patent applications, trade names,
trademarks, copyrights or other proprietary rights; (ii) there are no written
claims or demands of any other person pertaining thereto and no proceedings have
been instituted, or are pending or to Seller's knowledge, threatened, which
challenge the rights of the Seller in respect thereof; (iii) none of the
patents, trade names, trademarks, copyrights or other proprietary rights listed
in said schedule is subject to any outstanding order, decree, judgment or
stipulation, or to Seller's knowledge is being infringed by others; and (iv) no
proceeding charging the Seller with infringement of any adversely held patent,
trade name, trademark or copyright has been filed or to Seller's knowledge is
threatened to be filed.
5.13 Trade Secrets and Customer Lists. The Seller is not using or in any
way making use of any confidential information or trade secrets (e.g.
inventions, designs, customer lists or secret processes) of any third party,
including without limitation, a former employer of any present or past employee
of the Seller.
5.14 Contracts.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 5.14 or in any other Schedule attached to this Agreement
(complete and accurate copies of which have been delivered to the Buyer), the
Seller is not a party to or subject to:
(i) any plan or contract providing for bonuses, pensions, options,
membership interest purchases, deferred compensation, retirement payments,
profit sharing, severance or termination pay, collective bargaining or the like,
or any contract or agreement with any labor union;
(ii) any employment contract or contract for services which requires
the payment of Ten Thousand Dollars ($10,000) or more annually or which is not
terminable at will by the Seller without liability for any penalty or severance
payment;
(iii) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than One Thousand Dollars ($1,000 each);
(iv) any other contracts or agreements creating any obligation of
One Thousand Dollars ($1,000) or more with respect to any such contract;
(v) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(vi) any contract or agreement which by its terms does not terminate
or is not terminable by the Seller or any successor or assign within six (6)
months after the date hereof without payment of a penalty;
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(vii) any contract or agreement for the sale or lease of its
products or services not made in the ordinary course of business;
(viii) any contract with any sales agent or distributor of products
of the Seller;
(ix) any contract containing covenants limiting the freedom of the
Seller or any of the Members to compete in any line of business or with any
person or entity;
(x) any contract or agreement for the purchase of any fixed asset
for a price in excess of One Thousand Dollars ($1,000) whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee) other than off
the shelf, "shrink-wrapped" software licenses to use software which is licensed
on a mass distribution basis (e.g. Microsoft Windows) and license fees payable
to the Seller in connection with sales of web hosting services; provided that a
complete list of all software currently owned, licensed or used by the Seller
and set forth in Schedule 5.14 shall satisfy the disclosure obligation of the
Seller for purposes hereof;
(xii) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money and any
related security agreement;
(xiii) any contract or agreement with any officer, employee, member
or manager of the Seller or with any persons or organizations controlled by or
affiliated with any of them;
(xiv) except as provided in Schedule 5.2, any partnership, joint
venture, or other similar contract, arrangement or agreement; or
(xv) except as provided in the Operating Agreement which rights are
hereby waived by the Members, any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any voting
agreements, or other similar arrangements or any membership interest purchase or
repurchase agreements or membership interest restriction agreements.
(b) All material contracts, agreements, leases and instruments to which
the Seller is a party or by which the Seller is obligated are valid and are in
full force and effect and constitute legal, valid and binding obligations of the
Seller and the other parties thereto, enforceable in accordance with their
respective terms except to the extent enforceability may be limited by the
effect of bankruptcy, insolvency or similar laws affecting creditors rights
generally or by general principles of equity. Neither the Seller nor to its
knowledge any other party to any contract,
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agreement, lease or instrument of the Seller is in default in complying with any
provisions thereof, and no condition or event or facts exists which, with
notice, lapse of time or both would constitute a default thereof on the part of
either of the Seller, or to the Seller's knowledge on the part of any other
party thereto in any such case that could have a material adverse effect on the
properties, assets, financial condition or prospects of the Seller. Schedule
5.14 indicates whether any of the agreements, contracts, commitments or other
instruments and documents described therein requires consent or approval to be
transferred to the Buyer as a result of the transactions contemplated herein.
5.15 Litigation. Schedule 5.15 hereto lists all currently pending and to
the Seller's knowledge, threatened litigation and governmental or administrative
proceedings or investigations to which the Seller is a party. Except for matters
described in Schedule 5.15, there is no litigation or governmental or
administrative proceeding or investigation pending or to Seller's knowledge
threatened against the Seller which may have an adverse effect on the
properties, assets, business, financial condition or results of operations of
the Seller or any of the Members or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
5.16 Compliance with Laws. The Seller has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the Seller, and except as set forth in Schedule 5.16
hereto, the Seller is currently in compliance in all material respects with all
such statutes, ordinances, orders, rules or regulations, and there is no valid
basis for any claim that Seller is not in compliance in all material respects
with any such statute, ordinance, order, rule or regulation.
5.17 Insurance. Attached to Schedule 5.17 is a copy of each insurance
policy (including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Seller is a
party, a named insured, or otherwise the beneficiary of coverage. With respect
to each such insurance policy: (i) to Seller's knowledge, the policy is legal,
valid, binding, enforceable, and in full force and effect; (ii) the Seller, 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 (iii) to Seller's
knowledge, no party to the policy has repudiated any provision thereof.
5.18 Warranty and Related Matters. The Seller has made no express
warranties with respect to any of its products or services sold or provided in
connection with the Business. To Seller's knowledge, (i) the Seller has not
received notice of any statements, citations, correspondence or decisions by any
Governmental Entity stating that any product manufactured, marketed or
distributed at any time by the Seller (the "Products") is defective or unsafe or
fails to meet any product warranty or any standards promulgated by any such
Governmental Entity; and (ii)there have been no recalls ordered by any such
Governmental Entity with respect to any Product. To Seller's knowledge, there is
no (i) fact relating to any Product that may impose upon
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the Seller a duty to recall any Product or a duty to warn customers of a defect
in any Product, (ii) latent or overt design, manufacturing or other defect in
any Product, or (iii) liability for warranty or other claim or return with
respect to any Product except in the ordinary course of business consistent with
the past experience of the Seller for such kind of claims and liabilities.
5.19 Finder's Fees. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Seller.
5.20 Permits; Burdensome Agreements. Schedule 5.20 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Seller to conduct the Business. The Seller has obtained all the Approvals,
which are valid and in full force and effect. Except as disclosed on Schedule
5.20, none of the Approvals is subject to termination by their express terms as
a result of the execution of this Agreement by the Seller, and to the Seller's
knowledge, no further Approvals will be required in order to continue to conduct
the business currently conducted by the Seller subsequent to the Closing. Except
as disclosed in Schedule 5.20, the Seller is not subject to nor bound by any
agreement, judgment, decree or order which may materially and adversely affect
the properties, assets, business, financial condition or results of operations
of the Seller.
5.21 Transactions with Interested Persons. Except as set forth in Schedule
5.21 hereto, no officer, employee, member or manager of the Seller and none of
their respective parents, grandparents, spouses, children, siblings or
grandchildren owns directly or indirectly on an individual or joint basis any
material interest in, or serves as an officer or director or in another similar
capacity of, any competitor, supplier or customer of the Seller or any
organization, person or entity with whom the Seller is doing business.
5.22 Lists of Certain Employees and Suppliers.
(a) Schedule 5.22 hereto contains a list of all current members and
managers of the Seller and a list of all employees and consultants of the Seller
who, individually, have received or are scheduled to receive base salary from
the Seller during the current fiscal year of Eighteen Thousand Dollars ($18,000)
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) Schedule 5.22 sets forth a true and complete list of all suppliers of
the Seller to whom the Seller made payments to any single supplier aggregating
Ten Thousand Dollars ($10,000) or more during the most recent complete fiscal
year, showing, with respect to each, the name, address and dollar volume
involved.
5.23 Employees; Labor Matters. As of the date hereof, the Seller employed
the number of full-time employees and part-time employees described on Schedule
5.23. Except for the salary owed to Peter Nicolosi for June 1999 and July 1999,
the Seller is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct
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compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees except as provided in the Seller's
Employee Benefit Plans described in Schedule 5.26 (which Seller acknowledges
will not be assumed by Buyer hereunder). Except as set forth in Schedule 5.23,
upon termination of the employment of any of said employees, the Seller will not
be liable to any of said employees for so-called "severance pay" or any other
payments. Except as set forth in Schedule 5.23 attached hereto, the Seller does
not have a policy, practice, plan or program of paying severance pay or any form
of severance compensation in connection with the termination of employment. The
Seller is in compliance with all applicable laws and regulations respecting
labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours in all material respects. No charges of
employment discrimination or unfair labor practices have been brought against
the Seller, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations existing, pending or to
Seller's knowledge threatened against or involving the Seller. There are no
grievances, complaints or charges that have been filed against the Seller under
any dispute resolution procedure (including, but not limited to, any proceedings
under any dispute resolution procedure under any collective bargaining
agreement). No collective bargaining agreements are in effect or are currently
being or are about to be negotiated by the Seller. The Seller has not received
written notice of pending or threatened changes with respect to the management
or key supervisory personnel of the Seller.
5.24 Customers. Schedule 5.24 sets forth any customer who accounted for
more than 5% of the sales of the Seller for the most recent complete fiscal year
of the Seller (collectively, the "Customers"). Except as disclosed on Schedule
5.10, no Customer has given notice to the Seller of its intention to terminate,
to cancel or otherwise materially and adversely modify its relationship with the
Seller or to decrease materially or limit its usage or purchase of the services
or products of the Seller.
5.25 Y2K. The Seller has taken all necessary action to assess, evaluate,
test and correct all of the hardware, software, embedded microchips and other
processing capabilities of computer and telecommunication systems it uses,
either directly or indirectly, including but not limited to computerized
services provided by third parties such as billing and payroll services, to
ensure that such systems will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.
5.26 Employee Benefits.
(a) Attached to Schedule 5.26 is a copy of each Employee Benefit Plan that
the Seller maintains or to which the Seller is a party. The Seller acknowledges
that the Buyer is not assuming any obligations under any plan identified in or
attached to Schedule 5.26. None of the Assets are subject to any lien in favor
of or enforceable by the Pension Guaranty Corporation or any similar lien under
state of federal law governing employment or benefits. Each such Employee
Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of
a "qualified plan" under Internal Revenue Code ss.401(a) and has received,
within the last two years, a favorable determination letter from the Internal
Revenue Service. The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the
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most recent determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each such Employee
Benefit Plan. The Seller has never contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any liability (including withdrawal
liability) under any Multiemployer Plan.
(b) The Seller does not maintain or contribute to, nor has ever maintained
or contributed to, nor has ever been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with Internal
Revenue Code ss.4980B).
5.27 Environment, Health, and Safety.
(a) The Seller has complied in all material respects with all
Environmental, Health and Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against them alleging any failure so to comply. Without limiting the
generality of the preceding sentence, the Seller has obtained and been in
compliance with all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and have complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health, and Safety Laws.
(b) The Seller is not subject to any material Liability (and the Seller
has not handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
would form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Seller
giving rise to any liability) for damage to any site, location, or body of water
(surface or subsurface), for any illness of or personal injury to any employee
or other individual, or for any reason under any Environmental, Health, and
Safety Law.
5.28 Disclosure. This Agreement, including the Schedules hereto prepared
by the Seller, together with the other written or documented information
furnished to the Buyer by the Seller in connection herewith, do not to the
Seller's knowledge contain an untrue statement of material fact or to the
Seller's knowledge omit to state a material fact necessary to make the
statements herein and therein, in light of the circumstances under which they
were made, not misleading.
Notwithstanding, (i) the disclosures set forth on the Seller's disclosure
Schedules attached hereto or (ii) the qualification of any representation or
warranty of the Seller and the Members either "to Seller's knowledge", "known to
Seller", or similar qualifying language limiting such representation and
warranty to such knowledge, the Seller shall remain responsible for all
encumbrances, claims, liens or Liabilities (other than the Assumed Liabilities)
related to the Assets to the extent the Seller would otherwise be required to
indemnify the Buyer for such
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liability in accordance with the provisions of Section 13 and to the extent such
indemnification survives the Closing pursuant to Section 22 and shall fully
indemnify, defend and hold the Buyer, the Parent and their respective agents,
employees, directors and affiliated members harmless from and against such
encumbrances, claims, liens or liabilities in accordance with Section 13 hereof.
6. Covenants of the Seller and the Company. The Seller and the Members
jointly and severally covenant and agree as set forth in this Section 6.
6.1 Conduct of Business. Between the date of this Agreement and the
Closing Date, the Members will cause the Seller to do and the Seller and the
Members will do the following, unless the Buyer shall otherwise consent in
writing which consent shall not be unreasonably withheld or delayed:
(a) conduct its business only in the ordinary course consistent with past
practices, refrain from changing or introducing any method of management or
operations except in the ordinary course of business and in a manner consistent
with past practices and will not use any cash generated by the Seller other than
to pay ordinary course business expenses consistent with past practices;
(b) refrain from making any purchase, sale or disposition of any asset or
property other than in the ordinary course of business, from purchasing or
selling any capital asset of the Seller and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets;
(c) refrain from incurring or modifying any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring or modifying any other contingent or fixed obligations or liabilities
in an amount in excess of $1,000 except in the ordinary course of business and
in a manner consistent with past practices;
(d) refrain from making any change in the Seller's formation documents,
operating agreement or authorized or issued membership interest or from
acquiring any securities issued by any other business organization other than
short-term investments in the ordinary course of business;
(e) refrain from declaring, setting aside or paying any dividend, making
any other distribution in respect of the Seller's membership interest, making
any direct or indirect redemption, purchase or other acquisition of the Seller's
membership interest, issuing, granting, awarding, selling, pledging, disposing
of or encumbering or authorizing the issuance, grant, award, sale, pledge,
disposition or encumbrance of any membership interest of, or securities
convertible or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any membership interest of the Seller or entering
into any agreement or commitment with respect to any of the foregoing;
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(f) refrain from making any change in the compensation payable or to
become payable to any of its officers, members, managers, employees or agents,
except for scheduled increases in salary or wages in the ordinary course of
business that are consistent with past practices, or granting any severance or
termination pay to, or establishing, adopting or entering into any agreement or
arrangement providing for severance or termination pay to, or entering into or
amending any employment, or other agreement or arrangement with, any officer,
member, manager, or other employee of the Seller or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, membership interest option or purchase, insurance,
pension, retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing arrangements or
modifying, amending or terminating any of its contracts except in the ordinary
course of business, or waiving, releasing or assigning any material rights or
claims;
(h) use reasonable efforts to prevent any change with respect to its
management and supervisory personnel or banking arrangements;
(i) maintain its business organization and use its best efforts preserve
the goodwill of and business relationships with all suppliers, customers and
others having business relations with it, and to maintain its properties and
facilities, including those held under leases, in as good a working order and
condition as on the date hereof, ordinary wear and tear excepted;
(j) maintain at all times all insurance of the kind, in the amount and
with the insurers set forth in Schedule 5.17 or equivalent insurance with any
substitute insurers approved by the Buyer;
(k) refrain from changing accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable) or from making any tax election or
settling or compromising any federal, state, local or foreign income tax
liability;
(l) refrain from entering into any executory agreement, commitment or
undertaking to do any of the activities prohibited by the foregoing provisions;
and
(m) maintain a minimum of Twenty-Thousand Dollars ($20,000) cash on hand
on the Closing Date; and
(n) permit the Buyer and its authorized representatives (including without
limitation the Buyer's attorneys, accountants, and pension consultants) to have
full access to all of its properties, assets, books, records, business files,
executive personnel, tax returns, contracts and documents and furnish to the
Buyer and its authorized representatives such financial and other information
with respect to its business or properties as Buyer may from time to time
reasonably request.
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6.2 Consents and Approvals. The Seller shall use its best efforts to
obtain or cause to be obtained prior to the Closing Date all necessary consents
and approvals to the performance of the obligations of the Seller and the
Members under this Agreement, including, without limitation, the consents and
authorizations described in Schedule 5.14, and such other authorizations,
waivers, approvals, consents and permits as set forth in Schedule 6.2 as may be
necessary to transfer the Assets to the Buyer.
6.3 Exclusive Dealing. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to Section 10 the
Seller shall not permit any officer, member, manager, employee or agent to,
directly or indirectly, (i) take any action to solicit, initiate submission of
or encourage, proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a portion of
the assets of the Seller, or any equity interest in the Seller or any merger or
business combination with the Seller (an "Acquisition Proposal"), (ii)
participate in any discussions or negotiations regarding an Acquisition Proposal
with any person or entity other than Buyer and its representatives, or (iii)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do any of the foregoing.
6.4 No Sales of Membership Interests. Between the date of this Agreement
and the Closing Date, the Seller shall not sell, exchange, deliver, assign,
pledge, encumber or otherwise transfer or dispose of any membership interests
owned beneficially or of record by the Members, other than pursuant to operation
of law, nor grant any right of any kind to acquire, dispose of, vote or
otherwise control in any manner such membership interests; provided, however,
that notwithstanding anything to the contrary stated herein, any transferee,
executor, heir, legal representative, successor or assign of the Members shall
be bound by this Agreement.
6.5 Notification of Certain Matters. The Seller shall give prompt notice
to the Buyer of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of the Seller and the Members contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of the Seller or the Members to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. The delivery of any notice pursuant to this Section 6.5 shall not be
deemed to (i) modify the conditions set forth in Section 8 or elsewhere or (ii)
affect the Buyer's right to terminate this Agreement.
6.6 Amendment of Schedules. The Seller and the Members agree that, with
respect to the representations and warranties contained in this Agreement, the
Seller and the Members shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described on the
Schedules. The Seller and the Members understand and agree that, as of the
Closing Date, they will be required to execute a "bring-down" certificate which
shall state that all representations and warranties in this Agreement are true
and correct as of the Closing Date. To the extent that any such representation
and warranty is qualified by disclosure on a schedule which changes after the
date hereof and prior to Closing, the Seller and the Members agree to notify the
Buyer of such
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changes in writing and to summarize all such changes via the bring-down
certificate on the Closing Date. Notwithstanding the foregoing sentence, the
truth and accuracy of any and all representations and warranties of the Seller
and the Members as of the date of this Agreement and as of the Closing Date
shall be a precondition to the consummation of this transaction by the Buyer,
and Buyer shall not be deemed to have consented to any amendment or supplement
to a Schedule prepared by the Seller and the Members after the date hereof or to
have waived any of its rights or remedies for breach hereof, particularly with
respect to any matter hereafter arising or discovered that constitutes or
reflects an event or occurrence that would be reasonably likely to have a
material adverse effect on the Seller or the Members, unless the Buyer
acknowledges and consents in writing to such amendment or supplement.
6.7 Further Assurances. The Seller and the Members hereto agree to execute
and deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
6.8 Employees. As of the Closing Date, the Seller shall have terminated
all of its employees and the Buyer shall have hired certain of such former
employees as it may, in its sole discretion, need to operate the Business,
provided, however, that the Buyer shall have no obligation to hire any such
employees (other than pursuant to the Employment Agreements).
7. Representations and Warranties of the Buyer. As of the date hereof, the
Buyer and the Parent hereby represent and warrant to the Seller and the Members
as set forth in this Section 7.
7.1 Organization of the Buyer. Each of the Buyer and the Parent is a
corporation duly organized, validly existing and in good standing under the laws
of their respective state of incorporation with full corporate power and
authority to conduct their respective businesses in the manner as now conducted.
7.2 Authority. All necessary corporate action has been taken by the Buyer
and the Parent to authorize (i) the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by the Buyer and the Parent pursuant to this Agreement and (ii) the
consummation of the transactions contemplated hereby. This Agreement and each
agreement, document and instrument to be executed and delivered by the Buyer and
the Parent pursuant to this Agreement constitute, or when executed and delivered
by the Buyer and the Parent will constitute, valid and binding obligations of
the Buyer enforceable in accordance with their respective terms, subject however
to the extent enforceability may be limited by the effect of bankruptcy,
insolvency or similar laws affecting creditors' rights generally or by general
principles of equity.
7.3 No Conflicts. The execution, delivery and performance by the Buyer and
the Parent of this Agreement and each such other agreement, document and
instrument has been duly authorized by all necessary corporate action: (i) does
not and will not violate any provision of the Certificate of Incorporation or
bylaws of the Buyer ; and (ii) will not result in a breach of,
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constitute a default under, accelerate any obligation under, or give rise to a
right of termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award,
whether written or oral, to which the Buyer is a party or by which the property
of the Buyer is bound or affected, or result in the creation or imposition of
any mortgage, pledge, lien, security interest or other charge or encumbrance on
any of the assets of the Buyer, except where such breach, default, acceleration
or right of termination would not have a material adverse effect on the
properties, assets, business, financial condition or prospects of the Buyer, and
would not result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of the
Buyer. No consent, approval, order or authorization of, or registration,
declaration or filing with any government agency or public or regulatory agent
body or authority with respect to the Buyer or the Parent is required in
connection with the execution, delivery or performance of this Agreement by the
Parent or the Buyer or the consummation of the transactions contemplated by this
Agreement by the Parent and the Buyer, the failure of which to obtain would (i)
prevent the Closing, or (ii) have a material adverse effect on the Seller or the
Members. Seller acknowledges that in order to issue the Parent Stock to Seller
pursuant to this Agreement, the Parent and the Buyer will rely upon a private
placement exemption based in part upon certain representations and warranties of
the Seller and the Members contained herein.
7.4 Litigation. There is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Buyer or the
Parent which may have an adverse effect on the properties, assets, business,
financial condition or prospects of the Buyer or the Parent or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
7.5 Compliance with Laws. Neither the Buyer nor the Parent has received
any notice of a violation or alleged violation of applicable statutes,
ordinances, orders, rules and regulations promulgated by any federal, state,
municipal or other governmental authority, which violation or alleged violation
would have a material adverse effect on the business of the Buyer or the Parent.
7.6 No Known Breach. The Buyer and the Parent have reviewed the warranties
and representations of the Seller and the Members contained in this Agreement
and the corresponding schedules/exhibits and have no actual knowledge of any
breach of any representation, warranty or covenant made by the Seller or the
Members.
8. Conditions Precedent to the Obligations of the Buyer. The obligations
of the Buyer to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing, of the
conditions set forth in this Section 8 any one of which may be waived by the
Buyer in its sole discretion.
8.1 Examination of Financial Statements. Prior to the Closing Date, the
Buyer shall have had sufficient time to review the management-prepared balance
sheets of the Seller as of the last day of the month ended immediately prior to
the Closing Date and the management-prepared statements of income, cash flow and
members' equity for the period then ended, disclosing no
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material change in the financial condition of the Seller or the results of its
operations from the Balance Sheet Date.
8.2 No Material Adverse Change. No material adverse change in the results
of operations, financial position or business of the Seller shall have occurred
and the Seller shall not have suffered any material loss or damages to any of
its properties or assets, whether or not covered by insurance, since the Balance
Sheet Date, which change, loss or damage materially affects or impairs the
ability of the Seller to conduct its business; and the Buyer shall have received
on the Closing Date a certificate signed by the Manager of the Seller to such
effect.
8.3 [Intentionally omitted]
8.4 Opinion of Counsel. The Buyer shall have received an opinion from
counsel to the Seller and the Members, dated the Closing Date, in form and
substance satisfactory to the Buyer, to the effect that:
(a) the Seller has been duly organized and is validly subsisting in good
standing under the laws of the State of New York.
(b) the authorized and outstanding membership interests of the Seller is
as represented by the Members in this Agreement and each membership interest has
been duly and validly authorized and issued, is fully paid and nonassessable and
was not issued in violation of the preemptive rights of any member;
(c) to the actual knowledge of such counsel, the Seller does not have any
outstanding options, warrants, calls, conversion rights or other commitments of
any kind to issue or sell any of its membership interests except as disclosed on
Schedule 5.3 ;
(d) this Agreement has been duly authorized, executed and delivered by the
Seller and the Members and constitutes a valid and binding agreement of the
Seller and the Members enforceable against them in accordance with its terms
except as such enforceability may be subject to bankruptcy, moratorium,
insolvency, reorganization, arrangement and other similar laws relating to or
affecting the rights of creditors.
(e) except to the extent set forth on Schedule 5.15, there are no claims,
actions, suits or proceedings pending, or to the knowledge of such counsel
threatened against or affecting the Seller or any of the Members, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality wherever
located;
(f) to such counsel's actual knowledge, no notice to, consent,
authorization, approval or order of any court or governmental agency or body or
of any other third party is required in connection with the execution, delivery
or consummation of this Agreement by the Seller and the Members or for the
transfer to the Buyer of the Assets;
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(g) the execution of this Agreement and the performance of the obligations
hereunder will not violate or result in a breach or constitute a default under
any of the terms or provisions of the Seller's Articles of Organization or the
operating agreement of the Seller or to the such counsel's knowledge of any
lease, instrument, license, permit or any other agreement to which the Seller is
a party or by which the Seller or its members are is bound; and
(h) any other matters incident to the matters set forth herein as
reasonably required by the Buyer.
8.5 Additional Liabilities and Obligations. The Seller shall have
delivered to the Buyer a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Seller arising since the Balance Sheet
Date; (ii) showing all material contracts and agreements, together with copies
thereof, entered into by the Seller since the Balance Sheet Date and (iii) all
outstanding payables of the Seller which the Seller shall satisfy in accordance
with Section 3.3(b).
8.6 Good Standing Certificates; Certified Copy of the Certificate of
Incorporation. The Seller shall have delivered to the Buyer certificates, dated
as of a date no earlier than forty-five (45) days prior to the Closing Date,
duly issued by the Secretary of State and the Department of Taxation and
Finance, showing that the Seller is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
the Seller for all periods prior to the dates of such certificates have been
filed and paid. The Seller shall also have delivered to the Buyer prior to the
Closing a recent copy of the Seller's Articles of Organization and all
amendments thereto duly certified by the Secretary of State of New York.
8.7 Representations; Warranties; Covenants. Each of the representations
and warranties of the Seller and the Members contained in Section 5 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Members shall, on or before the Closing Date, have performed and satisfied all
agreements and conditions hereunder which by the terms hereof are to be
performed and satisfied by the Seller and the Members on or before the Closing
Date; and the Seller and the Members shall have delivered to the Buyer a
certificate dated the Closing Date signed by the Seller and Members to the
foregoing effect.
8.8 Approvals and Consents. All filings with and notifications of
governmental authorities, regulatory agencies and other entities required to be
made by them in connection with the execution and delivery of this Agreement,
the performance of the transactions contemplated hereby and the continued
operation of the Business subsequent to the Closing Date, and the Seller and the
Buyer shall have received all required authorizations, waivers, consents and
permits to permit the consummation of the transactions contemplated by this
Agreement, in form and substance reasonably satisfactory to the Buyer, from all
third parties, including, without limitation, approvals required under federal
and state securities laws and/or the securities and Exchange Commission, state
"Blue Sky" laws, other applicable governmental authorities and regulatory
agencies, lessors, lenders and contract parties, required in connection with
this Agreement or the Seller's permits, leases, licenses and franchises, to
avoid a breach, default,
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termination, acceleration or modification of any material agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a result of the
execution or performance of this Agreement, or otherwise in connection with the
execution and performance of this Agreement unless the failure to obtain any
such consent would not individually or in the aggregate have a material adverse
effect on the Business. Notwithstanding the foregoing, the Buyer agrees that it
shall waive its right to obtain the landlord's consent to assign the lease to
the Real Property and obtain consents for the assignment of equipment leases set
forth on Schedule 3.1(d) and that obtaining such waivers shall not be a
condition to Closing. Seller agrees to use its best efforts to obtain consents
for the assignment of equipment leases within sixty (60) days of the Closing.
8.9 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Buyer make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
8.10 Proceedings Satisfactory to the Buyer. All proceedings to be taken by
the Seller and the Members in connection with the consummation of the Closing on
the Closing Date and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transaction contemplated hereby reasonably requested by the Buyer shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.
8.11 Employment Agreements. The Employment Agreements shall be executed by
the Buyer and the respective Members.
9. Conditions Precedent to the Obligations of the Seller. The obligations
of the Seller to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing Date, of the
following conditions (any one or more of which may be waived in whole or in part
by the Seller):
9.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Buyer and the Parent contained in Section 7 shall be true
and correct in all material respects on and as of the Closing Date, with the
same effect as though made on and as of the Closing Date; the Buyer and the
Parent shall, on or before the Closing Date, have performed and satisfied all
agreements and conditions hereunder which by the terms hereof are to be
performed and satisfied by the Buyer and the Parent on or before the Closing
Date; and the Buyer and the Parent shall have delivered to the Seller
certificates signed by the President of the Buyer and the Parent respectively
and dated as of the Closing Date certifying to the foregoing effect.
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9.2 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Seller make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
9.3 No Material Adverse Change. No material adverse change in the results
of operations, financial condition or business of the Parent or the Buyer shall
have occurred and neither the Buyer nor the Parent shall have suffered any
material loss, liability or damage which materially affects either of its
respective operations, financial condition or business.
9.4 Employment Agreements. The Employment Agreements shall be executed by
the Buyer and the respective Members.
10. Termination of Agreement; Effect of Termination.
10.1 Termination. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the Seller and the Members and the board of
directors of the Buyer;
(b) either by the Seller on the one hand, or by the Buyer on the other
hand, if
(i) the transactions contemplated by this Agreement to take place at
the Closing shall not have been consummated by September 15, 1999, unless the
failure of such transactions to be consummated is due to the willful failure of
the party seeking to terminate this Agreement to perform any of its obligations
under this Agreement to the extent required to be performed by it prior to or on
the Closing Date; or
(ii) if a material breach or default shall be made by the other
party in the observance of or in the due and timely performance of any of the
covenants or agreements contained herein, and the curing of such default shall
not have been made on or before the Closing Date
10.2 Liabilities in the Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
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10.3 Time is of the Essence. Time is of the essence with respect to the
termination provisions of this Section 10, unless waived by the Seller.
11. [Intentionally Omitted]
12. Nondisclosure of Confidential Information.
12.1 The Seller and the Members. The Seller and the Members recognize and
acknowledge that they have had in the past, currently have and in the future may
have access to certain confidential information relating to the Business and the
Buyer and its affiliates, including, but not limited to, operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Seller and the Buyer and its affiliates. The Seller and the
Members agrees that they will not use or disclose such confidential information
to any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of the Buyer and its
affiliates who need to know such information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby, and (b) following the Closing, such information may be
disclosed by the Seller as is required in the course of performing his or her
duties for the Buyer unless (i) such information becomes known to the public
generally through no breach by the Seller or the Members of this covenant, (ii)
disclosure is required by law or the order of any governmental authority under
color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Seller or the
Members shall give prior written notice thereof to the Buyer and provide the
Buyer with the opportunity to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party and the same prior
disclosure set forth immediately above is given. In the event of a breach or
threatened breach by the Seller or the Members of the provisions of this
Section, the Buyer shall be entitled to an injunction restraining the Seller
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Buyer from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages. In the event that the transactions contemplated herein are not
consummated, the Seller and the Members shall return to the Buyer within a
reasonable time all documents containing confidential information about the
Buyer and the provisions of this Section 12.1 as they relate to the Business
shall not be applicable.
12.2 The Buyer. The Buyer and the Parent each respectively recognize and
acknowledge that it had in the past and currently has access to certain
confidential information relating to the Business, such as operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Business. The Buyer and the Parent each respectively agree
that, prior to the Closing, or if the transactions contemplated by this
Agreement are not consummated, it will not use or disclose such confidential
information to its own benefit except in furtherance of the transactions
contemplated by this Agreement or disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to the Seller and to authorized representatives of the
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Seller or the Buyer who need to know such information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, unless (i) such information becomes known to
the public generally through no breach by the Buyer of this covenant, (ii)
disclosure is required by law or the order of any governmental authority under
color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Buyer shall give
prior written notice thereof to the Seller and provide the Seller with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party and the same prior disclosure set forth
immediately above is given. In the event of a breach or threatened breach by the
Buyer of the provisions of this Section, the Seller shall be entitled to an
injunction restraining the Buyer from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Seller from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, the Buyer shall return to the Seller
within a reasonable time all documents containing confidential information
relating to the Business.
12.3 Survival. The obligations of the parties under this Section 12 shall
survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
13. Indemnification.
13.1 Indemnification by the Seller and the Members. Subject to Section
13.4, the Seller and the Members, jointly and severally, on behalf of themselves
and their respective successors, executors, administrators, estates, heirs and
permitted assigns, agree subsequent to the Closing Date to indemnify and hold
harmless the Buyer and its respective officers, directors, employees and agents
(individually, a "Buyer Indemnified Party" and collectively, the "Buyer
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Buyer Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the Seller or the
Members in this Agreement or in any schedule, exhibit, certificate, agreement or
other instrument delivered under or in connection with this Agreement, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing covered by any such representations or warranties
(collectively, "Buyer Representation and Warranty Claims");
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(b) any breach of any covenant or agreement made by the Seller or the
Members in this Agreement or in any schedule, exhibit, certificate, agreement or
other instrument delivered under or in connection with this Agreement, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing covered by any such covenant or agreement; or
(c) with respect to taxes of the Seller incurred with respect to any
Pre-Closing Tax Period (as defined below) to the extent such liability exceeds
the amounts accrued therefor. The term "Pre-Closing Tax Period" shall mean all
taxable periods ending on or before the Closing Date and the portion (ending on
the Closing Date) of any taxable period that includes (but does not end on) the
Closing Date.
Claims under clauses (a) through (c) of this Section 13 are hereinafter
collectively referred to as "Buyer Indemnifiable Claims". The rights of Buyer
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this Section 13 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this Section 13.
13.2 Subject to Section 13.4, Buyer and Parent hereby agree to indemnify
and hold Seller and each Member harmless from, against and in respect of) and
shall on demand reimburse them for):
(i) Any and all losses, liabilities or damages resulting from any
untrue representation, breach of warranty or non-fulfillment of any covenant or
agreement by Buyer contained herein or in any certificate, document or
instrument delivered to Seller hereunder;
(ii) Any and all claims, liabilities and obligations of any kind or
nature arising from or relating to the operation of the Business subsequent to
the Closing Date; and
(iii) The Assumed Liabilities (even if Seller remains primarily
liable thereon pursuant to the assignment and assumption or consent to
assignment agreement).
(iv) All losses, liabilities, obligations, damages, deficiencies,
actions, suits, proceedings, demands, assessments, orders, judgments, fines,
penalties, costs and expenses (including the reasonable fees, disbursements and
expenses of attorneys, accountants and consultants) of any kind or nature
whatsoever (whether or not arising out of third-party claims and including all
amounts paid in investigation, defense or settlement of the foregoing)
sustained, suffered or incurred by or made in connection with a claim made
pursuant to this Section 13.2.
13.3 Notice; Defense of Claims.
Promptly after receipt by a Buyer Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Buyer Indemnified Party shall give notice thereof in writing to
the Seller and the Members, but the omission to so notify the Seller and the
Members promptly will not relieve the Seller from any liability except to
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the extent that the Seller shall have been prejudiced as a result of the failure
or delay in giving such notice. Such notice shall state the information then
available regarding the amount and nature of such claim, liability or expense
and shall specify the provision or provisions of this Agreement under which the
liability or obligation is asserted. If within twenty (20) days after receiving
such notice the Seller and the Members give written notice to the Buyer
Indemnified Party stating that (i) it would be liable under the provisions
hereof for indemnity in the amount of such claim if such claim were successful
and (ii) that it disputes and intends to defend against such claim, liability or
expense at its own cost and expense, then counsel for the defense shall be
selected by the Seller and the Members (subject to the consent of the Buyer
Indemnified Party which consent may not be unreasonably withheld) and the Buyer
Indemnified Party shall not be required to make any payment with respect to such
claim, liability or expense as long as the Seller and the Members are conducting
a good faith and diligent defense at their own expense; provided, however, that
the assumption of defense of any such matters by the Seller and the Members
shall relate solely to the claim, liability or expense that is subject or
potentially subject to indemnification. The Seller and the Members shall have
the right, with the consent of the Buyer Indemnified Party, which consent shall
not be unreasonably withheld, to settle any Buyer Indemnified Claims by third
parties which are susceptible to being settled provided its obligation to
indemnify the Buyer Indemnified Party therefor will be fully satisfied. The
Seller and the Members shall keep the Buyer Indemnified Party apprised of the
status of the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the Buyer Indemnified Party with all documents
and information that the Buyer Indemnified Party shall reasonably request and
shall consult with the Buyer Indemnified Party prior to acting on major matters,
including settlement discussions. Notwithstanding anything herein stated, the
Buyer Indemnified Party shall at all times have the right to fully participate
in such defense at its own expense directly or through counsel; provided,
however, if the named parties to the action or proceeding include both the
Seller and the Buyer Indemnified Party and representation of both parties by the
same counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for the Buyer Indemnified Party shall
be paid by the Seller and the Members. If no such notice of intent to dispute
and defend is given by the Seller and the Members, or if such diligent good
faith defense is not being or ceases to be conducted, the Buyer Indemnified
Party shall, at the expense of the Seller and the Members, undertake the defense
of (with counsel selected by the Buyer Indemnified Party), and shall have the
right to compromise or settle (exercising reasonable business judgment), such
claim, liability or expense. If such claim, liability or expense is one that by
its nature cannot be defended solely by the Seller and/or Members, then the
Buyer Indemnified Party shall make available all information and assistance that
the Seller and/or the Members may reasonably request and shall cooperate with
the Seller in such defense.
13.4 Limitations on Indemnification. Notwithstanding the provisions of
Section 13, no party to this Agreement shall be obligated to indemnify any other
party except to the extent the cumulative amount of losses to such party exceeds
Ten Thousand Dollars ($10,000) whereupon the full amount of such losses shall be
recoverable in accordance with the terms hereof.
14. Parent Stock. The Parent Stock to be issued to the Seller hereunder
shall be subject to this Section 14.
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14.1 Lock-Up. In addition to applicable federal and state securities laws
restricting the public sale of the Parent Stock to be issued to the Seller
hereunder, the Seller and the Members hereby irrevocably agree that (i) for a
period of one year after the Closing Date they will not offer, pledge, sell or
otherwise transfer directly or indirectly, any of the Parent Stock or enter into
any agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the shares of Parent Stock received hereunder and
(ii) for a period of two years after the Closing Date, they will not offer,
pledge, sell or otherwise transfer, directly or indirectly, or enter into any
agreement which transfers, in whole or in part, the economic consequences of
ownership of more than twenty-five (25%) of the shares of Parent Stock received
hereunder (each such restrictions adjusted for any stock splits,
recapitalizations, mergers or other similar events). The Seller and the Members
agree that the foregoing shall be binding upon the Seller, the Members and their
respective successors, assigns, heirs, and personal representatives. The
restrictions set forth in clause (ii) shall automatically expire in the event of
a change of control of Parent. For purposes hereof, change of control shall mean
(a) the transfer of more than 50% of the issued and outstanding stock of the
Parent to an acquiror (excluding the sale of such stock for cash in an offering
in which no one individual/entity acquires in excess of thirty percent (30%) of
the issued and outstanding stock of the Parent on a diluted basis in connection
with such sale), or (b) a statutory merger of the Parent where the shareholders
of the Parent own less than fifty percent (50%) of the issued and outstanding
stock of the surviving entity.
14.2 Unregistered Stock; Investment Intent. The Seller and the Members
acknowledge and agree that the shares of Parent Stock to be delivered to the
Seller pursuant to this Agreement have not been and will not be registered under
the Securities Act of 1933, as amended (the "Act") and therefore may not be
resold without compliance with the Act. The Sellers and Members represent and
warrant that the Parent Stock to be acquired by the Seller and the Members
pursuant to this Agreement is being acquired solely for their own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Seller and
the Members covenant, warrant and represent that none of the shares of Parent
Stock issued to the Seller will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all of the applicable provisions of the Act and the rules and regulations
of the Securities and Exchange Commission and applicable state securities laws.
14.3 Able to Bear Risk; Sophisticated Investors; Information Statement.
The Seller and each of the Members jointly and severally represent and warrant
that they are able to bear the economic risk of an investment in Parent Stock
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment. Peter Nicolosi and Lori Nicolosi represent and warrant that
they are each an "accredited investor" within the meaning of Regulation D of the
Act. Each of the Members represent and warrant that they (or their Purchaser
Representative) (i) fully understand the nature, scope and duration of the
limitations on transfer contained in this Agreement; (ii) have received a copy
of the Company's information statement dated August 9, 1999 (the "Information
Statement"); and (iii) have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits and risks of the
proposed investment and therefore have the capacity to protect their own
interests in connection with the
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acquisition of the Parent Stock. The Seller and each of the Members represent
and warrant that they have had an adequate opportunity to ask questions and
receive answers from the officers of the Parent concerning any and all matters
relating to the acquisition of Parent Stock as contemplated by this Agreement
including, without limitation, information regarding the business of the Parent
and its affiliates and information disclosed in the Information Statement. The
Seller and each of the Members have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction. Fred Dickinson and Hugo Walpurgis have each appointed Peter
Nicolosi as their purchaser representative (as defined in Regulation D under the
Act) pursuant to a letter in the form attached hereto as Exhibit 14.2.
14.4 Restrictive Legends. The certificates evidencing the Parent Stock to
be received by the Seller and/or the Members hereunder will bear legends
substantially in the form set forth below and containing such other information
as the Parent may deem appropriate. References in such legend to "THE COMPANY"
shall refer to the Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT") OR ANY STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT AND ANY STATE
SECURITIES OR BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE
IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY) OF COUNSEL
SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHERMORE SUBJECT TO A
LOCK-UP AGREEMENT WITH THE COMPANY DATED AS OF AUGUST 17, 1999, A COPY OF
WHICH MAY BE OBTAINED BY CONTACTING THE SECRETARY OF THE COMPANY.
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
15. Publicity; Securities Laws. The Seller and the Members acknowledge
that the Buyer is a subsidiary of a publicly held company that is therefore
subject to certain disclosure requirements under federal securities laws. The
Seller, the Members and their representatives shall not directly or indirectly,
make any public comment, statement or communication with respect to, or
otherwise disclose or permit the disclosure of the existence of discussions
regarding, the Agreement between the parties or any of the terms, conditions or
other aspects of the Agreement. The Seller further understands that this
Agreement represents information concerning the Buyer which has not been
previously disclosed to the public and which may be
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material, all as determined in accordance with applicable laws, rules and
regulations of the United States and the several states concerning securities
(collectively, the "Securities Laws"). The Seller and the Members agree not to
take any action in connection with this Agreement in violation of the Securities
Laws, including but not limited to trading in the common stock of the Parent
while in possession of material non-public information.
16. Expenses. Each party shall be responsible for its own
transaction-related fees and expenses incurred in connection with this Agreement
(including without limitation legal, accounting, and consulting fees and
expenses); provided, however, that in the event of a breach of the Agreement by
any party hereunder, the non-breaching party shall be entitled to recover all of
its reasonable costs incurred in pursuing the transactions contemplated by this
Agreement, including without limitation, legal and accounting fees and expenses.
17. Entire Agreement; Amendment; Waiver. This Agreement and the schedules
and exhibits attached hereto constitute the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreement, representations and understandings of the parties. No
supplement, modification, or amendment of this Agreement will be binding unless
executed in writing by all of the parties. No waiver of any of the provisions of
this Agreement will be effective unless in writing; no waiver will constitute a
waiver of any other provision; and no waiver of a breach of any provision of
this Agreement will operate to waive any subsequent breach.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
19. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or Liability of any third persons to any party to this
Agreement, nor will any provision give any third persons any right of
subrogation or action against any party to this Agreement.
20. Successors and Assigns. No assignment or transfer by the Seller or the
Buyer of the respective rights hereunder shall be made prior to the Closing
without the prior written consent of the other party, except that Buyer may
transfer its rights hereunder to an affiliate. This Agreement will be binding
on, and will inure to the benefit of, the parties to it and their respective
heirs, executors, administrators, permitted successors and assigns.
21. Further Assurances. The Members from time to time will execute and
deliver and cause the Seller to execute and deliver such additional documents
and instruments and take such additional actions as may be necessary to carry
out the transactions contemplated by this Agreement. If requested by the Buyer,
the Seller and the Members will prosecute or otherwise enforce in its own name
for the benefit of the Buyer any claims, rights or benefits that are transferred
to the Buyer under this Agreement and that require prosecution or enforcement in
the
35
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Seller's name. Any prosecution or enforcement of claims, rights or benefits
under this Section 21 will be solely at the Buyer's expense unless the
prosecution or enforcement is made necessary by a breach of this Agreement by
the Seller.
22. Survival. All representations, warranties, covenants and agreements of
the parties contained in this Agreement, or in any instrument, certificate, or
opinion provided for in it, shall survive the Closing (unless the damaged party
had actual knowledge of any misrepresentation or breach of warranty at the time
of Closing) and continue in full force and effect for a period of eighteen (18)
months from the Closing Date.
23. Notices. Any notice, consent, approval or other communication required
or permitted hereunder will be in writing and will be given (i) by delivery in
person, (ii) by certified mail, return receipt requested, postage prepaid, (iii)
by commercial overnight courier, fees prepaid, or (iv) by facsimile transmission
(with telephone confirmation of receipt), as follows:
(a) If to the Seller and/or the Members:
WebWay, LLC
c/o Peter Nicolosi
195 A-2 High Rock Road
West Coxsackie, NY 12192
Phone: 518-756-9696
Peter Nicolosi and Lori Nicolosi
195 A-2 High Rock Road
West Coxsackie, NY 12192
Phone: 518-756-9696
Hugo Walpurgis
75 Marshland Court
Troy, NY 12180
Phone: 518-270-1793
Fred Dickinson
131 Southern Boulevard
Albany, NY 12208
Phone: 518-465-4365
With a copy to:
Barrett, Gravante Carpinello & Stern
100 State Street
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Albany, NY 12207-1810
Attn: Kathleen M. Franklin, Esq.
Phone: 518 434-0600
Fax: 518 434-0665
(b) If to the Buyer:
Insite Internet VI Acquisition Co., Inc.
P.O. Box 1347
Wall, NJ 07719
Attention: Mark E. Munro, President
Phone: (732) 280-6407
Fax: (732) 280-6409
With a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, Rhode Island 02903
Attention: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
or to such other address for any of the above as may be designated by notice to
the others. Any such notice or other communication will be considered to have
been given (i) on the date of delivery in person, (ii) on the fifth day after
mailing by certified mail, provided that receipt of delivery is confirmed in
writing, or (iii) on the first business day following delivery to a commercial
overnight courier, or (iv) on the day of facsimile transmission provided that
the giver of the notice obtains telephone confirmation of receipt promptly.
24. Arbitration; Jurisdiction; Venue; Attorney's Fees. Each party hereto
agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held in Albany
and the arbitrator(s) shall apply New York law. Judgment upon any award rendered
by the arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Buyer shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of New York or in any United States District Court in the State of
New York. Each party irrevocably submits to and accepts the exclusive
jurisdiction of each of such courts and waives any objection (including any
objection to venue or any objection based upon the grounds of forum non
conveniens) which might be asserted against the bringing of any such action,
suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party and/or parties in any litigation or arbitration.
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25. Governing Law. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and construed
in accordance with the laws of the State of New York without reference to its
laws governing conflicts of law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SELLER:
WEBWAY, LLC
By: /s/ Peter Nicolosi
-----------------------------------
Peter Nicolosi, Manager
MEMBERS:
/s/ Peter Nicolosi
---------------------------------------
Peter Nicolosi
/s/ Lori Nicolosi
---------------------------------------
Lori Nicolosi
/s/ Hugo Walpurgis
---------------------------------------
Hugo Walpurgis
/s/ Fred Dickinson
---------------------------------------
Fred Dickinson
BUYER:
INSITE INTERNET VI ACQUISITION CO., INC.
By: /s/ Mark E. Munro
-----------------------------------
Mark E. Munro, President
BIZNESSONLINE.COM, INC.
By: /s/ Mark E. Munro
-----------------------------------
Mark E. Munro, President
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SCHEDULE 2.1
Assets
All assets and all properties and rights of the Seller including but not limited
to (a) office equipment, machinery, apparatus, and furniture; (b) all permits,
licenses and other rights under federal, state or local laws relating to the
Assets and the Seller; (c) all intangible assets including, trademarks, trade
names, technology, know-how, data, copyrights, assumed names, service marks,
telephone numbers, post office box addresses, licenses, covenants by others not
to compete, rights and privileges used in the conduct of the Seller and rights
to recover from infringement thereon, whether express or implied; (d) goodwill
and going concern value of the Seller; (e) all rights in, to and under contracts
and agreements, including privileges, deposits, claims, causes of actions and
options pertaining thereto; (f) all computers, programs and office supplies; (g)
all orders; (h) all accounts receivable and other rights of the Seller to
payment for goods sold or for services rendered, together with all documents
representing the foregoing; (i) all of the books, records, papers and documents,
including diagrams, accounting and financial records, advertising materials,
mailing lists, credit reports, sales records and customer lists and other
customer data and supplier; (j) prepaid expenses; (k), cash and cash equivalents
in the minimum amount of Twenty Thousand Dollars ($20,000) and all other current
assets on hand as of the Closing Date; (l) all Seller's rights to the name,
"WebWay" and any variations or similar names used in the Business; (m) all
rights, privileges, claims, causes of action and options relating or pertaining
to the Business or the Assets; (n) the TV Data Receivable, if the same is not
paid in full prior to the Closing and (o) all other and additional privileges,
rights, interest, properties and assets of the Seller of every kind and
description and wherever located that are used or intended for use in connection
with, or that are necessary to the continued conduct of the Business as
presently being conducted, by the Seller.
Notwithstanding the foregoing, the assets specifically do not include the
"Excluded Assets" as defined in Section 2.2 of this Agreement.
40
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Introduction
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
entered into as of the 30th day of September 1999 by and among
BiznessOnline.com, Inc., a Delaware corporation (the "Parent"), BOL Acquisition
Co. I, Inc., a Massachusetts corporation ("BOL"), Infoboard, Inc., a
Massachusetts corporation, (the "Company"), and Richard Frenkel, the sole
stockholder of the Company (the "Stockholder").
Background
A. The Parent, BOL and the Company intend to effect a merger of the Company into
BOL in accordance with this Agreement and the Massachusetts Business Corporation
Law (the "Merger"). Upon consummation of the Merger, the Company will cease to
exist, and BOL will continue to exist as the surviving corporation of the
Merger.
B. It is intended that the Merger qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and that this Agreement constitute a plan of reorganization for
such purposes.
C. This Agreement has been adopted and approved by the respective boards of
directors of the Parent, BOL and the Company, and the shareholders of BOL and
the Stockholder have each unanimously approved this Agreement by written
consent.
Agreement
NOW, THEREFORE, in consideration of the mutual and dependent promises and
the representations and warranties hereinafter contained, the parties hereto
agree as follows:
Section 1. Description of the Merger Transaction.
1.1 Merger of the Company into BOL. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.2), the Company shall be merged with and into BOL, and the separate
existence of the Company shall cease.
1.2 Effective Time. The effective time of the Merger (the "Effective
Time") shall occur at the time properly executed articles of merger for the
merger of the Company into BOL, conforming to the requirements of the
Massachusetts Business Corporation Law (the "Merger Certificate") have been
delivered and accepted for filing by the Secretary of State for the Commonwealth
of Massachusetts. At the Effective Time, the Company shall be merged with and
into BOL in accordance with the Merger Certificate and the separate existence of
the
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Company shall cease and BOL shall continue as the surviving corporation (the
"Surviving Corporation").
1.3 Articles of Organization, By-Laws, Board of Directors, Officers,
Purpose, Authorized Capital and Name of the Surviving Corporation. At the
Effective Time:
(a) The Articles of Organization of BOL shall become the Articles of
Organization of the Surviving Corporation; and, subsequent to the Effective
Time, such Articles of Organization shall be the Articles of Organization of the
Surviving Corporation until changed as provided by law.
(b) The bylaws of BOL shall become the bylaws of the Surviving
Corporation; and, subsequent to the Effective Time, such bylaws shall be the
bylaws of the Surviving Corporation until they shall thereafter be duly amended.
(c) The Board of Directors of the Surviving Corporation shall be set
forth on Exhibit 1.3 hereto and shall hold office subject to the provisions of
the laws of the Massachusetts Business Corporation Law and of the Articles of
Organization and bylaws of the Surviving Corporation.
(d) The officers of the Surviving Corporation shall be set forth on
Exhibit 1.3 hereto, each of such officers to serve, subject to the provisions of
the Articles of Organization and bylaws of the Surviving Corporation, until his
or her successor is elected and qualified.
(e) The purpose of the Surviving Corporation shall be the ownership,
operation and management of an internet service provider company, and in
general, the transaction of any and all other lawful business for which
corporations may be incorporated under the Massachusetts general laws.
(f) The Surviving Corporation is authorized to issue 200,000 shares
of common stock, $0.01 par value per share.
(g) The name of the Surviving Corporation shall be "Infoboard, Inc."
1.4 Effect of Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the Massachusetts Business
Corporation Law. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of BOL shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of the Company shall be merged with
and into BOL, and BOL, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time, the separate existence of the Company shall
cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public as well as of a private nature, and all property, real,
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personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and BOL shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Company and BOL; and the title to any
real estate, or interest therein, whether by deed or otherwise, vested in the
Company and BOL, shall not revert or be in any way impaired by reason of the
Merger. Except as otherwise provided herein, the Surviving Corporation shall
thenceforth be responsible and liable for all the liabilities and obligations of
the Company and BOL and any claim existing, or action or proceeding pending, by
or against the Company or BOL may be prosecuted as if the Merger had not taken
place, or the Surviving Corporation may be substituted in its place. Neither the
rights of creditors nor any liens upon the property of the Company or BOL shall
be impaired by the Merger, and all debts, liabilities and duties of the Company
and BOL shall attach to the Surviving Corporation, and may be enforced against
the Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by the Surviving Corporation.
1.5 Merger Consideration; Conversion of Shares.
(a) As of the Effective Time, all of the shares of Common Stock of
the Company, no par value per share ("Company Stock"), issued and outstanding
immediately prior to the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, shall be automatically converted to,
in the aggregate, shares of Common Stock of the Parent, par value $.01 per share
("Parent Stock") and cash, as follows (collectively, the "Merger
Consideration"):
(1) $1,380,000 in U.S. currency delivered by check, wire
transfer or other immediately available funds, and
(2) $1,650,000 in unregistered shares of the Parent Stock. The
actual number of shares of common stock to be delivered hereunder shall equal
$1,650,000 divided by the average NASDAQ National Market price (as defined
below) of the Parent's common stock for the twenty (20) business days ending on
the second business day immediately preceding the Closing date, provided,
however, that (i) in the event that the last price at which Parent's shares
traded between parties unaffiliated to the parties hereto on the day preceding
the Closing date (the "Last Price") is less than 90% of such twenty (20) day
average NASDAQ price, the Parent shall increase the actual number of shares to
be delivered hereunder to the amount equal to $1,485,000 divided by the Last
Price, and (ii) in the event that the Last Price is greater than 110% of such
twenty (20) day average NASDAQ price, the Parent shall reduce the actual number
of shares to be delivered hereunder to the amount equal to $1,815,000 divided by
the Last Price. By way of illustration, without giving effect to the purchase
price adjustments and escrow conditions described below, assume the average
NASDAQ National Market price for the twenty (20) business day period is $10 per
share. If the Last Price is: (x) between $9.00 and
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$11.00 per share, the Parent would deliver 165,000 shares of its common stock to
the Stockholder under this subsection; (y) $8.00 per share, the Parent would
deliver 185,625 shares of its common stock to the Stockholder under this
subsection; and (z) $12.00 per share, the Parent would deliver 151,250 shares of
its common stock to the Stockholder under this Subsection.
(b) The "average NASDAQ National Market price" shall mean the
average of the closing sales prices or, in case no such reported sale takes
place on any given day, the average of the reported closing bid and asked prices
for such day. In either case, the prices would be as reported by The Nasdaq
Stock Market, Inc.
1.6 Delivery of Merger Consideration/Escrow of Shares/Set-Off.
(a) At the Closing as defined below, the Stockholder shall deliver
his certificate(s) representing all outstanding shares of Company Stock to
counsel for the Parent to hold in escrow until the Effective Time. At the
Effective Time, the Stockholder shall receive the aggregate Merger Consideration
set forth in Section 1.5 above provided, however, that a number of shares of
Parent Stock included in the aggregate Merger Consideration with a value of
$275,000 (the "Escrow Shares") shall be delivered into escrow with the Parent's
counsel (the "Escrow Agent") for a period of ten (10) months from the Closing
Date pursuant to the Escrow Agreement attached hereto as Exhibit 1.6. In
addition to all other rights and remedies of the Parent, BOL and the Surviving
Corporation for breach by the Company or the Stockholder of the representations
and warranties of the Company and the Stockholder herein, both at law and in
equity, the Parent shall have the right to set-off against the Escrow Shares for
any claims of the Parent or the Surviving Corporation arising under the
post-Closing adjustment provisions of Section 2 below and/or the indemnity
provisions of Section 12 below.
(b) The Stockholder shall deliver to counsel for the Parent at the
Closing the certificates representing Company Stock, duly endorsed in blank by
the Stockholder or accompanied by duly executed stock powers, to hold in escrow
until the Effective Time. The Stockholder shall cure any deficiencies with
respect to the endorsement of the certificates or other documents of conveyance
with respect to Company Stock or with respect to the stock powers accompanying
any Company Stock.
(c) At the Effective Time, counsel for the Parent shall release the
certificates representing shares of Company Stock to the Parent and such
certificates shall be canceled. As of the Effective Time, the stock transfer
books of the Company shall be closed and there shall be no further registration
of transfers of shares of the Company thereafter.
(d) No certificates representing fractional shares of Parent Stock
shall be issued upon the surrender of certificates which, prior to the Effective
Time, represented shares of Company Stock. In lieu of any such fractional
shares, the Stockholder will be paid an amount in cash based on the average
NASDAQ National Market Price (as defined above) of Parent Stock
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for the 20 business days ending on the second business day preceding the Closing
Date or, if the Last Price has been applied pursuant to Section 1.5, the Last
Price.
1.7 Closing. The closing of the Merger (the "Closing") shall occur
on the third business day after satisfaction or waiver of all of the conditions
set forth in Section 6 hereof at the offices of Duffy & Sweeney, LLP, 300 Turks
Head Building, Providence, Rhode Island 02903; at 10:00 a.m., or at such other
place and time or date as may be mutually agreed upon by the parties hereto. The
actual date of the Closing is referred to herein as the "Closing Date". At the
Closing, Parent, BOL and the Company shall take all actions necessary to effect
the Merger (including filing the Merger Certificate which shall become effective
at the Effective Time) and to effect the conversion and delivery of shares
referred to in Section 1.6 hereof.
Section 2. Post Closing Adjustments
2.1 Post-Closing Net Equity Adjustment based on the Closing Date Balance
Sheet Within sixty (60) days after the Closing, the Parent shall engage an
accounting firm to audit a balance sheet, prepared in accordance with generally
accepted accounting principles ("GAAP"), of the Company as of 5:00 PM (EDT) on
the day of the Closing (the "Closing Date Balance Sheet"). The Closing Date
Balance Sheet will utilize the accrual method of accounting notwithstanding any
other accounting method(s) that the Company may have been using in connection
with its financial statements and taxes. If the aggregate stockholders' equity
as shown on the Closing Date Balance Sheet (which shall mean total assets,
exclusive of any doubtful accounts receivable, less total liabilities, inclusive
of any contingent liabilities) is less than $100,000 (the amount of such
shortfall being hereafter known as the "Net Equity Deficiency"), the Stockholder
shall pay to BOL, within 10 days of the date of determination of the Net Equity
Deficiency (subject to the dispute resolution procedure set forth in Section 2.3
below) (i) 45% of the Net Equity Deficiency in cash, by certified check or by
wire transfer of immediately available funds, and (ii) 55% of the Net Equity
Deficiency in shares of common stock of the Parent which shall be valued at the
"average Nasdaq National Market value" as defined above for the twenty (20)
business day period immediately preceding the date the parties reach agreement
as to any Net Equity Deficiency. Notwithstanding the foregoing or any language
to the contrary in the Escrow Agreement attached hereto, the Parent shall have
the option, at its sole discretion, to receive shares of Parent Stock necessary
to satisfy all or a portion of the Net Equity Deficiency from the Escrow Shares
(provided that such action would not reduce the stock portion of the Merger
Consideration below 40% or otherwise impair the intended tax-free reorganization
structure of the Merger) or from the Stockholder directly (i.e. not from the
Escrow Shares), with any balance due to be paid in cash by the Stockholder as
provided above.
2.2 Post-Closing Adjustment for Excess or Deficiency in 1999 Revenues . To
the extent that (i) the Surviving Corporation's aggregate audited revenues for
the fiscal year ended December 31, 1999, are less than $1,200,000, the Merger
Consideration shall be reduced by an amount equal to $2.50 for each One Dollar
($1.00) in revenue less than $1,200,000, and (ii) the Surviving Corporation's
aggregate audited revenues for the fiscal year ended December 31, 1999
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are greater than $1,200,000, the Merger Consideration shall be increased by an
amount equal to $2.50 for each One Dollar ($1.00) in revenue greater than
$1,200,000. For example, in the event the Surviving Corporation's aggregate
revenues for the fiscal year ended December 31, 1999, are $1,150,000, the Merger
Consideration payable to the Stockholder shall be reduced by $125,000 (i.e. the
$50,000 shortfall multiplied by 2.50). Alternatively, in the event the Surviving
Corporation's aggregate revenues for the fiscal year ended December 31, 1999 are
$1,250,000, the Merger Consideration payable to the Stockholder shall be
increased by $125,000. Any such adjustment shall be based on an income statement
prepared by the Parent's accountants on or before April 30, 2000, showing the
Surviving Corporation's audited revenues for the year ended December 31, 1999.
To the extent any adjustment in the Merger Consideration shall be required under
this Section 2.2, (i) in the event of a reduction in the Merger Consideration,
the Surviving Corporation , in its sole discretion, shall be entitled to receive
all or a portion of such payment from the Escrow Shares (provided that such
action would not reduce the stock portion of the Merger Consideration below 40%
or otherwise impair the intended tax-free reorganization structure of the
Merger), or, using the stock/cash percentages described in section 2.1 above,
from the Stockholder directly within ten (10) days of delivery of the final
income statement for 1999 as audited by the Surviving Corporation's accountants
(subject to the dispute resolution procedure set forth in Section 2.3 below), or
(ii) in the event of an increase in the Merger Consideration, the Surviving
Corporation shall pay the Stockholder 55% of the amount of such increase in
Parent Stock and 45% in cash within ten (10) days of the delivery of the final
income statement for 1999 as audited by the Surviving Corporation's accountants
(subject to the dispute resolution procedure set forth in Section 2.3 below).
Any payments made in Parent Stock under this subsection in connection with 1999
revenues shall be based on the average NASDAQ National Market price of Parent
Stock for the twenty (20) business days preceding the later of the date of
delivery of the final income statement for 1999 or the resolution of any
disputes relating to such statement.
2.3 Dispute Resolution Procedure for Adjustments based on Closing Date
Balance Sheet and 1999 Revenues. Notwithstanding anything in this Section 2 to
the contrary, if the Stockholder disputes any item contained on the Closing Date
Balance Sheet or the audited 1999 revenues of the Surviving Corporation, the
Stockholder shall notify the Surviving Corporation in writing of each disputed
item (collectively, the "Disputed Amounts"), and specify the amount thereof in
dispute within thirty (30) business days after the delivery of the Closing Date
Balance Sheet or the final income statement for 1999, as the case may be. If the
Surviving Corporation and the Stockholder cannot resolve any such dispute, then
such dispute shall be resolved by an independent nationally recognized
accounting firm which is reasonably acceptable to the Surviving Corporation and
the Stockholder (the "Independent Accounting Firm"). The determination of the
Independent Accounting Firm shall be made as promptly as practical and shall be
final and binding on the parties, absent manifest error which error may only be
corrected by such Independent Accounting Firm. Any expenses relating to the
engagement of the Independent Accounting Firm shall be allocated between the
Surviving Corporation and the Stockholder so that the Stockholder's aggregate
share of such costs shall bear the same proportion to the total costs that the
Disputed Amounts unsuccessfully contested by the
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Stockholder (as finally determined by the Independent Accounting Firm) bear to
the total of the Disputed Amounts so submitted to the Independent Accounting
Firm.
Section 3. Representations and Warranties of the Company and the Stockholder.
3.1 Making of Representations and Warranties. As a material inducement to
the Parent and BOL to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and the Stockholder hereby jointly and
severally make to the Parent and BOL the representations and warranties
contained in this Section 3.
3.2 Organization and Qualification of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts with full corporate power and authority to
own or lease its properties and to conduct its business in the manner and in the
places where such properties are owned or leased and where such business is
currently conducted or proposed to be conducted. The copies of the Articles of
Organization of the Company as amended to date, certified by the Secretary of
State for the Commonwealth of Massachusetts and the bylaws certified by the
Clerk of the Company and heretofore delivered to the Parent's counsel, are
complete and correct, and no amendments thereto are pending. The stock records
and minute books of the Company which have heretofore been delivered to the
Parent's counsel are correct and complete. The Company is duly qualified to do
business as a foreign corporation in each other jurisdiction in which it owns,
operates or leases real property and in each other jurisdiction in which the
failure to be so qualified or registered would have a material adverse effect on
the properties, assets, business, financial condition and prospects of the
Company.
3.3 Subsidiaries; Investments. Except as set forth in Schedule 3.3, the
Company has no direct or indirect subsidiaries and owns no securities issued by
any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Except as set forth in Schedule 3.3, neither the Company nor the Stockholder
owns or has any direct or indirect interest in or control over any corporation,
partnership, joint venture or entity of any kind which is a Competitor (as
defined below). For purposes of this Agreement, the term "subsidiary" means,
with respect to any person, any corporation 20% or more of the outstanding
voting securities of which, or any partnership, joint venture or other entity
20% or more of the total equity interest of which, is directly or indirectly
owned by such person.
3.4 Capital Stock. The total authorized capital stock of the Company
consists of 200,000 shares of common stock, no par value, of which 200 shares
are issued and outstanding. All of the issued and outstanding shares of the
Company Common Stock are duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the Stockholder free and
clear of any liens, claims, encumbrances, restrictions, security interests,
mortgages, pledges or other demands, and all such shares were offered, issued,
sold and delivered by the Company in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
were issued in violation of the
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preemptive rights of any past or present stockholder. No shares of the Company
Stock are held in the treasury of the Company. There are no outstanding
subscriptions, options, warrants, commitments, preemptive rights, agreements,
arrangements or commitments of any kind for or relating to the issuance, sale,
registration or voting of, or outstanding securities convertible into or
exchangeable for, any shares of capital stock of any class or other equity
interests of the Company. The Company has never acquired any treasury stock.
3.5 Authority of the Company and the Stockholder
(a) The Company has full right, power and authority to enter into
this Agreement and each agreement, document and instrument to be executed and
delivered by it pursuant to or as contemplated by this Agreement and to carry
out the transactions contemplated hereby and thereby. The execution, delivery
and performance by the Company of this Agreement and each such other agreement,
document and instrument have been duly authorized by the Company's Board of
Directors, and have been approved by the Stockholder by a unanimous written
consent vote. This Agreement and each agreement, document and instrument to be
executed and delivered by the Company pursuant to or as contemplated by this
Agreement (to the extent it contains obligations to be performed by the Company)
constitutes, or when executed, delivered and approved by the Company and the
Stockholder will constitute, the valid and binding obligations of the Company,
enforceable in accordance with its respective terms. The execution, delivery and
performance by the Company of this Agreement and each such other agreement,
document and instrument:
(i) do not and will not violate any provision of the Articles of
Organization or bylaws of the Company;
(ii) do not and will not violate any laws of the United States, or
any state or other jurisdiction applicable to the Company or require the
Company to obtain any court, regulatory body, administrative agency or
other approval, consent or waiver, or make any filing with, any federal,
state, local or foreign governmental body, agency or official
("Governmental Entity") that has not been obtained or made, other than the
filing of the Articles of Merger in accordance with the laws of the
Commonwealth of Massachusetts and except for any other approvals,
consents, waivers and filings that, if not obtained or made, individually
or in the aggregate, would not have a material adverse effect on the
properties, assets, business, financial condition or prospects of the
Company; and
(iii) except as otherwise indicated on Schedule 3.5 hereto, do not
and will not result in a breach of, constitute a default under, accelerate
any obligation under, or give rise to a right of termination of any
indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award, whether
written or oral, to which the Company is a party or by which the property
of the Company is bound or affected, or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets of the Company, except where
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such breach, default, acceleration or right of termination would not have
a material adverse effect on the properties, assets, business, financial
condition or prospects of the Company, and would not result in the
creation or imposition of any mortgage, pledge, lien, security interest or
other charge or encumbrance on any of the assets of the Company.
(b) The Stockholder has full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by or on behalf of it pursuant to or as contemplated by this
Agreement and to carry out the transactions contemplated hereby and thereby.
This Agreement and each agreement, document and instrument to be executed and
delivered by the Stockholder pursuant to or as contemplated by this Agreement
(to the extent it contains obligations to be performed by such Stockholder)
constitutes, or when executed and delivered will constitute, valid and binding
obligations of the Stockholder enforceable in accordance with their respective
terms, subject to the terms hereof. The execution, delivery and performance by
the Stockholder of this Agreement and each such agreement, document and
instrument:
(i) do not and will not violate any provision of the Articles
of Organization or bylaws of the Company;
(ii) do not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to the Stockholder
or require the Stockholder to obtain any approval, consent or waiver of,
or make any filing with, any Governmental Entity that has not been
obtained or made; and
(iii) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to a right of
termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which the Stockholder is a party or by which the
property of such Stockholder is bound or to which the property of the
Stockholder is subject or result in the creation or imposition of any
mortgage, pledge, lien, security interest or other charge or encumbrance
on any of the assets or properties of the Company. Except as disclosed on
Schedule 3.05, there are no stockholder agreements with respect to the
ownership or operation of the Company, and any such agreements shall be
terminated prior to the Closing.
3.6 Status of Property Owned or Leased.
(a) Real Property. The real property identified as being owned or
leased by the Company on Schedule 3.6(a) is collectively referred to herein as
the "Real Property". The Real Property constitutes all the real property owned
and leased by the Company.
(i) Commissions. There are no brokerage or leasing fees or
commissions or other compensation owed or payable by the Company on an
absolute or
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contingent basis to any person, firm, corporation, or other entity with
respect to or on account of any of the Encumbrances or the Real Property,
and no such fees, commissions or other compensation shall, by reason on
any existing agreement, become due after the date hereof.
(ii) Physical Condition. Except as set forth on Schedule
3.6(a), the Company has no knowledge of any material defect in the
physical condition, any material improvements located on or constituting a
part of any of the Real Property, including, without limitation, the
structural elements thereof, the mechanical systems therein, the roofs or
the parking and loading areas (collectively, the "Improvements").
(iii) Utilities. The Company has not received any written
notice of any termination or impairment of the furnishing of, or any
material increase in rates for, services to any of the Real Property of
water, sewer, gas, electric, telecommunication, drainage or other utility
services, except ordinary and usual rate increases applicable to all
customers (or all customers of a certain class) of a utility provider. The
Company has not entered into any agreement requiring it to pay to any
utility provider rates which are less favorable than rates generally
applicable to customers of the same class as the Company.
(iv) Compliance. Except as set forth on Schedule 3.6(a), the
Company has not received any written notice from any municipal, state,
federal or other governmental authority with respect to any violation of
any zoning, building, fire, water, use, health, environmental or other
statute, ordinance, code or regulation issued in respect of any of the
Real Property that has not been heretofore corrected, and except in either
case as set forth in Schedule 3.6(a) hereto.
(v) Government Approvals. The Company has not received any
notice of any plan, study or effort by any Governmental Entity which would
adversely affect the present use, zoning or value to the Company of any of
the Real Property or which would modify or realign any adjacent street or
highway in a manner materially adverse to the Company.
(vi) Zoning. The Company has not received any notice of any
zoning violations. All buildings and improvements situated on the Real
Property were built pursuant to validly issued building permits.
Certificates of occupancy were issued for all such structures as built,
and all such structures have been maintained as built since such
certificates were issued.
(vii) Service Contracts. A complete list of all material
existing service, management, supply or maintenance or equipment lease
contracts and other contractual agreements to which the Company is a party
affecting the Real Property or any portion thereof (the "Service
Contracts") is set forth on Schedule
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3.6(a). All such Service Contracts are terminable upon no more than thirty
(30) days written notice, at no cost, except as specified in Schedule
3.6(a).
(b) Personal Property. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Company having a fair
market value of at least $5,000 (the "Equipment"), is contained in Schedule
3.6(b) hereto. All of the Equipment and other machinery, equipment and personal
property of the Company is located on the Real Property or used in the operation
of the Company. Except as specifically disclosed in Schedule 3.6(b) or in the
Company Financial Statements (as hereinafter defined), the Company has good and
marketable title to all of the personal property owned by it. None of such
personal property or assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security title, encumbrance or other charge except
as specifically disclosed in any Schedule hereto or in the Financial Statements.
The Company Financial Statements reflect all personal property of the Company,
subject to dispositions and additions in the ordinary course of business
consistent with this Agreement. Except as otherwise specified in Schedule 3.6(b)
hereto, all leasehold improvements, furnishings, machinery and equipment of the
Company are in generally good repair, normal wear and tear excepted, have been
well maintained, and conform in all material respects with all applicable
ordinances, regulations and other laws.
3.7. Financial Statements; Undisclosed Liabilities.
(a) The Company has delivered to the Parent the following financial
statements, copies of which are attached hereto as Schedule 3.7:
(i) Compiled, reviewed or management-prepared balance sheets
of the Company dated December 31, 1996, December 31, 1997, and December
31, 1998, and compiled, reviewed or management-prepared statements of
income, stockholders' equity and cash flows for each of the three (3)
years ended December 31, 1996, 1997 and 1998, certified by the Treasurer
of the Company (the "Year-End Company Financial Statements");
(ii) Draft balance sheets of the Company as of June 30, 1999
(herein the "Company Balance Sheet Date") and statements of income,
stockholders' equity and cash flows for the six months then ended,
certified by the Treasurer of the Company (the "Interim Company Financial
Statements", together with the Year-End Company Financial Statements, the
"Company Financial Statements");
The Company Financial Statements have been prepared in accordance with GAAP
applied consistently during the periods covered thereby (except that the Interim
Company Financial Statements are subject to normal year-end audit adjustments
and do not include footnotes), and present fairly in all respects the financial
condition of the Company at the dates of said statements and the results of
their operations for the periods covered thereby.
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(b) As of the Company Balance Sheet Date, the Company had no
material liabilities of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation liabilities as guarantor or otherwise
with respect to obligations of others or contingent liabilities arising prior to
the Company Balance Sheet Date), except liabilities stated or adequately
reserved for on the Company Financial Statements or reflected in Schedules
furnished to Parent hereunder as of the date hereof.
(c) As of the date hereof, the Company has no material liabilities
of any nature, whether accrued, absolute, contingent or otherwise (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due or contingent liabilities arising prior to the date hereof or the Closing,
as the case may be), except liabilities (i) stated or adequately reserved
against on the appropriate Company Financial Statement or the notes thereto,
(ii) reflected in Schedules furnished to Parent hereunder on the date hereof or
(iii) incurred in the ordinary course of business of the Company consistent with
prior practices.
3.8 Taxes.
(a) The Company has paid or caused to be paid all federal, state,
local, foreign and other taxes, including without limitation income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes, use
taxes, value-added taxes, gross receipts taxes, franchise taxes, capital stock
taxes, employment and payroll-related taxes, withholding taxes, stamp taxes,
transfer taxes and property taxes, whether or not measured in whole or in part
by net income, and all deficiencies, or other additions to tax, interest, fines
and penalties owed by it (collectively, "Taxes"), in the amounts indicated on
tax returns filed by the Company through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing authority,
whether disputed or not (other than current taxes the liability for which is
adequately reserved for on the financial statements provided to the Parent
pursuant to Section 3.7 hereof).
(b) The Company has in accordance with applicable law filed all
federal, state, local and foreign tax returns required to be filed by it through
the date hereof and all such returns correctly and accurately set forth the
amount of any Taxes relating to the applicable period. For every taxable period
of the Company, the Company has delivered or made available to Parent complete
and correct copies of all federal, state, local and foreign income tax returns,
examination reports and statements of deficiencies assessed against or agreed to
by the Company. Schedule 3.8 attached hereto sets forth all federal tax
elections under the Internal Revenue Code of 1986, as amended (the "Code"), that
are in effect with respect to the Company or for which an application by the
Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or to the Company's
knowledge, threatening to assert against the Company any deficiency or claim for
additional Taxes or a claim that the Company is or may be subject to taxation by
that jurisdiction. There are no security interests on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any
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Tax. The Company has not entered into a closing agreement pursuant to Section
7121 of the Code.
(d) Except as set forth in Schedule 3.8 attached hereto, there has
not been any audit of any tax return filed by the Company, no audit of any tax
return of the Company is in progress, and the Company has not been notified by
any tax authority that any such audit is contemplated or pending. Except as set
forth in Schedule 3.8, no extension of time with respect to any date on which a
tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions of
Section 341(f)(2) of the Code applied to it, (ii) the Company has not agreed to,
and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise and (iii) the Company has never made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances would obligate it to make any payments, that will not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
penalty for underpayment of federal Tax under Section 6662 of the Code. The
Company has never had any liability for unpaid Taxes because it is a member of
an "affiliated group" (as defined in Section 1504(a) of the Code). The Company
has never filed, nor has it ever been required to file, a consolidated, combined
or unitary tax return with any entity. The Company is not a party to any tax
sharing agreement.
(f) The Company computes its federal taxable income under the cash
basis method of accounting.
(g) For purposes of this Section 3.8, all references to Sections of
the Code shall include any predecessor provisions to such Sections.
3.9 Accounts Receivable. All accounts receivable of the Company as of the
respective balance sheet dates in the Company Financial Statements and all
accounts receivable arising thereafter or hereafter to the Closing Date, arose
or will arise from valid sales in the ordinary course of business. Except as set
forth in Schedule 3.9, the Company has no accounts or loans receivable from any
person, firm or corporation which is affiliated with the Company. For purposes
hereof, "affiliate" means any Stockholder, or any business entity which
controls, or is controlled by, or is under common control with the Company.
3.10 Inventories. The Company maintains no inventory.
3.11 Absence of Certain Changes.
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Since December 31, 1998, the Company has conducted its business only in
the ordinary course and consistent with past practices and except as disclosed
in Schedule 3.11 there has not been:
(a) Any change in the properties, assets, liabilities, business,
operations, financial condition or prospects of the Company which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has been materially adverse with respect to the
Company;
(b) Except for the endorsement of checks in the ordinary course of
business any material contingent liability incurred by the Company as guarantor
or otherwise with respect to the obligations of others or any cancellation of
any material debt or claim owing to, or waiver of any material right of, the
Company;
(c) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof or will
remain on the Closing Date except for liens permitted by any current agreement
of the Company with respect to borrowed money;
(d) Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any capital
assets of the Company costing more than $10,000;
(e) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting any of the properties, assets or
business of the Company;
(f) Any declaration, setting aside or payment of any dividend by the
Company, or the making of any other distribution in respect of the capital stock
of the Company, any direct or indirect redemption, purchase or other acquisition
by the Company of its own capital stock, any issuance or sale of any securities
convertible into or exchangeable for debt or equity securities of the Company or
any grant, issuance or exercise of options, warrants, subscriptions, preemptive
rights, agreements, arrangements or commitments of any kind for or relating to
the issuance, sale, registration or voting of any shares of capital stock of any
class or other equity interests of the Company;
(g) Any claim of unfair labor practices asserted against the
Company; any change in the compensation (in the form of salaries, wages,
incentive arrangements or otherwise) payable or to become payable by the Company
to any of its officers, employees, agents or independent contractors other than
customary merit or cost of living increases in accordance with its usual
practices, or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors; any entering into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any officer, director or employee of the
Company except for employment arrangements
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<PAGE>
providing for salary or wages of less than $20,000 per annum and any oral
agreement terminable at will by the Company;
(h) Any change with respect to the officers or senior management of
the Company or any grant of any severance or termination pay to any officer or
employee of the Company;
(i) Any payment or discharge of a material lien or liability of the
Company which was not shown on the Company Financial Statements or incurred in
the ordinary course of business thereafter;
(j) Any obligation or liability incurred by the Company to any of
its officers, directors or stockholders, or any loans or advances made by the
Company to any of its officers, directors, stockholders, except normal
compensation and expense allowances payable to officers or employees;
(k) Any change in accounting methods or practices other than to
comply with new accounting pronouncements, credit practices or collection
policies used by the Company;
(l) Any other material transaction entered into by the Company other
than transactions in the ordinary course of business; or
(m) Any agreement or understanding whether in writing or otherwise,
that would result in any of the transactions or events, or require the Company
to take any of the actions, specified in paragraphs (a) through (l) above.
3.12 Banking Relations. All of the arrangements which the Company has with
any banking institution are described in Schedule 3.12 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
3.13 Patents, Trade Names, Trademarks, Copyrights and Proprietary Rights.
All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company (other than
off-the-shelf software licensed to the Company) or used in its respective
business as presently conducted (the "Proprietary Rights") are listed in
Schedule 3.13 attached hereto. All of the material patents, registered
trademarks and copyrights of the Company and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. To the Company's knowledge, except as
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set forth in Schedule 3.13: (a) use of said patents, trade names, trademarks,
copyrights or other proprietary rights in the ordinary course of business as
presently conducted does not require the consent of any other person and (b) the
Company has sufficient title or adequate rights or licenses to use all material
patents, trade names, trademarks, copyrights, or other proprietary rights used
by it in its business as presently conducted free and clear of any attachments,
liens, encumbrances or adverse claims. The Company has not received written
notice that its present or contemplated activities or products infringe any such
patents, trade names, trademarks or other proprietary rights of others. Except
as set forth in Schedule 3.13: (i) no other person has an interest in or right
or license to use, or the right to license others to use, any of said patents,
patent applications, trade names, trademarks, copyrights or other proprietary
rights; (ii) there are no written claims or demands of any other person
pertaining thereto and no proceedings have been instituted, or are pending or
threatened, which challenge the rights of the Company in respect thereof; (iii)
none of the patents, trade names, trademarks, copyrights or other proprietary
rights listed in said schedule is subject to any outstanding order, decree,
judgment or stipulation, or is being infringed by others; and (iv) no proceeding
charging the Company with infringement of any adversely held patent, trade name,
trademark or copyright has been filed or is threatened to be filed.
3.14 Trade Secrets and Customer Lists. The Company has the right to use in
the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products presently sold, manufactured, licensed, under development or
produced by it, including products licensed from others. Any payments required
to be made by the Company for the use of such trade secrets, inventions,
customer lists and secret processes are described in Schedule 3.14. The Company
is not using or in any way making use of any confidential information or trade
secrets of any third party, including without limitation, a former employer of
any present or past employee of the Company or any of the predecessors of the
Company.
3.15 Contracts.
(a) Except for contracts, commitments, plans, agreements and
licenses described in Schedule 3.15 (complete and accurate copies of which have
been delivered to the Parent), the Company is neither a party to nor subject to:
(i) any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, profit
sharing, severance or termination pay, collective bargaining or the like, or any
contract or agreement with any labor union;
(ii) any employment contract or contract for services which
requires the payment of $20,000 or more annually or which is not terminable
within thirty (30) days by the Company without liability for any penalty or
severance payment other than pursuant to the Company's severance policies
existing on the date hereof;
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(iii) any contract or agreement for the purchase of any
commodity, material or equipment except purchase orders in the ordinary course
for less than $10,000 each;
(iv) any other contracts or agreements creating any obligation
of the Company of $10,000 or more with respect to any such contract;
(v) any contract or agreement providing for the purchase of
all or substantially all of its requirements of a particular product from a
supplier;
(vi) any contract or agreement which by its terms does not
terminate or is not terminable by the Company or any successor or assign within
six months after the date hereof without payment of a penalty;
(vii) any contract or agreement for the sale or lease of its
products or services not made in the ordinary course of business;
(viii) any contract with any sales agent or distributor of
products of the Company or any subsidiary;
(ix) any contract containing covenants limiting the freedom of
the Company to compete in any line of business or with any person or entity;
(x) any contract or agreement for the purchase of any fixed
asset for a price in excess of $10,000 whether or not such purchase is in the
ordinary course of business;
(xi) any license agreement (as licensor or licensee);
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing of money
and any related security agreement;
(xiii) any contract or agreement with any officer, employee,
director or stockholder of the Company or with any persons or organizations
controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other similar
contract, arrangement or agreement; or
(xv) any registration rights agreements, warrants, warrant
agreements or other rights to subscribe for securities, any voting agreements,
voting
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trusts, shareholder agreements or other similar arrangements or any stock
purchase or repurchase agreements or stock restriction agreements.
(b) Each material contract, agreement, lease and instrument to which
the Company is a party or by which the Company is duly authorized on the part of
the Company and is in full force and effect and constitute legal, valid and
binding obligations of the Company and, to the Company's knowledge, the other
parties thereto, enforceable in accordance with their respective terms. Neither
the Company nor to the Company' knowledge any other party to any contract,
agreement, lease or instrument of the Company is in default in complying with
any provisions thereof, and no condition or event or facts exists which, with
notice, lapse of time or both would constitute a default thereof on the part of
either of the Company or to the Company's knowledge or on the part of any other
party thereto in any such case that could have a material adverse effect on the
properties, assets, financial condition or prospects of either of the Company.
Schedule 3.15 indicates whether any of the agreements, contracts, commitments or
other instruments and documents described therein requires consent or approval
to be transferred to the Surviving Corporation as a result of the transactions
contemplated herein.
3.16 Litigation. Schedule 3.16 hereto lists all currently pending and to
the Company's knowledge threatened litigation and governmental or administrative
proceedings or investigations to which the Company is or would be a party.
Except for matters described in Schedule 3.16, there is no litigation or
governmental or administrative proceeding or investigation pending or to the
Company's knowledge threatened against the Company which may have a material
adverse effect on the properties, assets, business, financial condition or
prospects of the Company or which would prevent or hinder the consummation of
the transactions contemplated by this Agreement.
3.17 Compliance with Laws. The Company has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Company, and except as set forth
in Schedule 3.17 hereto, the Company is currently in compliance in all material
respects with all such statutes, ordinances, orders, rules or regulations, and
to the Company's knowledge there is no valid basis for any claim that the
Company is not in compliance with any such statute, ordinance, order, rule or
regulation.
3.18 Insurance. The Company has delivered or made available to the Parent
true and complete copies of each insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years. With respect to each such insurance policy to which the Company is a
party on the date hereof: (i) to the Company's knowledge, the policy is legal,
valid, binding, enforceable, and in full force and effect; (ii) the policy will
continue to be in full force and effect on identical terms following the
consummation of the transactions contemplated hereby;, (iii) neither the Company
nor to the Company's knowledge any other party to the policy is in breach
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or default (including with respect to the payment of premiums or the giving of
notices), and to the Company's knowledge 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) no
party to the policy has repudiated any provision thereof. The Company has been
covered during the past five (5) years by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. Schedule 3.18 describes any self-insurance arrangements
affecting the Seller.
3.19 Warranty and Related Matters. The Company has not received notice of
any product liability, warranty or other similar claims against the Company
alleging that any of its products or services are defective or fail to meet any
product or service warranties except as disclosed in Schedule 3.19 hereto. The
Company has not received notice of any statements, citations, correspondence or
decisions by any Governmental Entity stating that any product manufactured,
marketed or distributed at any time by the Company (the "Company Products") is
defective or unsafe or fails to meet any product warranty or any standards
promulgated by any such Governmental Entity. There have been no recalls ordered
by any such Governmental Entity with respect to any Company Product. There is no
(i) fact relating to any Company Product that may impose upon the Company a duty
to recall any Company Product or a duty to warn customers of a defect in any
Company Product, (ii) latent or overt design, manufacturing or other defect in
any Company Product, or (iii) liability for warranty or other claim or return
with respect to any Company Product except in the ordinary course of business
consistent with the past experience of the Company for such kind of claims and
liabilities.
3.20 Finder's Fees. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Stockholder.
3.21 Permits; Burdensome Agreements. Schedule 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
required from Governmental Entities in order for the Company to conduct its
business (collectively, the "Approvals"). The Company has obtained all the
Approvals, which are valid and in full force and effect. Except as disclosed on
Schedule 3.21, none of the Approvals is subject to termination by their express
terms as a result of the execution of this Agreement by the Company or the
consummation of the Merger, and no further Approvals will be required in order
to continue to conduct the business currently conducted by the Company
subsequent to the Closing. Except as disclosed in Schedule 3.21 or in any other
schedule hereto, the Company is neither subject to nor bound by any agreement,
judgment, decree or order which may materially and adversely affect its
properties, assets, business, financial condition or prospects.
3.22 Transactions with Interested Persons. Except as set forth in Schedule
3.22 hereto, no Stockholder, officer, employee or director of the Company and
none of their respective parents, grandparents, spouses, children, siblings or
grandchildren owns directly or indirectly on an individual or joint basis any
material interest in, or serves as an officer or director or in another similar
capacity of, any competitor, supplier or customer of the Company or any
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organization, person or entity with whom the Company is doing business other
than investment in stock or other securities listed on a national securities
exchange which represents no more than 2% of all issued and outstanding stock or
securities of such competitor.
3.23 Employee Benefit Programs.
(a) Schedule 3.23 sets forth a list of every Employee Program (as
defined below) that has been maintained (as such term is further defined below)
by the Company at any time during the three-year period ending on the date
hereof.
(b) Each Employee Program which has been maintained by a Company and
which has at any time been intended to qualify under Section 401(a) or 501(c)(9)
of the Code, has received a favorable determination or approval letter from the
IRS regarding its qualification under such section and has, in fact, been
qualified under the applicable section of the Code from the effective date of
such Employee Program through and including the Closing (or, if earlier, the
date that all of such Employee Program's assets were distributed). No event or
omission has occurred which would cause any such Employee Program to lose such
qualification under the applicable Code section.
(c) Except as otherwise disclosed on Schedule 3.23, there has not
been any failure of any party to comply with any laws applicable to or the terms
of any Employee Programs that have been maintained by the Company, except for
any failures to comply that, individually or in the aggregate, would not have a
material adverse effect on the properties, assets, business, financial condition
or prospects of the Company. With respect to any Employee Program now or
heretofore maintained by the Company, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including without limitation
through any obligation of indemnification or contribution) in any taxes,
penalties or other liability to the Company or any Affiliate (as defined below).
No litigation, arbitration, or governmental administrative proceeding or
investigation or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee
Program.
(d) Neither the Company nor any Affiliate has ever maintained any
Employee Program subject to Title IV of ERISA.
(e) Except as otherwise disclosed on Schedule 3.23, with respect to
each Employee Program maintained by the Company within the three years preceding
the date hereof, complete and correct copies of the following documents (if
applicable to such Employee Program) have previously been delivered to the
Parent: (i) all documents embodying or governing such Employee Program, and any
funding medium for the Employee Program (including, without limitation, trust
agreements) as they may have been amended to the date
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hereof; (ii) the most recent IRS determination or approval letter with respect
to such Employee Program under Code Section 401 or 501(c)(9), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; (v) any insurance
policy (including any fiduciary liability insurance policy) related to such
Employee Program; and (vi) any documents evidencing any loan to an Employee
Program that is a leveraged employee stock ownership plan.
(f) Each Employee Program maintained by the Company as of the date
hereof is subject to amendment or termination by the Board of Directors of the
Company without any further liability or obligation on the part of the Company
to make further contributions to any trust maintained under any such Employee
Program following such termination and the Company has not made any written or
oral representations to the contrary to its employees.
(g) For purposes of this Section 3.23:
(i) "Employee Program" means (a) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(40)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (b) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation agreements,
supplemental income arrangements, vacation plans, and all other employee benefit
plans, agreements, and arrangements not described in subsection (a) above. In
the case of an Employee Program funded through an organization described in Code
Section 501(c)(9), each reference to such Employee Program shall include a
reference to such organization;
(ii) an entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or beneficiaries);
(iii) an entity is an "Affiliate" of the Company for purposes
of this Section 3.23 if it would have ever been considered a single employer
with the Company under ERISA Section 4001(b) or part of the same "controlled
group" as the Company for purposes of ERISA Section 302(d)(8)(c); and
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
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3.24 Environmental Matters.
(a) Except as used in connection with routine maintenance and as set
forth in Schedule 3.24 hereto, (i) the Company has never generated, transported,
used, stored, treated, disposed of, or managed any Hazardous Waste (as defined
below); (ii) to the Company's knowledge no Hazardous Material (as defined below)
has ever been or is threatened to be spilled, released, or disposed of at any
site presently or formerly owned, operated, leased, or used by the Company, or
has ever come to be located in the soil or groundwater at any such site; (iii)
to the Company's knowledge no Hazardous Material has ever been transported from
any site presently or formerly owned, operated, leased, or used by the Company
for treatment, storage, or disposal at any other place; (iv) to the Company's
knowledge the Company does not presently own, operate, lease, or use, nor has it
previously owned, operated, leased, or used any site on which underground
storage tanks are or were located; and (v) to the Company's knowledge no lien
has ever been imposed by any Governmental Entity on any property, facility,
machinery, or equipment owned, operated, leased, or used by the Company in
connection with the presence of any Hazardous Material.
(b) Except as set forth in Schedule 3.24 hereto, (i) to the
Company's knowledge the Company has no liability under, nor has the Company ever
violated in any material respect, any Environmental Law (as defined below); (ii)
to the Company's knowledge any property owned, operated, leased, or used by the
Company and any facilities and operations thereon are presently in compliance in
all material respects with all applicable Environmental Laws; (iii) to the
Company's knowledge the Company has never entered into or been subject to any
judgment, consent decree, compliance order, or administrative order with respect
to any environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law (as defined below);
and (iv) neither the Company nor the Stockholder has, to its or his knowledge,
any reason to believe that any of the items enumerated in clause (iii) of this
paragraph will be forthcoming.
(c) Except as set forth in Schedule 3.24 hereto, to the Company's
knowledge, no site owned, operated, leased, or used by the Company contains any
asbestos or asbestos-containing material, any polychlorinated biphenyls
("pcb's") or equipment containing pcb's, or any urea formaldehyde foam
insulation.
(d) For purposes of this Section 3.24, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, or contaminant,
as defined or regulated under any Environmental Law or any other substance which
may pose a threat to the environment or to human health or safety; (ii)
"Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; (iii) "Environmental Law" shall mean any
environmental laws, regulation, rule, ordinance, or by-law at the foreign,
federal, state, or local
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level, existing as of the date hereof; and (iv) the Company shall mean and
include the Company, its predecessors and all other entities for whose conduct
the Company is or may be held responsible under any Environmental Law.
3.25 Lists of Certain Employees and Suppliers.
(a) Schedule 3.25 hereto contains a list of all current directors
and officers of the Company and a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive base salary from the Company during the current fiscal year of $20,000
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) Schedule 3.25 sets forth a true and complete list of all
suppliers of the Company to whom the Company made payments aggregating $25,000
or more during the most recent complete fiscal year, showing, with respect to
each, the name, address and dollar volume involved.
3.26 Employees; Labor Matters. As of the date hereof, the Company employed
the number of full-time employees and part-time employees described on Schedule
3.26. The Company is not delinquent in payments to any of its employees for any
wages, salaries, commissions, bonuses or other direct compensation for any
services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in Schedule 3.26, upon
termination of the employment of any of said employees, the Company will not by
reason of the Merger be liable to any of said employees for so-called "severance
pay" or any other payments. Except as set forth in Schedule 3.26 attached
hereto, the Company has no policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment. The Company is in compliance in all material respects with all
applicable laws and regulations respecting labor, employment, fair employment
practices, terms and conditions of employment, and wages and hours. The Company
has not received any notices or claims of any charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work, or any other concerted interference with normal operations
existing, pending or threatened against or involving the Company. There are no
grievances, complaints or charges that have been filed against the Company under
any dispute resolution procedure (including, but not limited to, any proceedings
under any dispute resolution procedure under any collective bargaining
agreement). No collective bargaining agreements are in effect or are currently
being or are about to be negotiated by the Company. The Company has not received
written notice of pending or threatened changes with respect to the senior
management or key supervisory personnel of the Company.
3.27 Customers. Schedule 3.27 sets forth the mane of each of the customers
who accounted for more than 5% of the sales of the Company for the most recent
complete fiscal year of the Company (collectively, the "Customers"). No Customer
has given notice to the Company of its intention to terminate, to cancel or
otherwise materially and adversely modify its
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relationship with the Company or to decrease materially or limit its usage or
purchase of the services or products of the Company.
3.28 Y2K. The Company has taken all commercially reasonable action to
assess, evaluate and correct all of the hardware, software, embedded microchips
and other processing capabilities of computer and telecommunication systems it
uses to ensure that such systems will be able to function accurately and without
interruption or ambiguity using date and time data (including, but not limited
to, calculating, comparing and sequencing) from, into and between the years 1999
and 2000 and the twentieth century, including leap year calculations. With
respect to the computer systems of third-party suppliers of the Company or with
which the computer systems of the Company interface, the Company has no reason
to expect a failure so to process which would have a material adverse effect
upon its business.
3.29 Tax-free Reorganization. Neither the Company nor the Stockholder has
taken any action which would violate any requirement, including but not limited
to the continuity-of-business-enterprise requirement of 26 C.F.R. ss.1.368-1(d),
for tax-free reorganization status under Section 368(a) of the Code with respect
to the Merger.
3.30 Disclosure. This Agreement, including the Schedules hereto prepared
by the Company, together with the other information furnished to the Parent by
the Company and the Stockholder in connection herewith, does not contain an
untrue statement of material fact or omit to state a material fact necessary to
make the statements herein and therein, in light of the circumstances under
which they were made, not misleading.
Section 4. Covenants of the Company and the Stockholder.
4.1 Making of Covenants and Agreements. The Company and the Stockholder
covenant and agree as set forth in this Section 4.
4.2 Conduct of Business. Between the date of this Agreement and the
Effective Time, the Stockholder will cause the Company to do and the Company
will do the following, unless Parent shall otherwise consent in writing:
(a) conduct its business only in the ordinary course consistent with
past practices, refrain from changing or introducing any method of management or
operations except in the ordinary course of business and in a manner consistent
with past practices and maintain levels of working capital consistent with past
practices;
(b) refrain from making any purchase, sale or disposition of any
asset or property other than in the ordinary course of business, from purchasing
or selling any capital asset costing more than $5,000 and from mortgaging,
pledging, subjecting to a lien or otherwise encumbering any of its properties or
assets;
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(c) refrain from incurring or modifying any contingent liability as
a guarantor or otherwise with respect to the obligations of others, and from
incurring or modifying any other contingent or fixed obligations or liabilities
except in the ordinary course of business and in a manner consistent with past
practices;
(d) refrain from making any change in its incorporation documents,
by-laws or authorized or issued capital stock or from acquiring any securities
issued by any other business organization other than short-term investments in
the ordinary course of business;
(e) refrain from declaring, setting aside or paying any dividend,
making any other distribution in respect of its capital stock, making any direct
or indirect redemption, purchase or other acquisition of its capital stock,
issuing, granting, awarding, selling, pledging, disposing of or encumbering or
authorizing the issuance, grant, award, sale, pledge, disposition or encumbrance
of any shares of, or securities convertible or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class of the Company or entering into any agreement or
commitment with respect to any of the foregoing;
(f) refrain from making any change in the compensation payable or to
become payable to any of its officers, employees or agents, except for scheduled
increases in salary or wages in the ordinary course of business that are
consistent with past practices, or granting any severance or termination pay to,
or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or any Stockholder or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing arrangements or
modifying, amending or terminating any of its contracts except in the ordinary
course of business, or waiving, releasing or assigning any material rights or
claims;
(h) use reasonable efforts to prevent any change with respect to its
management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business organization
and to preserve the goodwill of and business relationships with all suppliers,
customers and others having business relations with it, and to maintain its
properties and facilities, including those held under leases, in as good a
working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) use reasonable efforts to have in effect and maintain at all
times all insurance of the kind, in the amount and with the insurers set forth
in Schedule 3.18 or equivalent insurance with any substitute insurers approved
by Parent;
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(k) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
(l) refrain from entering into any executory agreement, commitment
or undertaking to do any of the activities prohibited by the foregoing
provisions; and
(m) permit Parent and its authorized representatives (including
without limitation Parent's attorneys, accountants, and pension and
environmental consultants) to have full access to all of its properties, assets,
books, records, business files, executive personnel, tax returns, contracts and
documents and furnish to Parent and its authorized representatives such
financial and other information with respect to its business or properties as
Parent may from time to time reasonably request.
4.3 Consents and Approvals. Each of the Company and the Stockholder shall
use its best efforts to obtain or cause to be obtained prior to the Closing Date
all necessary consents and approvals to the performance of the obligations of
the Company and the Stockholder under this Agreement, including, without
limitation, the consents and authorizations described in Schedule 3.15 or
Schedule 4.3 and such other authorizations, waivers, consents and permits as may
be necessary to transfer to Parent and/or to retain in full force and effect
without penalty subsequent to the Effective Time all material contracts,
permits, licenses and franchises of or applicable to the businesses of the
Company.
4.4 Action By Written Consent of Stockholder. On the date hereof the Clerk
of the Company shall deliver a certificate of a consent vote of the sole
stockholder authorizing the transactions contemplated hereby.
4.5 Exclusive Dealing. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to Section 9, neither
the Company nor the Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of them to, directly or
indirectly, (i) take any action to solicit, initiate submission of or encourage,
proposals or offers from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) a portion of the assets
of, or any equity interest in, the Company or any merger or business combination
with the Company (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than Parent and BOL and their representatives, or (iii) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do any of the foregoing.
4.6 No Sales of Capital Stock. Between the date of this Agreement and the
Effective Time, the Stockholder shall neither sell, exchange, deliver, assign,
pledge, encumber nor otherwise transfer or dispose of any Company Stock owned
beneficially or of record by the
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Stockholder, nor grant any right of any kind to acquire, dispose of, vote or
otherwise control in any manner such shares of Company Stock; provided, however,
that notwithstanding anything to the contrary stated herein, any transferee,
executor, heir, legal representative, successor or assign of the Stockholder
shall be bound by this Agreement.
4.7 Notification of Certain Matters. Upon becoming aware thereof prior to
the Closing, the Stockholder and the Company shall give prompt notice to the
Parent of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of the Company or the Stockholder contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
the Stockholder or the Company to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by such person hereunder. The
delivery of any notice pursuant to this Section 4.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, (ii) modify the conditions set forth in Section 7 or elsewhere or (iii)
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
4.8 Amendment of Schedules. The Company and the Stockholder agree that,
with respect to the representations and warranties contained in this Agreement,
the Company and the Stockholder shall have the continuing obligation until the
Closing Date to supplement or amend promptly the Schedules hereto with respect
to any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or described on
the Schedules. Notwithstanding the foregoing sentence, no amendment or
supplement to a Schedule prepared by the Company or the Stockholder that
constitutes or reflects an event or occurrence that would be reasonably likely
to have a material adverse effect may be made unless the Parent consents to such
amendment or supplement.
4.9 Further Assurances. The Company and the Stockholder agree to execute
and deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
Section 5. Representations and Warranties of the Parent and BOL.
5.1 Making of Representations and Warranties. As of the date hereof, the
Parent and BOL hereby represent and warrant to the Stockholder and the Company
as set forth in this Section 5.
5.2 Organization of the Parent and BOL. Each of the Parent and BOL is a
corporation duly organized, validly existing and in good standing under the laws
of its respective state of incorporation with full corporate power and authority
to conduct its respective businesses in the manner as now conducted.
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5.3 Authority. All necessary corporate action has been taken by each of
the Parent and BOL to authorize the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by it pursuant to this Agreement. This Agreement and each agreement,
document and instrument to be executed and delivered by the Parent and/or BOL
pursuant to this Agreement (to the extent it contains obligations to be
performed by the Parent and/or BOL) constitutes, or when executed and delivered
by the Parent and/or BOL will constitute, valid and binding obligations of the
Parent and/or BOL enforceable in accordance with its respective terms.
5.4 No Conflicts. The execution, delivery and performance by the Parent
and BOL of this Agreement and each such other agreement, document and
instrument: (i) do not and will not violate any provision of the Certificate of
Incorporation or bylaws of the Parent or BOL; (ii) does not and will not violate
any laws of any state or other jurisdiction applicable to the Parent or BOL or
require the Parent or BOL to obtain any approval, consent or waiver or make any
filing with any governmental entity, other than the filing of Articles of Merger
in accordance with the laws of the Commonwealth of Massachusetts; and (iii) will
not result in a breach of, constitute a default under, accelerate any obligation
under, or give rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Parent or BOL is a
party or by which the property of the Parent or BOL is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets of the Parent or
BOL, except where such breach, default, acceleration or right of termination
would not have a material adverse effect on the properties, assets, business,
financial condition or prospects of the Parent or BOL, and would not result in
the creation or imposition of any mortgage, pledge, lien, security interest or
other charge or encumbrance on any of the assets of the Parent or BOL.
5.5 Parent Stock. The Parent Stock to be delivered to the Stockholder at
the Closing, when delivered in accordance with the terms of this Agreement, will
constitute valid and legally issued shares of the Common Stock of the Parent,
fully paid and non-assessable. The Parent Stock will constitute restricted
securities and will be subject to the lock-up provisions and other transfer
restrictions imposed under this Agreement and under applicable federal and state
securities laws as described in Section 9 below.
5.6 Litigation. There is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Parent or BOL
which may have an adverse effect on the properties, assets, business, financial
condition or prospects of the Parent or BOL or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
5.7 Compliance with Laws. Neither the Parent nor BOL has received notice
of a violation or alleged violation of applicable statutes, ordinances, orders,
rules and regulations
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promulgated by any federal, state, municipal or other governmental authority,
which violation or alleged violation would have a material adverse effect on the
business of the Parent or BOL.
5.8 Finders Fee. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Parent or BOL.
Section 6. Conditions Precedent to the Obligations of the Parent and BOL.
6.1 Introduction. The obligations of the Parent and BOL to consummate this
Agreement and the transactions contemplated hereby are subject to the
fulfillment, prior to or at the Closing, of the conditions set forth in this
Section 6.
6.2 Examination of Financial Statements. Prior to the Closing Date, the
Parent shall have had sufficient time to review the unaudited balance sheets of
the Company as of the last day of the month ended immediately prior to the
Closing Date and the unaudited statements of income, cash flow and stockholder's
equity for the period then ended, disclosing no material change in the financial
condition of the Company or the results of its operations from the financial
statements originally furnished by the Company as set forth in Schedule 3.7.
6.3 No Material Adverse Change. No material adverse change in the results
of operations, financial position or business of the Company shall have occurred
and the Company shall not have suffered any material loss or damages to any of
its properties or assets, whether or not covered by insurance, since the Company
Balance Sheet Date, which change, loss or damage materially affects or impairs
the ability of the Company to conduct its business; and the Parent shall have
received on the Closing Date a certificate signed by the President of the
Company and the Stockholder to such effect.
6.4 Due Diligence and Regulatory Review. The Parent shall have completed
to its satisfaction a due diligence investigation of the Company and its
prospects, business, assets, contracts, rights, liabilities and obligations,
including a review of the practices and procedures of the Company with respect
to compliance with contracts and federal, state and local laws and regulations
governing the operations of the Company. Such review shall be satisfactory in
all respects to the Parent, in its sole reasonable discretion.
6.5 Opinion of Counsel. The Parent shall have received an opinion from
Landay & Leblang counsel to the Company and the Stockholder, dated the Closing
Date, in form and substance satisfactory to the Parent, to the effect that with
respect to the Company:
(a) the Company has been duly organized and is validly subsisting in
good standing under the laws of the Commonwealth of Massachusetts.
(b) the authorized and outstanding capital stock of the Company is
as represented by the Stockholder in this Agreement and each share of such stock
has been duly and
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validly authorized and issued, is fully paid and nonassessable and to the
knowledge of such counsel (after review of the Company's minute book, stock
ledger and other Company records) was not issued in violation of the preemptive
rights of any stockholder;
(c) to the knowledge of such counsel, the Company does not have any
outstanding options, warrants, calls, conversion rights or other commitments of
any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and delivered
by the Company and the Stockholder and constitutes a valid and binding agreement
of the Company and the Stockholder enforceable against them in accordance with
its terms except as such enforceability may be subject to bankruptcy,
moratorium, insolvency, reorganization, arrangement and other similar laws
relating to or affecting the rights of creditors and except (i) as the same may
be subject to the effect of general principles of equity and (ii) that no
opinion need be expressed as to the enforceability of indemnification provisions
included herein;
(e) except to the extent set forth on Schedule 3.16, to the
knowledge of such counsel, there are no claims, actions, suits or proceedings
pending, or threatened against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality wherever located;
(f) to the knowledge of such counsel after reasonable investigation
and supported by a certificate from the Stockholder, no notice to, consent,
authorization, approval or order of any court or governmental agency or body or
of any other third party is required in connection with the execution, delivery
or consummation of this Agreement by the Stockholder or for the merger of the
Company with and into the Parent,
(g) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Company's Articles of
Organization or the bylaws of the Company or, to the knowledge of such counsel
after reasonable investigation and supported by a certificate from the
Stockholder, of any lease, instrument, license, permit or any other agreement to
which the Company is a party or by which the Company or the Stockholder is
bound; and
(h) any other matters incident to the matters set forth herein as
reasonably required by the Parent.
6.6 Additional Liabilities and Obligations. The Stockholder shall have
delivered to the Parent a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Company arising since the Company Balance
Sheet Date and (ii) showing all material contracts and agreements, together with
copies thereof, entered into by the Company since the Company Balance Sheet
Date.
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6.7 Good Standing Certificates; Certified Copy of the Certificate of
Incorporation. The Company shall have delivered to the Parent certificates,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the Secretary of State and the Department of Revenue of the
Commonwealth of Massachusetts and of any other state in which the Company is
authorized to do business, showing that the Company is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for the Company for all periods prior to the dates of such
certificates have been filed and paid. The Company shall also have delivered to
the Parent prior to the Closing a recent copy of its Articles of Organization
and all amendments thereto duly certified by the Secretary of the Commonwealth
of Massachusetts.
6.8 Representations; Warranties; Covenants. Each of the representations
and warranties of the Company and the Stockholder contained in Section 3 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Company and the Stockholder shall, on or before the Closing Date, have performed
and satisfied all agreements and conditions hereunder which by the terms hereof
are to be performed and satisfied by the Company or the Stockholder on or before
the Closing Date; and the Company and the Stockholder shall have delivered to
the Parent a certificate dated the Closing Date signed by the Company's
President and by the Stockholder to the foregoing effect.
6.9 Approvals and Consents. The Company and the Stockholder shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the businesses of the Company
subsequent to the Effective Time, and the Company and the Parent shall have
received all required authorizations, waivers, consents and permits to permit
the consummation of the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to the Parent, from all third parties,
including, without limitation, approvals required under federal and state
securities laws and/or the securities and Exchange Commission, state "Blue Sky"
laws, other applicable governmental authorities and regulatory agencies,
lessors, lenders and contract parties, required in connection with the Merger or
the Company's permits, leases, licenses and franchises, to avoid a breach,
default, termination, acceleration or modification of any material agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award as a result of
the execution or performance of this Agreement, or otherwise in connection with
the execution and performance of this Agreement.
6.10 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Parent or BOL make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been
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entered in any action or proceeding instituted by any party which enjoins,
restrains or prohibits this Agreement or the complete consummation of the
transactions as contemplated by this Agreement.
6.11 Proceedings Satisfactory to BOL and the Parent. All proceedings to be
taken by the Company and the Stockholder in connection with the consummation of
the Closing on the Closing Date and the other transactions contemplated hereby
and all certificates, opinions, instruments and other documents required to
effect the transaction contemplated hereby reasonably requested by BOL and the
Parent shall be reasonably satisfactory in form and substance to BOL and the
Parent and their counsel.
6.12 Employment Agreement. The Stockholder shall have executed and
delivered an individual employment agreement with BOL in the form attached
hereto as Exhibit 6.12.
6.13 Escrow Agreement. The Stockholder shall have executed and delivered
an escrow agreement with BOL in the form attached hereto as Exhibit 1.6.
Section 7. Conditions Precedent to the Obligations of the Company and the
Stockholder.
7.1 Introduction. The obligations of the Company and the Stockholder to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing Date, of the following conditions
(any one or more of which may be waived in whole or in part by the Company and
the Stockholder):
7.2 Representations; Warranties; Covenants. Each of the representations
and warranties of the Parent and BOL contained in Section 5 shall be true and
correct in all material respects on and as of the Closing Date, with the same
effect as though made on and as of the Closing Date; the Parent and BOL shall,
on or before the Closing Date, have performed and satisfied all agreements and
conditions hereunder which by the terms hereof are to be performed and satisfied
by the Parent and BOL on or before the Closing Date; and the Parent and BOL
shall have delivered to the Company a certificate signed by the President of the
Parent and of BOL and dated as of the Closing Date certifying to the foregoing
effect.
7.3 No Actions or Proceedings. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
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7.4 Employment and other Agreements. BOL shall have executed and delivered
an individual employment agreement with the Stockholder in the form attached
hereto as Exhibit 6.12.
7.5 Escrow Agreement. BOL shall have executed and delivered an Escrow
Agreement with the Stockholder in the form attached hereto as Exhibit 1.6.
7.6 Secretary and Clerk's Certificates; Good Standing Certificate. The
execution and delivery of this Agreement by the Parent and BOL will have been
duly authorized by all necessary corporate action and the Company and
Stockholder will have received copies of all votes pertaining to that
authorization certified by the secretary and clerk of the Parent and BOL
respectively. The Parent shall have delivered to the Company a certificate,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the Secretary of State of Delaware showing that the Parent is in good
standing.
7.7 Legal Opinion. The Company shall have received an opinion from Duffy &
Sweeney, LLP counsel to the Parent and BOL, dated the Closing Date, to the
effect that:
(a) Each of the Parent and BOL is a corporation duly organized,
validly existing and in good standing under the laws of its respective state of
incorporation with full corporate power and authority to conduct its respective
businesses in the manner as now conducted.
(b) The Parent Stock to be delivered to the Stockholder at the
Closing, when delivered in accordance with the terms of this Agreement, will
constitute valid and legally issued shares of the Common Stock of the Parent,
fully paid and non-assessable.
(c) This Agreement has been duly authorized, executed and delivered
by the Parent and BOL and constitutes a valid and binding agreement of the
Parent and BOL enforceable against them in accordance with its terms except as
such enforceability may be subject to bankruptcy, moratorium, insolvency,
reorganization, arrangement and other similar laws relating to or affecting the
rights of creditors and except (i) as the same may be subject to the effect of
general principles of equity and (ii) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(d) The execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms of BOL's or the Parent's Certificate of
Incorporation or their respective bylaws, or, to the knowledge of such counsel
after reasonable investigation and supported by a certificate from BOL and the
Parent, of any lease, instrument, license, permit or any other agreement by
which the Company or BOL is bound.
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Section 8 - Parent Stock - Transfer Restrictions.
8.1 Lock-Up. In addition to applicable federal and state securities laws
restricting the public sale of the Parent Stock to be issued to the Stockholder
hereunder, the Stockholder hereby irrevocably agrees that (i) for a period of
one year after the Closing Date he will not offer, pledge, sell, assign or
otherwise transfer directly or indirectly, any of the Parent Stock or enter into
any agreement that transfers or assigns, in whole or in part, any of the
economic consequences of ownership of the shares of Parent Stock received
hereunder (such restrictions adjusted for any stock splits, recapitalizations,
mergers or other similar events). The Stockholder agrees that the foregoing
shall be binding upon Stockholder and his respective successors, assigns, heirs,
and personal representatives.
8.2 Unregistered Stock; Investment Intent. The Stockholder acknowledges
and agrees that the shares of Parent Stock to be delivered to the Stockholder
pursuant to this Agreement have not been and will not be registered under the
Securities Act of 1933, as amended (the "Act") and therefore may not be resold
without compliance with the Act. The Stockholder represents and warrants that
the Parent Stock to be acquired by Stockholder pursuant to this Agreement is
being acquired solely for his own account, for investment purposes only, and
with no present intention of distributing, selling or otherwise disposing of it
in connection with a distribution. The Stockholder covenants, warrants and
represents that none of the shares of Parent Stock issued to such Stockholder
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Act and the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws.
8.3 Able to Bear Risk; Sophisticated Investors; Information. The
Stockholder represents and warrants that he is able to bear the economic risk of
an investment in Parent Stock acquired pursuant to this Agreement and can afford
to sustain a total loss of such investment. He further represents and warrants
that he (i) fully understands the nature, scope and duration of the limitations
on transfer contained in this Agreement, (ii) has received a copy of the
Company's information statement dated within 5 business days of the date of this
Agreement (the "Information Statement"); and (iii) has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the proposed investment and therefore has the capacity
to protect his own interests in connection with the acquisition of the Parent
Stock. The Stockholder represents and warrants that he has had an adequate
opportunity to ask questions and receive answers from the officers of the Parent
concerning any and all matters relating to the acquisition of Parent Stock as
contemplated by this Agreement including, without limitation, the background and
experience of the officers and directors of the Parent, the plans for the
operations of the business of the Parent and information disclosed in the
Information Statement. The Stockholder has asked any and all questions in the
nature described in the preceding sentence and all questions have been answered
to his satisfaction.
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8.4 Restrictive Legends. The certificates evidencing the Parent Stock to
be received by the Stockholder hereunder will bear legends substantially in the
form set forth below and containing such other information as the Parent may
deem appropriate. References in such legend to "THE COMPANY" shall refer to the
Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY STATE
SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE 1933 ACT
AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS, IN THE OPINION (WHICH
SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY) OF COUNSEL
SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHERMORE SUBJECT TO A
LOCK-UP AGREEMENT WITH THE COMPANY DATED AS OF _____________, A COPY OF
WHICH MAY BE OBTAINED BY CONTACTING THE SECRETARY OF THE COMPANY
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
Section 9. Termination of Agreement; Effect of Termination.
9.1 Termination. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the boards of directors of the Parent and the
Company;
(b) either the Stockholder and the Company, on the one hand, or by
the Parent and BOL, on the other hand, if
(i) the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by October 31, 1999,
unless the failure of such transactions to be consummated is due to the
willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required
to be performed by it prior to or on the Closing Date; or
(ii) if a material breach or default shall be made by the
other party in the observance of or in the due and timely performance of
any of the covenants or
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agreements contained herein, and the curing of such default shall not have
been made on or before the Closing Date.
9.2 Liabilities in the Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
Section 10. Non-competition. For a period of three (3) years from and after the
Closing Date, the Stockholder shall not directly or indirectly, (i) seek, obtain
or accept a "Competitive Position" in the "Restricted Territory" with a
"Competitor" of the Company (as such terms are hereafter defined), or (ii)
solicit, directly or indirectly, any customers, clients, accounts, officers,
employees, agents or representatives of the Company, BOL, the Parent, or its
affiliates.. For purposes of this Agreement, a "Competitor" of the Company means
any business, individual, partnership, joint venture, association, firm,
corporation or other entity engaged, wholly or partly, in the business of
selling internet access service and/or web site hosting services as provided by
Infoboard or the Surviving Corporation (a) as of the date hereof or (b) at any
time during the Stockholder's term of employment with BOL, the Parent and/or
their affiliates, the "Restricted Territory" means the United States of America;
a "Competitive Position" means any employment with any Competitor of the Company
or self-employment whereby Stockholder will use or is likely to use any
Confidential Information (as defined herein), or whereby Stockholder has duties
for such Competitor that are the same or substantially similar to those actually
performed by Stockholder under the terms of his employment agreement with the
Surviving Corporation. Nothing contained in this Section 10 is intended to
prevent Employee from investing in stock or other securities listed on a
national securities exchange or actively traded on the over the counter market
or any corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of his
immediate family shall not, directly or indirectly, hold more than a total of
two percent (2%) of all issued and outstanding stock or other securities of any
such corporation. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section is invalid or unenforceable,
the parties hereto 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 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.
Section 11. Nondisclosure of Confidential Information.
11.1 The Stockholder. The Stockholder recognizes and acknowledges that he
has had in the past, currently has and in the future may have access to certain
confidential information relating to the Company, the Parent and BOL
(collectively "Confidential Information"), including, but not limited to,
operational policies, customer lists, and pricing and cost policies,
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that are valuable, special and unique assets of the Company, the Parent and BOL.
The Stockholder agrees that he will not use or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) prior to the Closing to authorized
representatives of the Parent and BOL who need to know such information in
connection with the transactions contemplated hereby, who have been informed by
the Parent and BOL of the confidential nature of such information and who have
agreed to keep such information confidential, and (b) following the Closing,
such information may be disclosed by the Stockholder as is required in the
course of performing his duties for the Parent or the Surviving Corporation.
Information shall not be confidential hereunder if (i) such information becomes
known to the public generally through no breach by the Stockholder of this
covenant, (ii) disclosure thereof is required by law or the order of any
governmental authority under color of law or is necessary in order to secure a
consent or approval to consummate the transactions contemplated hereby,
provided, that prior to disclosing any information pursuant to this clause (ii),
the Stockholder shall, to the extent reasonably possible, give prior written
notice thereof to the Parent and provide the Parent with the opportunity to
contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the same prior disclosure set forth immediately above
is given, or (iv) such information is obtained from a third party other than in
breach of a duty of confidentiality to the Parent or its affiliates. In the
event of a breach or threatened breach by the Stockholder of the provisions of
this section, the Parent shall be entitled to an injunction restraining the
Stockholder from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the Parent from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages. In the event that the transactions contemplated herein are
not consummated, the Stockholder shall return to the Parent within a reasonable
time all documents containing confidential information about the Parent.
11.2 The Parent and BOL. The Parent and BOL recognize and acknowledge that
they had in the past and currently have access to certain confidential
information relating to the Company, such as operational policies, customer
lists, and pricing and cost policies, that are valuable, special and unique
assets of the Company. The Parent and BOL agree that, prior to the Closing, or
if the transactions contemplated by this Agreement are not consummated, they
will not use or disclose such confidential information to their own benefit
except in furtherance of the transactions contemplated by this Agreement or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the Stockholder and to authorized representatives of the Company or the Parent
or BOL who need to know such information in connection with the transactions
contemplated hereby, who have been informed of the confidential nature of such
information and who have agreed to keep such information confidential as
provided hereby. Information shall not be confidential hereunder if (i) such
information becomes known to the public generally through no breach by the
Parent or BOL of this covenant, (ii) disclosure thereof is required by law or
the order of any governmental authority under color of law or is necessary in
order to secure a consent or approval to consummate the transactions
contemplated hereby, provided, that prior to disclosing any information pursuant
to this clause (ii), the Parent and BOL shall, to the extent
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reasonably possible, give prior written notice thereof to the Company and the
Stockholder and provide the Company and the Stockholder with the opportunity to
contest such disclosure, (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party and the same prior disclosure set forth immediately above
is given, or (iv) such information is obtained from a third party other than in
breach of a duty of confidentiality to the Company. In the event of a breach or
threatened breach by the Parent or BOL of the provisions of this Section, the
Company and the Stockholder shall be entitled to an injunction restraining the
Parent and BOL from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Company and
the Stockholder from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event that the
transactions contemplated herein are not consummated, the Parent and BOL shall
return to the Company within a reasonable time all documents containing
confidential information about the Company.
11.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 11.1 and 11.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
11.4 Survival. The obligations of the parties under this Article 11 shall
survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
Section 12. Indemnification.
12.1 Indemnification by the Stockholder. The Stockholder, on behalf of
himself and his respective successors, executors, administrators, estates, heirs
and permitted assigns, agrees subsequent to the Effective Time to indemnify and
hold harmless the Parent, the Surviving Corporation and their respective
officers, directors, employees and agents (individually, a "Parent Indemnified
Party" and collectively, the "Parent Indemnified Parties") from and against and
in respect of all losses, liabilities, obligations, damages, deficiencies,
actions, suits, proceedings, demands, assessments, orders, judgments, fines,
penalties, costs and expenses (including the reasonable fees, disbursements and
expenses of attorneys, accountants and consultants) of any kind or nature
whatsoever (whether or not arising out of third-party claims and including all
amounts paid in investigation, defense or settlement of the foregoing)
sustained, suffered or incurred by or made against any Parent Indemnified Party
(a "Loss" or "Losses"), arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the Company
or the Stockholder in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement, or by reason of any claim,
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action or proceeding asserted or instituted arising out of any matter or thing
covered by any such representations or warranties (collectively, "Parent
Representation and Warranty Claims");
(b) any breach of any covenant or agreement made by the Company or
the Stockholder in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such covenant or
agreement; or
(c) with respect to taxes of the Company incurred with respect to
any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor and disclosed to the Parent in Schedule 3.7
hereto (it being understood that such Schedule shall be updated as of the
Closing to reflect tax accruals as of such date consistent with the Company's
past practices); the term "Pre-Closing Tax Period" shall mean all taxable
periods ending on or before the Closing Date and the portion (ending on the
Closing Date) of any taxable period that includes (but does not end on) the
Closing Date.
Claims under clauses (a) through (c) of this Section 12.1 are hereinafter
collectively referred to as "Parent Indemnifiable Claims". The rights of Parent
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this Section 12.1 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this Section 12.1.
The Stockholder's indemnification obligations hereunder shall be limited to the
Merger Consideration of $3,030,000, as adjusted pursuant to Section 2 of this
Agreement. After payment of such amount, the Stockholder's indemnification
obligations hereunder shall terminate.
12.2 Indemnification by the Parent. Subsequent to the Effective Time, the
Parent and its successors and assigns agrees to indemnify and hold harmless the
Stockholder and its successors, heirs and assigns (individually and
collectively, the "Stockholder Indemnified Party") from and against and in
respect of all losses, liabilities, obligations, damages, deficiencies, actions,
suits, proceedings, demands, assessments, orders, judgments, fines, penalties,
costs and expenses (including the reasonable fees, disbursements and expenses of
attorneys, accountants and consultants) of any kind or nature whatsoever
(including all amounts paid in investigation, defense or settlement of the
foregoing) sustained, suffered or incurred by or made against the Stockholder,
arising out of, based upon or in connection with a breach by the Parent or BOL
of any of their respective representations, warranties, covenants or agreements
made in this Agreement or in any schedule, exhibit, certificate, agreement or
other instrument delivered under or in connection with this Agreement. The
Parent's indemnification obligations hereunder shall be limited to the Merger
Consideration of $3,030,000 as adjusted pursuant to Section 2 of this Agreement.
After delivery of the same, the Parent's indemnification obligations hereunder
shall terminate.
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12.3 Notice; Defense of Claims.
Promptly after receipt by a Parent Indemnified Party or a Stockholder
Indemnified Party of notice of any claim, liability or expense to which the
indemnification obligations hereunder would apply, the Indemnified Party shall
give notice thereof in writing to the Indemnifying Party, but the omission to so
notify the Indemnified Party promptly will not relieve the Indemnifying Party
from any liability except to the extent that the Indemnifying Party shall have
been prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within twenty (20) days after receiving such notice the
Indemnifying Party gives written notice to the Indemnified Party stating that
(i) it would be liable under the provisions hereof for indemnity in the amount
of such claim if such claim were successful and (ii) that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense, then counsel for the defense shall be selected by the Indemnifying
Party (subject to the consent of the Indemnified Party which consent may not be
unreasonably withheld) and the Indemnifying Party shall not be required to make
any payment with respect to such claim, liability or expense as long as the
Indemnifying Party is conducting a good faith and diligent defense at its own
expense; provided, however, that the assumption of defense of any such matters
by the Indemnifying Party shall relate solely to the claim, liability or expense
that is subject or potentially subject to indemnification. The Indemnifying
Party shall have the right, with the consent of the Indemnified Party, which
consent shall not be unreasonably withheld, to settle any Indemnified Claims by
third parties which are susceptible to being settled provided its obligation to
indemnify the Indemnified Party therefor will be fully satisfied. The
Indemnifying Party shall keep the Indemnified Party apprised of the status of
the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the Indemnified Party with all documents and
information that the Indemnified Party shall reasonably request and shall
consult with the Indemnified Party prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, the Indemnified
Party shall at all times have the right to fully participate in such defense at
its own expense directly or through counsel; provided, however, if the named
parties to the action or proceeding include both the Indemnifying Party and the
Indemnified Party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct, the expense
of separate counsel for the Indemnified Party shall be paid by the Indemnifying
Party. If no such notice of intent to dispute and defend is given by the
Indemnifying Party, or if such diligent good faith defense is not being or
ceases to be conducted, the Indemnified Party shall, at the expense of the
Indemnifying Party, undertake the defense of (with counsel selected by the
Indemnified Party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
Indemnifying Party, then the Indemnified Party shall make available all
information and assistance that the Indemnifying Party may reasonably request
and shall cooperate with the Indemnifying Party in such defense.
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Section 13. Miscellaneous.
13.1 Law Governing. This Agreement shall be construed under and governed
by the internal laws of the Commonwealth of Massachusetts without regard to its
conflict of laws provisions.
13.2 Notices. Any notice, request, demand other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if delivered or sent by facsimile transmission, upon receipt, or (ii) if
sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States Post Office facilities
properly addressed with postage prepaid. all notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
To Parent or BOL:
c/o BiznessOnline.com, Inc.
1720 Route 34
Wall, New Jersey, 07719
ATTN: Mark E. Munro, President and Chief Executive Officer
Phone: 732-280-6408
Fax: 732-280-6409
with a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
ATTN: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
To the Company and the Stockholder:
Infoboard, Inc.
Suite 200
145 Munroe St.
Lynn, MA 01907
ATTN: Richard Frenkel, President
Phone:
Fax:
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with a copy to:
Landay & Leblang
85 Devonshire Street, Suite 1000
Boston, MA 02109
ATTN: Bruce Landay, Esq.
Phone: (617) 742-1500
Fax: (617) 742-9130
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
13.3 Entire Agreement. This Agreement, including any schedules, annexes
and/or exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
13.4 Assignability. This Agreement may not be assigned or delegated by any
party hereto without the prior written consent of all parties hereto. The
Stockholder may not assign his rights or delegate his obligations hereunder
without the prior written consent of the Parent. This Agreement and the
obligations of the parties hereunder shall be binding upon and enforceable by,
and shall inure to the benefit of, the parties hereto and their respective
successors, executors, administrators, estates, heirs and permitted assigns, and
no others.
13.5 Arbitration; Jurisdiction; Venue; Attorney's Fees. Each party hereto
agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of Boston, Massachusetts and the arbitrator(s) shall
apply Massachusetts law. Judgment upon any award rendered by the arbitrator(s)
shall be final and may be entered in any court of competent jurisdiction.
Notwithstanding the foregoing, each party shall have the absolute right to
obtain equitable remedies as provided herein in any state court of competent
jurisdiction in the Commonwealth of Massachusetts or in the United States
District Court for the District of Massachusetts. Each party irrevocably submits
to and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party and/or parties in any litigation or arbitration.
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13.6 Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
13.7 Certain Definitions. for purposes of this Agreement, the term:
(a) "Affiliate" of a person shall mean a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
13.8 Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same document.
13.9 Amendments; Waivers. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by the Parent, BOL, the Company
(prior to the Effective Time) and the Stockholder, or, in the case of a waiver,
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege,
or any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege.
13.10 Survival. All representations, warranties, agreements, covenants and
agreements of the parties contained in this Agreement, or in any instrument,
certificate, or opinion provided for in it, shall survive the Closing (even if
the damaged party knew or had reason to know of any misrepresentation or breach
of warranty at the time of Closing) and continue in full force and effect for a
period of two (2) years thereafter (subject to any applicable statutes of
limitation or repose).
-43-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
PARENT
BiznessOnline.com, Inc.
ATTEST:
By: /s/ Mark E. Munro
- ------------------------ -----------------------------
Mark E. Munro, President
and Chief Executive Officer
ATTEST: BOL
BOL Acquisition Co. I, Inc.
By: /s/ Mark E. Munro
- ------------------------ -----------------------------
Mark E. Munro, President
and Chief Executive Officer
WITNESS: COMPANY
Infoboard, Inc.
By: /s/ Richard Frenkel
- ------------------------ -----------------------------
Richard Frenkel, President
WITNESS: STOCKHOLDER
/s/ Richard Frenkel
- ------------------------ ---------------------------------
Richard Frenkel
-44-
Weighted Average shares Outstanding
Quarter Ended September 30, 1999
Shares Outstanding June 30, 1999 6,890,436
August 18, 1999 200,046
September 30, 1999 228,462
-----------
Total shares outstanding September 30, 1999 7,318,944
===========
Weighted average shares outstanding 6,986,419
===========
Net loss for the three months ended September 30, 1999 ($1,216,578)
Net loss per share ($ 0.17)
Nine Months Ended September 30, 1999
Shares Outstanding December 31, 1998 3,147,186
January 31, 1999 272,000
May 12, 1999 2,900,000
May 17, 1999 571,250
August 18, 1999 200,046
September 30, 1999 228,462
-----------
Total shares outstanding September 30, 1999 7,318,944
===========
Weighted average shares outstanding 5,195,247
===========
Net loss for the nine months ended September 30, 1999 ($1,904,058)
Net loss per share ($ 0.37)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 14,609,455 14,609,455
<SECURITIES> 0 0
<RECEIVABLES> 744,944 744,944
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,541,072 15,541,072
<PP&E> 2,743,641 2,743,641
<DEPRECIATION> 259,936 259,936
<TOTAL-ASSETS> 36,884,931 36,884,931
<CURRENT-LIABILITIES> 3,191,218 3,191,218
<BONDS> 0 0
0 0
0 0
<COMMON> 73,189 73,189
<OTHER-SE> 33,526,080 33,526,080
<TOTAL-LIABILITY-AND-EQUITY> 36,884,931 36,884,931
<SALES> 2,140,986 3,801,915
<TOTAL-REVENUES> 2,140,986 3,801,915
<CGS> 0 0
<TOTAL-COSTS> 3,388,226 5,835,656
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,143 28,633
<INCOME-PRETAX> (1,181,578) (1,869,058)
<INCOME-TAX> 35,000 35,000
<INCOME-CONTINUING> (1,216,578) (1,904,058)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,216,578) (1,904,058)
<EPS-BASIC> (.17) (.37)
<EPS-DILUTED> (.17) (.37)
</TABLE>
